<PAGE> 1
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
CITGO PETROLEUM CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 73-1173881
- --------------------------------------------- ---------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WARREN PLACE
6100 SOUTH YALE AVENUE
TULSA, OKLAHOMA 74136
- --------------------------------------------- ---------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (918) 495-4000
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- --------------------------------------------- ---------------------------------------------
<S> <C>
% Senior Notes Due 2006 New York Stock Exchange
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
<PAGE> 2
ITEM 1 AND ITEM 3. BUSINESS AND PROPERTIES.
OVERVIEW
CITGO Petroleum Corporation ("CITGO" or the "Company") is a privately-held
company engaged in the refining, marketing and transportation of petroleum
products including gasoline, diesel fuel, jet fuel, petrochemicals, lubricants,
asphalt and refined waxes. CITGO is a direct wholly-owned subsidiary of PDV
America, Inc., a Delaware corporation ("PDV America"), and an indirect
wholly-owned subsidiary of Petroleos de Venezuela, S.A. ("PDVSA").
PDVSA, the national oil company of the Republic of Venezuela, is the
world's second largest oil company, behind only Saudi Aramco, according to
rankings published by Petroleum Intelligence Weekly, based on a combination of
factors, including reserves, production capacity and refined product sales. At
December 31, 1995, PDVSA's proved crude oil reserves of approximately 64.8
billion barrels were the largest of any company or country in the Western
hemisphere (larger, for example, than the 22.4 billion barrels of proved crude
oil reserves located in the United States).
CITGO owns and operates two modern, highly complex crude oil refineries
(Lake Charles, Louisiana, and Corpus Christi, Texas) and two asphalt refineries
(Paulsboro, New Jersey, and Savannah, Georgia) with a combined aggregate rated
crude oil refining capacity of 572 thousand barrels per day ("MBPD"). The Lake
Charles refinery is the sixth largest in the United States. The Lake Charles
refinery and the Corpus Christi refinery have Solomon Process Complexity Ratings
of 15.2 and 15.8, respectively (as compared to an average of 12.6 for U.S.
refineries in the most recently available Solomon Associates, Inc. survey). The
Solomon Process Complexity Rating is an industry measure of a refinery's ability
to produce higher value-added products. CITGO also owns a minority interest in
LYONDELL-CITGO Refining Company, Ltd. ("LYONDELL-CITGO"), a limited liability
company that owns and operates a refinery in Houston, Texas, with a rated crude
oil refining capacity of 265 MBPD.
CITGO's largest supplier of crude oil is PDVSA, and CITGO has entered into
long-term crude oil supply agreements with PDVSA, expiring between 2006 and
2013, which allow CITGO to purchase crude oil and other feedstocks at each of
its refineries. The long-term crude oil supply agreements incorporate formula
prices based on the market value of a slate of refined products deemed to be
produced from each particular grade of crude oil or feedstock less (i) certain
deemed refining costs adjustable for inflation, (ii) certain actual costs,
including transportation charges, import duties and taxes and (iii) a deemed
margin which varies according to the grade of crude oil or feedstock delivered.
Deemed margins under certain of the supply agreements are adjusted periodically
by a formula based in part upon the rate of inflation. These crude oil supply
agreements are designed to provide a relatively stable level of gross margin on
crude oil supplied by PDVSA in order to reduce the volatility of earnings and
cash flows from the refining operations of CITGO. This supply represented
approximately two-thirds of the crude oil processed in refineries operated by
CITGO in 1995.
CITGO markets branded gasoline through over 14,000 independently owned and
operated CITGO branded retail outlets (including 12,286 retail outlets owned or
operated by approximately 750 independent branded distributors and 1,752
7-Eleven convenience stores) located throughout the United States, primarily
east of the Rocky Mountains. In 1995, the National Petroleum News ranked CITGO
second in the number of branded outlets and third in domestic gasoline market
share with 8.2%, up from approximately 4.5% in 1989. The number of independent
distributor-owned or operated CITGO branded retail outlets increased
approximately 7%, 6% and 13% in 1995, 1994, and 1993, respectively. Gasoline
sales accounted for 61%, 57% and 58% of CITGO's total sales revenues in 1995,
1994, and 1993, respectively. To supply its marketing network, CITGO not only
uses the gasoline production from its refineries but also purchases gasoline
from others. In 1995, CITGO sold approximately 11.1 billion gallons of gasoline.
CITGO sells jet fuel directly to airline customers at 22 airports,
including such major hub cities as Chicago, Dallas/Fort Worth, New York and
Miami. CITGO also sells diesel/#2 fuel through wholesale rack sales to
distributors as well as in bulk through contract sales or on a spot basis.
1
<PAGE> 3
CITGO's delivery of light products is accomplished in part through 52
refined product terminals located throughout CITGO's primary market territory.
Of these terminals, 40 were wholly owned by CITGO and 12 were jointly owned as
of December 31, 1995. Active exchange relationships give CITGO access to over
370 other refined product terminals.
CITGO sells petrochemicals and industrial products in bulk to a variety of
U.S. manufacturers as raw materials for finished goods. Sulfur is sold to the
U.S. and international fertilizer industry; cycle oils are sold for feedstocks
processing and blending; natural gas liquids are sold to the U.S. fuel and
petrochemical industry; petroleum coke is sold primarily in international
markets for use as kiln and boiler fuel; and residual fuel blendstocks are sold
to a variety of fuel oil blenders and customers. The majority of CITGO's cumene
production is sold to a phenol production plant owned by a partnership in which
CITGO is a limited partner. The phenol plant produces phenol and acetone for
sale primarily to the principal partner in the phenol plant for the production
of plastics.
CITGO sells a variety of lubricants, including automotive lubricants and
industrial lubricants and waxes, to independent distributors, mass marketers and
industrial customers. CITGO markets many different types, grades and container
sizes of lubricant and wax products, with the bulk of these sales consisting of
automotive oil and lubricants and industrial lubricants. CITGO markets the
largest portion of its wax production as coating material for the corrugated
container industry. In 1995, CITGO acquired Cato Oil & Grease ("Cato"), a lubes
blending, manufacturing and packaging operation. Cato's extensive lines of
lubricating fluids and grease continue to be marketed under the Mystik and Cato
brands.
CITGO markets asphalt through 10 terminals located along the East Coast,
from Savannah, Georgia to Albany, New York. Asphalt is sold primarily to
independent contractors for use in the construction and resurfacing of roadways.
CITGO owns and operates a 959 mile crude oil pipeline system and three
product pipelines with a combined total of approximately 1,100 miles. CITGO also
owns minority equity interests in three crude oil pipeline companies and six
refined product pipeline companies. CITGO's pipeline interests provide it with
access to substantial refinery feedstocks and reliable transportation to refined
products markets, as well as dividend income. One of these pipelines, Colonial
Pipeline, is owned 13.98% by CITGO and is the largest refined product pipeline
in the United States. It transports gasoline, jet fuel and diesel/#2 fuel from
the Gulf Coast to the mid-Atlantic states, a major market area for CITGO.
STRATEGY
The Company intends to seek growth in the refining and marketing segment of
the petroleum industry by focusing on the costs it can control, mitigating the
costs it cannot control and focusing on the gasoline and lubricant distributor
class of trade. The Company's principal business strategies, which have remained
generally unchanged since 1985, allow it to compete in a very volatile and
mature industry.
- Enhance and grow the CITGO brand
Enhancing and growing the CITGO brand has been the primary focus for
CITGO since 1985. While competitors were busy building company-owned
stores, CITGO was focusing on building a solid distributor base for the
sale of light fuels. Today, over 750 CITGO distributors service more
than 14,000 branded retail outlets, and it is by this particular focus
that CITGO has gained prominence in the light fuels market. CITGO
intends to enhance and grow the CITGO brand in the future by relying on
the branded distributor segment of business. This growth is expected to
be mostly from existing distributors with the objective of becoming
their primary supplier.
- Retain competitiveness of CITGO refineries by producing higher valued
products from lower valued heavy crude oil
In the refining industry, it is essential to achieve lower costs and
improve product quality and yields. CITGO has made significant refinery
investments in its wholly-owned refineries, as well as
2
<PAGE> 4
in the joint venture LYONDELL-CITGO refinery, so that heavy Venezuelan
crudes can be processed into high quality valued-added products.
- Reduce imbalance resulting from growing product demand by increasing
supply through refinery conversion enhancement
In order to satisfy demand for petroleum products as well as to increase
CITGO's market share, CITGO's objective is to process increasing amounts
of crude oil into higher value-added products in the most cost efficient
manner. Significant capital expenditures are planned for CITGO's
refineries in order to enhance their conversion capabilities.
- Seek growth through continued petrochemical upgrading
The petrochemicals business segment has been a significant contributor
to CITGO's income during the last two years; however, CITGO expects that
profit margins in the petrochemical business segment will decrease from
1995 levels in the near term. In order to counteract this, CITGO plans
to reduce petrochemical costs and promote growth in higher value-added
products such as mixed xylenes, cumene and propylene. In addition,
capital improvement projects to improve processing efficiency at both
Corpus Christi and Lake Charles are scheduled for completion by 1998.
- Optimize profitability in the lubricants business
The Lubricants and Specialty Products business division has been a
stable contributor to CITGO's profitability for at least the past five
years. Furthermore, the acquisition of Cato during 1995 enhanced CITGO's
strength in the lubricants market. In order to further strengthen
CITGO's market presence, however, it will be necessary to increase both
finished lubricants and wax sales. CITGO is reviewing the feasibility of
improving manufacturing efficiency through technological improvements
and cost reductions while continuing to evaluate various possible
responses to the expanded supply of base oils which are expected to be
available on the Gulf Coast in the near future.
REFINING
CITGO and its subsidiaries own and operate two modern, highly complex crude
oil refineries and two asphalt refineries that have an aggregate rated crude oil
refining capacity of 572 MBPD. The two crude oil refineries, located in Lake
Charles, Louisiana and Corpus Christi, Texas, produce light fuels (gasoline, jet
fuel and diesel/#2 fuel oil), industrial products and petrochemicals. The two
asphalt refineries, located in Paulsboro, New Jersey and Savannah, Georgia,
produce asphalt for use primarily in the construction and resurfacing of
roadways. All of the Company's refineries are located in areas that qualify as
foreign trade zones for purposes of certain import duties and state taxes. CITGO
also owns a minority interest in LYONDELL-CITGO, which owns and operates a
refinery located in Houston, Texas that has a rated crude oil refining capacity
of 265 MBPD.
The following table shows the rated capacity of each refinery in which
CITGO holds an interest and CITGO's share of such capacity.
<TABLE>
<CAPTION>
RATED REFINING CAPACITY
-------------------------------
NET
CITGO CITGO
REFINERY OWNER GROSS PERCENTAGE INTEREST
----------------------------------- --------------- ------ ---------- --------
(MBPD) (%) (MBPD)
<S> <C> <C> <C> <C>
Lake Charles, LA................... CITGO 320(1) 100 320
Corpus Christi, TX................. CITGO 140(1) 100 140
Paulsboro, NJ...................... CITGO 84 100 84
Savannah, GA....................... CITGO 28 100 28
Houston, TX........................ LYONDELL-CITGO 265 12(2) 32
--- ---
Total Rated Refining Capacity............. 837 604
=== ===
</TABLE>
3
<PAGE> 5
- ---------------
(1) CITGO estimates that the actual capacity of the Lake Charles and Corpus
Christi refineries to refine heavy crude of the type currently being
refined, on an economical basis, is approximately 290 MBPD and 130 MBPD,
respectively.
(2) Represents CITGO's participation interest in LYONDELL-CITGO. At December
31, 1995, CITGO's equity interest in LYONDELL-CITGO entitled CITGO to
participate in approximately 12% of the profits of LYONDELL-CITGO. This
participation percentage is expected to increase to approximately 40% as a
result of additional planned investments and reinvested earnings by CITGO
through the in-service date, currently scheduled for the first quarter of
1997, of a refinery enhancement project. The Company has an option to
increase the participation percentage up to 50% that may be exercised
within 18 months of the in-service date. In connection with CITGO's
investment in LYONDELL-CITGO, CITGO and LYONDELL-CITGO entered into an
agreement pursuant to which CITGO purchases substantially all of the
refined products produced at the LYONDELL-CITGO refinery. See
"-- LYONDELL-CITGO."
The following table shows CITGO's aggregate interest in refining capacity,
refinery input and product yield for the three years in the period ended
December 31, 1995, which aggregate interest includes CITGO's proportionate share
of refining capacity, refinery input and product yield of LYONDELL-CITGO based
on CITGO's relative participation interests for each of these years. See
"-- LYONDELL-CITGO."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995(1) 1994(1) 1993(1)(2)
------------- ------------- -------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C>
Rated Refining Capacity(3).................. 604 601 599
Refinery Input:
Crude oil................................. 473 79.9% 474 78.7% 454 78.5%
Other feedstocks.......................... 119 20.1% 128 21.3% 124 21.5%
--- ------ --- ------ --- ------
Total............................. 592 100.0% 602 100.0% 578 100.0%
=== ====== === ====== === ======
Product Yield(4):
Light fuels
Gasoline............................... 267 44.6% 279 45.8% 267 45.7%
Jet Fuel............................... 61 10.2% 55 9.0% 48 8.2%
Diesel/#2 fuel oil..................... 101 16.9% 110 18.0% 114 19.5%
Asphalt................................... 32 5.4% 30 4.9% 29 5.0%
Petrochemicals and industrial products.... 137 22.9% 136 22.3% 126 21.6%
--- ------ --- ------ --- ------
Total............................. 598 100.0% 610 100.0% 584 100.0%
=== ====== === ====== === ======
</TABLE>
- ---------------
(1) Includes a weighted average of 11.45% and 10.48% of the refining capacity,
refining input and product yield of the LYONDELL-CITGO refinery for 1995
and 1994, respectively, and a weighted average of 5% of such items related
to the LYONDELL-CITGO refinery for the last six months of 1993.
(2) Includes the Savannah refinery from its date of purchase on April 30, 1993.
(3) Rated capacity at year end. Due to the specific gravity of the crude oil
generally processed at the Lake Charles and Corpus Christi refineries,
CITGO estimates that the actual capacity of these refineries to refine
heavy crude of the type currently being refined, on an economical basis, is
approximately 290 MBPD and 130 MBPD, respectively.
(4) Does not include Paulsboro refinery Unit 1. See "-- Paulsboro Refinery."
4
<PAGE> 6
Lake Charles Refinery. The Lake Charles refinery, located in Lake Charles,
Louisiana, was originally built in 1944 and since then has been continuously
upgraded. As a result of these upgrades, the refinery is a modern, complex, high
conversion refinery. The refinery is the sixth largest in the United States,
with a rated refining capacity of 320 MBPD, and is capable of processing large
volumes of crude oil into a flexible slate of refined products, including
significant quantities of high-octane unleaded gasoline and, due to recent
modifications, the new reformulated gasoline. The Lake Charles refinery has a
Solomon Process Complexity Factor of 15.2 (as compared to an average of 12.6 for
U.S. refineries in the most recently available Solomon Associates, Inc. survey).
The Solomon Process Complexity Rating is an industry measure of a refinery's
ability to produce higher value-added products. A higher rating indicates a
greater capability to produce such products. The Lake Charles refinery's major
process units and their respective capacities are as follows:
<TABLE>
<CAPTION>
NUMBER
OF AGGREGATE
UNIT TYPE UNITS CAPACITY
---------------------------------------------------------------- ------ ---------
(MBPD)
<S> <C> <C>
Atmospheric crude distillation.................................. 3 320
Vacuum distillation............................................. 2 81
Catalytic cracking.............................................. 3 130
Catalytic reforming............................................. 3 102
Hydrocracking................................................... 1 40
Hydrotreating (distillates)..................................... 3 53
Hydrotreating (naphtha)......................................... 3 102
Alkylation (sulfuric)........................................... 1 23
Delayed coking.................................................. 2 94
MTBE............................................................ 1 3
TAME............................................................ 1 3
Petrochemical units:
Sulfolane (benzene)........................................... 1 5
Propylene fractionation....................................... 1 6
</TABLE>
The Lake Charles refinery has more than one unit in a number of different
process areas. This "multiple stream capacity" allows it to continue to operate
even while one unit or group of units is shut down. The Lake Charles refinery
has significant flexibility to take advantage of market opportunities through
the ability to shift production between low and high sulfur diesel, diesel and
jet fuel, and jet fuel and naphtha, depending on market prices and demand.
Flexibility in gasoline blending and logistics allows the refinery to make a
variety of gasoline grades, from conventional to reformulated, depending on
market pricing.
5
<PAGE> 7
The following table shows the refining capacity, refinery input and product
yield at the Lake Charles refinery for the three years in the period ended
December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C>
Rated Refining Capacity(1).................. 320 320 320
Refinery Input:
Crude oil................................. 275 85.4% 274 83.0% 271 83.1%
Other feedstocks.......................... 47 14.6% 56 17.0% 55 16.9%
--- ------ --- ------ --- ------
Total............................. 322 100.0% 330 100.0% 326 100.0%
=== ====== === ====== === ======
Product Yield:
Light fuels
Gasoline............................... 164 50.0% 169 50.0% 163 49.3%
Jet Fuel............................... 58 17.7% 52 15.4% 47 14.2%
Diesel/#2 fuel......................... 42 12.8% 50 14.8% 54 16.3%
Petrochemicals and industrial products.... 64 19.5% 67 19.8% 67 20.2%
--- ------ --- ------ --- ------
Total(2).......................... 328 100.0% 338 100.0% 331 100.0%
=== ====== === ====== === ======
Utilization................................. 86% 86% 85%
</TABLE>
- ---------------
(1) Rated refining capacity at year end.
(2) Total product yields exceed crude oil refining capacity due to the use of
other feedstocks, in addition to crude oil, in the refining process and the
volumetric increases which can result from the refining process.
Approximately 64%, 68% and 64% of the total crude runs at the Lake Charles
refinery in the years 1995, 1994 and 1993, respectively, consisted of crude oil
with an average API gravity of 24(degree) or less. Due to the complex processing
required to refine such heavy crude oil, the Lake Charles refinery's economic
crude oil throughput capacity is approximately 290 MBPD, which is approximately
90% of its rated capacity of 320 MBPD.
The Lake Charles refinery's Gulf Coast location provides it with access to
crude oil deliveries from multiple sources. Imported crude oil and feedstocks
supplies are delivered by ship directly to the Lake Charles refinery, and
domestic crude oil supplies are delivered by pipeline and barge. In addition,
the refinery is connected by pipelines to the Louisiana Offshore Oil Port
("LOOP") and to terminal facilities in the Houston area through which it can
receive crude oil deliveries if the Lake Charles docks are temporarily
inaccessible. For delivery of refined products, the refinery is connected
through the Lake Charles Pipeline directly to the Colonial Pipeline and the
Explorer Pipeline, which are the major refined product pipelines supplying the
Northeast and Midwest regions of the United States, respectively. The refinery
also uses adjacent terminals and docks, which provide access for ocean tankers
and barges.
The Lake Charles refinery's main petrochemical products are propylene and
benzene. Propylene production was 5.7, 5.2 and 4.7 MBPD, and benzene production
was 4.1, 3.8 and 3.8 MBPD, in each case for the years 1995, 1994 and 1993,
respectively. Industrial products include sulfur, residual fuels and petroleum
coke.
Located adjacent to the Lake Charles refinery is a lubricants refinery
operated by CITGO and owned by Cit-Con Oil Corporation, which is owned 65% by
CITGO and 35% by Conoco, Inc. ("Conoco"). Primarily because of its specific
design, the Cit-Con refinery produces high quality oils and waxes, and is one of
the few in the industry designed as a stand-alone lubricants refinery. It
currently has a rated capacity of 9.6 MBPD of base oils and 1.4 MBPD of wax, and
is the sixth largest rated capacity paraffinic lubricants refinery in the United
States. For the years 1995, 1994 and 1993, the refinery capacity utilization of
the Cit-Con refinery was 101%, 110%, and 107%, respectively. Feedstocks are
supplied 65% from CITGO's Lake Charles refinery and 35% from Conoco's nearby
refinery. Finished refined
6
<PAGE> 8
products are shared on the same pro rata basis by CITGO and Conoco. Conoco is a
participant in a project to build a new refinery that will produce base oils.
CITGO anticipates that such refinery will be more efficient than the Cit-Con
refinery and, as a result, such new refinery may be able to produce base oils at
a lower cost than those produced at the Cit-Con refinery. CITGO is reviewing the
feasibility of improving the manufacturing efficiency of the Cit-Con refinery
through technological improvements and cost reductions while continuing to
evaluate various other responses to the expanded supply of base oils which are
expected to be available in the Gulf Coast area when such new refinery is placed
in service.
Corpus Christi Refinery. The Corpus Christi refinery complex consists of
the East and West Plants, located within five miles of each other in Corpus
Christi, Texas. Construction began on the East Plant in 1937, and it was
extensively reconstructed and modernized during the 1970's and 1980's. The West
plant was completed in 1983. The Corpus Christi refinery is an efficient and
highly complex facility, capable of processing high volumes of crude oil into a
flexible slate of refined products, with a Solomon Process Complexity Factor of
15.8 (as compared to an average 12.6 for U.S. refineries in the most recently
available Solomon Associates, Inc. survey). The Corpus Christi refinery has a
rated capacity of 140 MBPD, and its major process units and their respective
capacities are as follows:
<TABLE>
<CAPTION>
NUMBER
OF AGGREGATE
UNIT TYPE UNITS CAPACITY
---------------------------------------------------------------- ------ ---------
(MBPD)
<S> <C> <C>
Atmospheric crude distillation.................................. 1 140
Vacuum distillation............................................. 1 67
Fluidized catalytic cracking.................................... 2 78
Platforming..................................................... 2 54
Hydrotreating (distillates)..................................... 1 42
Hydrotreating (naphtha)......................................... 2 60
Hydrotreating (gasoils)......................................... 1 65
Alkylation (hydrofluoric)....................................... 1 19
Delayed coking.................................................. 1 34
MTBE............................................................ 1 2
Petrochemical units:
UDEX extraction (benzene, toluene, xylene).................... 1 7
Cumene........................................................ 1 8
Cyclohexane................................................... 1 3
Aromatics disproportionation.................................. 1 3
</TABLE>
7
<PAGE> 9
The following table shows refining capacity, refinery input and product
yield at the Corpus Christi refinery for the three years in the period ended
December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C>
Rated Refining Capacity(1).................. 140 140 140
Refinery Input:
Crude oil................................. 121 64.7% 128 66.3% 127 65.8%
Other feedstocks.......................... 66 35.3% 65 33.7% 66 34.2%
--- ------ --- ------ --- ------
Total............................. 187 100.0% 193 100.0% 193 100.0%
=== ====== === ====== === ======
Product Yield:
Light fuels
Gasoline............................... 90 48.4% 99 51.0% 99 51.6%
Diesel/#2 fuel......................... 53 28.5% 55 28.4% 57 29.7%
Petrochemicals and industrial products.... 43 23.1% 40 20.6% 36 18.7%
--- ------ --- ------ --- ------
Total(2).......................... 186 100.0% 194 100.0% 192 100.0%
=== ====== === ====== === ======
Utilization................................. 86% 91% 91%
</TABLE>
- ---------------
(1) Rated capacity at year end.
(2) Total product yields exceed crude oil refining capacity in 1994 due to the
use of other feedstocks, in addition to crude oil, in the refining process
and the volumetric increases which can result from the refining process.
All of the crude oil processed at the Corpus Christi refinery is heavy
Venezuelan crude oil having a high sulfur content. Due to the complex processing
required to refine such heavy sour crude oil, the Corpus Christi refinery's
economic crude oil throughput capacity is approximately 130 MBPD, which is
approximately 93% of its rated capacity of 140 MBPD. Crude oil supplies are
delivered directly to the Corpus Christi refinery through the Port of Corpus
Christi.
CITGO operates the West Plant under a sublease agreement (the "Sublease")
from Union Pacific Corporation ("Union Pacific"). The basic term of the Sublease
ends on January 1, 2004, but CITGO may renew the Sublease for successive renewal
terms through January 31, 2011. CITGO has the right to purchase the West Plant
from Union Pacific at the end of the basic term, the end of any renewal term, or
on January 31, 2011, at a nominal price.
During the last several years, CITGO has increased the capacity of the
Corpus Christi refinery to produce petrochemical products. The Corpus Christi
refinery's main petrochemical products include cumene, cyclohexane, MTBE and
aromatics (including benzene, toluene, and xylene). The Company produces a
significant quantity of cumene, an important petrochemical product used in the
engineered plastics market. The production of xylene, a basic building block
used in the manufacture of consumer plastics, allows the refinery to take
advantage of its reforming capacity while staying within the new, more stringent
gasoline specifications of the Clean Air Act Amendments of 1990.
Paulsboro Refinery. This asphalt refinery, purchased in 1991, is located in
Paulsboro, New Jersey. The refinery consists of Unit I, with a rated capacity of
44 MBPD, and Unit II, with a rated capacity of 40 MBPD.
Unit II, originally constructed in 1980 to produce asphalt from higher
sulfur, heavy crude oil high in naphthenic acid, is a combination atmospheric
and vacuum distillation facility. The crude oil purchased by CITGO from PDVSA to
supply Unit II's crude oil requirements is particularly well suited for the
production of asphalt. Unit II produced an average of 19.1, 19.4 and 16.4 MBPD
of asphalt in the years 1995, 1994, and 1993, respectively, which accounted for
58%, 57% and 57% of Unit II's total production in such years. The remaining Unit
II production in 1995, 1994 and 1993 consisted of distillate products such as
8
<PAGE> 10
naphthas, marine diesel oil and vacuum gas oils, which in the aggregate averaged
approximately 13.7, 14.9 and 12.5 MBPD, respectively in such years. Unit II
crude oil runs averaged 33, 34 and 29 MBPD resulting in a utilization rate of
83%, 85% and 73% of rated capacity in 1995, 1994, and 1993, respectively.
Unit I was constructed in 1979 to process low sulfur, light crude oil. The
unit produces naphthas and diesel/#2 and #6 fuels. Unit I is run primarily when
there is demand for toll processing of sweet crudes at attractive economics.
Crude oil runs for third party processing in 1995, 1994 and 1993 averaged 2.1,
0.0 and 0.8 MBPD, respectively. In 1995, 2.6 MBPD of crude oil was run on Unit I
for CITGO's own account, producing 1.9 MBPD of asphalt and 0.8 MBPD of other
products.
Savannah Refinery. On April 30, 1993, CITGO purchased an asphalt refinery
located near Savannah, Georgia, one asphalt distribution terminal and throughput
rights at two additional distribution terminals. The Savannah refinery and the
related distribution terminals have been integrated with CITGO's existing
asphalt operations. The 100 acre facility is located on the Savannah River. The
facility includes two crude distillation units, with a combined rated capacity
of 28 MBPD. The primary crude oil run by the refinery is Boscan, a heavy
Venezuelan crude oil that is rich in asphalt.
The units produced an average of 10.5 MBPD of asphalt in the year ended
December 31, 1995, which accounted for 77% of total production. An additional
3.4 MBPD of production included naphthas and light, medium and heavy gas oils.
Total crude runs for the period averaged 13.7 MBPD, for a utilization rate of
49% of rated capacity.
LYONDELL-CITGO. In July 1993, CITGO and Lyondell Petrochemical Company
("Lyondell") executed agreements pursuant to which Lyondell contributed a 265
MBPD refinery and related assets to LYONDELL-CITGO, a newly formed limited
liability company, and CITGO and Lyondell agreed to provide certain amounts
necessary to fund a refinery enhancement project to increase the refinery's
heavy crude oil conversion capacity from approximately 130 MBPD of 22(degrees)
average API gravity crude oil to approximately 200 MBPD of 17(degrees) average
API gravity crude oil. The refinery enhancement project is expected to be
completed at the end of 1996, with an in-service date occurring in the first
quarter of 1997.
In connection with this project, PDVSA entered into a long-term contract
with LYONDELL-CITGO to supply 135 MBPD of heavy Venezuelan crude oil to the
refinery until the completion date of the refinery enhancement project, at which
time PDVSA will be required to supply 200 MBPD of such crude oil. The supply
agreement, which extends through 2017, incorporates formula prices based on the
market value of a slate of refined products deemed to be produced from each
particular grade of crude oil, less (i) certain deemed refining costs adjustable
for inflation, (ii) certain actual costs, including transportation charges,
import duties and taxes, and (iii) a deemed margin, which varies according to
the grade of crude oil delivered. See "-- Crude Oil Supply." LYONDELL-CITGO also
purchases crude oil from third parties to supplement the PDVSA supplies. In
addition, CITGO entered into a long-term contract with LYONDELL-CITGO to
purchase substantially all of the refined products produced at the refinery
through the year 2017 at market related prices, thereby significantly reducing
CITGO's need to purchase refined products from third party sources to supply its
distribution network. See "-- Marketing -- Refined Product Purchases."
The Company anticipates that the total cost of the refinery enhancement
project will be approximately $1 billion, of which approximately $600 million
had been expended as of December 31, 1995. At such date, CITGO had invested an
aggregate of $461 million (including reinvested earnings), of which $258 million
was funded through equity contributions from PDV America. As of December 31,
1995, CITGO was committed to make additional investments in LYONDELL-CITGO
consisting of (i) $30 million at the in-service date of the refinery enhancement
project and (ii) up to an additional approximately $150 million through the
in-service date provided that the total refinery enhancement project costs do
not exceed 110% of the current estimate. In addition, CITGO is required to fund
certain fees, expenses and interest on LYONDELL-CITGO's initial $200 million
construction loan, and is committed to fund up to $22 million for certain
maintenance and environmental costs to the extent that such costs exceed certain
estimates. CITGO does not currently expect that its aggregate investments in
LYONDELL-CITGO will
9
<PAGE> 11
exceed $630 million (exclusive of reinvested earnings) through the in-service
date. At December 31, 1995, CITGO had an approximate 12% participation interest
in the profits and losses of LYONDELL-CITGO. CITGO's expected aggregate
investment in LYONDELL-CITGO, plus its share of LYONDELL-CITGO's earnings (which
must be reinvested through the completion date of such project), will give CITGO
an approximate 40% participation interest in the profits and losses of
LYONDELL-CITGO. CITGO also has the option, exercisable on one occasion within 18
months after the in-service date, to increase its participation in the profits
and losses of LYONDELL-CITGO up to a maximum of 50% which, if exercised, would
require CITGO to make an additional investment in LYONDELL-CITGO.
CRUDE OIL SUPPLY
CITGO owns no crude oil reserves or production facilities, and must
therefore rely on purchases of crude oil and feedstocks for its refinery
operations. The following chart shows CITGO's purchases of crude oil for the
three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
LAKE CHARLES, LA CORPUS CHRISTI, TX PAULSBORO, NJ SAVANNAH, GA(1)
------------------ ------------------ ------------------ ------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(MBPD) (MBPD) (MBPD) (MBPD)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PDVSA......... 150 129 125 122 128 127 35 36 31 14 12 14
PEMEX......... 33 63 65 0 0 0 0 0 0 0 0 0
Occidental.... 43 42 41 0 0 0 0 0 0 0 0 0
Other
Sources..... 52 40 40 0 0 0 0 0 0 0 0 0
--- --- --- --- --- --- -- -- -- -- -- --
Total.. 278 274 271 122 128 127 35 36 31 14 12 14
=== === === === === === == == == == == ==
</TABLE>
- ---------------
(1) CITGO acquired the Savannah refinery on April 30, 1993.
CITGO's largest supplier of crude oil is PDVSA, and CITGO has entered into
long-term crude oil supply agreements with PDVSA with respect to each of CITGO's
refineries. In addition, LYONDELL-CITGO has entered into a long-term crude oil
supply agreement with PDVSA with respect to its refinery. The following table
shows the base and incremental volumes of crude oil contracted for delivery and
the volumes of crude oil purchased from PDVSA under these agreements in the
three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
VOLUMES OF CRUDE
OIL PURCHASED UNDER
PDVSA PDVSA AGREEMENTS
SUPPLY AGREEMENT FOR THE YEAR ENDED
OIL VOLUME DECEMBER 31, YEAR OF
---------------------- ---------------------- AGREEMENT
REFINERY BASE INCREMENTAL(1) 1995 1994 1993 EXPIRATION
- ------------------------------------- ---- -------------- ---- ---- ---- ----------
(MBPD) (MBPD)
<S> <C> <C> <C> <C> <C> <C>
Lake Charles, LA..................... 120 50 125(2) 123(2) 125 2006
Corpus Christi, TX................... 130 N/A 122 128 127 2012
Paulsboro, NJ........................ 30 N/A 35 36 31 2010
Savannah, GA (3)..................... 12 N/A 14 12 14 2013
Houston, TX (4)...................... 135 N/A 136 135 131 2017
</TABLE>
- ---------------
(1) The supply agreement for the Lake Charles refinery gives PDVSA the right to
sell to CITGO incremental volumes up to the maximum amount specified in the
table, subject to certain restrictions relating to the type of crude oil to
be supplied, refining capacity and other operational considerations at the
refinery.
(2) Volumes purchased under the supply agreements do not equal the purchases
from PDVSA shown in the previous table as a result of spot purchases.
(3) CITGO acquired the Savannah refinery on April 30, 1993.
(4) CITGO acquired an equity interest in LYONDELL-CITGO, the owner of the
Houston refinery, on July 1, 1993. In connection with such transaction,
LYONDELL-CITGO entered into a long-term crude
10
<PAGE> 12
oil supply agreement with PDVSA that provides for delivery volumes of 135
MBPD until the completion of a planned refinery enhancement project at which
time the delivery volumes will increase to 200 MBPD.
These crude oil supply agreements require PDVSA to supply minimum
quantities of crude oil and other feedstocks to CITGO for a fixed period,
usually 20 to 25 years from the inception of the agreement. These supply
agreements are designed to reduce the inherent earnings volatility of the
refining operations of CITGO. The supply agreements incorporate formula prices
based on the market value of a slate of refined products deemed to be produced
from each particular grade of crude oil or feedstock, less (i) certain deemed
refining costs, (ii) certain actual costs, including transportation charges,
import duties and taxes and (iii) a deemed margin, which varies according to the
grade of crude oil or feedstock delivered. Under each supply agreement, deemed
costs are adjusted periodically by a formula primarily based on the rate of
inflation. In addition, deemed margins under certain of the supply agreements
are adjusted periodically by a formula based in part on the rate of inflation.
Because deemed operating costs and the slate of refined products deemed to be
produced for a given barrel of crude oil or other feedstock do not necessarily
reflect the actual costs and yields in any period, the actual refining margin
earned by CITGO under the various supply agreements will vary depending on,
among other things, the efficiency with which CITGO conducts its operations
during such period.
Effective January 1, 1992, the supply agreements between PDVSA and CITGO
with respect to the Lake Charles, Corpus Christi and Paulsboro refineries were
modified to reduce the price levels to be paid by CITGO by a fixed amount per
barrel of crude oil purchased from PDVSA. Such reductions were intended to
defray CITGO's costs of certain environmental compliance expenditures. This
modification resulted in a decrease in the cost of crude oil purchased under
these agreements of approximately $70 million per year for the years 1992
through 1994 as compared to the amount that would otherwise have been payable
thereunder. This modification was to expire at December 31, 1996; however, in
1995, PDVSA and CITGO agreed to adjust this modification so that the 1992 fixed
amount per barrel would be reduced and the adjusted modification would not
expire until December 31, 1999. The effect of this adjustment to the original
modification was to increase the cost of crude oil purchased under these
agreements by approximately $22 million in 1995 as compared to the amount that
would otherwise have been payable thereunder based on the original modification
(resulting in a net decrease of approximately $48 million from the amount
otherwise payable under the agreement prior to the 1992 original modification).
The Company anticipates that the effect of the adjustments to the original
modifications will be to increase the price of crude oil purchased from PDVSA
under these agreements by approximately $45 million in 1996 (resulting in a net
decrease of approximately $25 million from the amount otherwise payable under
the agreement prior to the 1992 original modification) and to reduce the price
of crude oil purchased from PDVSA under these agreements by approximately $25
million per year in 1997 through 1999, in each case as compared to the original
modification and without giving effect to any other factors that may affect the
price payable for crude oil under these agreements. Due to the pricing formula
under the supply agreements, the aggregate price actually paid for crude oil
purchased from PDVSA under these agreements in each of these years will depend
primarily upon the then current prices for refined products and certain actual
costs of CITGO. These estimates are also based on the assumption that CITGO will
purchase the base volumes of crude oil under the agreements.
Under certain of these agreements, if supplies from PDVSA are interrupted,
PDVSA is required to compensate CITGO for any additional costs incurred in
securing crude oil or other feedstocks. These crude oil supply agreements may be
terminated (i) by mutual agreement, (ii) by either party in the event of a
material default, bankruptcy or similar financial hardship on the part of the
other party or (iii) in the case of contracts with CITGO, if PDVSA no longer
holds 50% or more of the ownership interests in CITGO. See "Item 11. Description
of Registrant's Securities to be Registered -- Covenants -- Specified
Agreements."
Most of the crude oil and feedstocks purchased by CITGO from PDVSA are
delivered on tankers owned by PDVSA subsidiaries. In 1995, 71% of the PDVSA
contract crude oil delivered to the Lake Charles and Corpus Christi refineries
was delivered on tankers operated by PDVSA subsidiaries.
11
<PAGE> 13
CITGO purchases additional crude oil under a 90-day evergreen agreement
with an affiliate of Petroleos Mexicanos ("PEMEX"). CITGO's refineries are
particularly well suited to refine PEMEX's Maya heavy, sour crude oil, which is
similar in many respect to several types of Venezuelan crude oil. Effective
January 1995, the PEMEX crude agreement provided for the purchase of 23 MBPD for
the first six months of 1995 and 17 MBPD for the last six months of 1995. The
PEMEX agreement provides for the purchase of 37 MBPD of crude for the first six
months of 1996 and 45 MBPD for the last six months of 1996.
CITGO is a party to a contract with an affiliate of Occidental Petroleum
Corporation ("Occidental") for the purchase of crude oil at contract reference
prices. Purchases under this contract, which expires on August 31, 1998,
averaged 53.5 MBPD in 1995. CITGO also purchases crude oil under long-standing
relationships with numerous other domestic producers.
MARKETING
CITGO's major products are light fuels (including gasoline, jet fuel, and
diesel fuel), petrochemicals, industrial products, asphalt, and lubricants and
waxes. The following table shows revenue of each of these product categories for
the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- ---------------
($ IN MILLIONS, EXCEPT AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C>
Light Fuels................... $ 8,886 85.8% $ 7,845 86.0% $ 7,841 87.2%
Petrochemicals and industrial
products.................... 831 8.0% 707 7.8% 602 6.7%
Asphalt....................... 238 2.3% 194 2.1% 179 2.0%
Lubricants and Waxes.......... 404 3.9% 370 4.1% 370 4.1%
------- ------ ------ ------ ------ ------
Total............... $ 10,359 100.0% $ 9,116 100.0% $ 8,992 100.0%
======= ====== ====== ====== ====== ======
</TABLE>
Refined Product Purchases. Refined product purchases are required to
supplement the production of the Lake Charles and Corpus Christi refineries in
order to meet the demand of CITGO's marketing network. During 1995, CITGO's
shortage in gasoline production approximated 277 MBPD. However, due to
logistical needs, timing differences and product grade imbalances, in 1995 CITGO
purchased approximately 471 MBPD of gasoline, and CITGO sold into the spot
market or to traders or other refiners approximately 194 MBPD of gasoline. The
following table shows CITGO's purchases of refined products for the three years
in the period ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994 1993
--- --- ---
(MBPD)
<S> <C> <C> <C>
Gasoline.......................................................... 471 380 352
Jet Fuel.......................................................... 87 89 74
Diesel/#2 fuel.................................................... 90 98 88
--- --- ---
Total................................................... 648 567 514
=== === ===
</TABLE>
CITGO purchases substantially all of the refined products produced at the
LYONDELL-CITGO refinery under a long-term contract extending through the year
2017. In 1995, CITGO purchased 103 MBPD of gasoline, 46 MBPD of distillate and
27 MBPD of jet fuel from LYONDELL-CITGO. See "-- Refining -- LYONDELL-CITGO".
12
<PAGE> 14
Light Fuels Sales. CITGO markets gasoline, jet fuel and other distillates
through an extensive marketing network. The following table provides a breakdown
of the sales made by type of product for the three years ended December 31,
1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------
($ IN MILLIONS) (MILLIONS OF GALLONS)
<S> <C> <C> <C> <C> <C> <C>
Gasoline...................... $6,367 $5,252 $5,256 11,075 9,747 9,380
Jet Fuel...................... 1,163 1,102 1,019 2,249 2,131 1,827
Diesel/#2 fuel................ 1,356 1,491 1,566 2,730 3,067 3,005
------ ------ ------ ------ ------ ------
Total............... $8,886 $7,845 $7,841 16,054 14,945 14,212
====== ====== ====== ====== ====== ======
</TABLE>
Gasoline sales accounted for 61%, 57% and 58% of CITGO's total revenues in
the years 1995, 1994 and 1993, respectively. CITGO markets CITGO branded
gasoline through more than 14,000 independently owned and operated CITGO branded
retail outlets (including 12,286 branded retail outlets owned and operated by
approximately 750 independent distributors and 1,752 7-Eleven convenience
stores) located throughout the United States, primarily east of the Rocky
Mountains. In addition, CITGO itself owns, operates or leases 16 retail outlets
that operate under the name "Quik Mart." CITGO purchases gasoline to supply its
marketing network, as the gasoline production from the Lake Charles and Corpus
Christi refineries was equivalent to approximately 53%, 60% and 65% of the
volume of CITGO branded gasoline sold in 1995, 1994 and 1993, respectively. See
"-- Refined Product Purchases."
CITGO's strategy is to enhance the value of the CITGO brand in order to
obtain premium pricing for its products by appealing to consumer preference for
quality petroleum products and services. This is accomplished through a
commitment to quality, dependability and customer service to its independent
distributors, which constitute CITGO's primary distribution channel. CITGO also
promotes the CITGO brand through various cost-sharing arrangements between CITGO
and the distributors to fund local and regional advertising and other
promotional efforts, as well as to fund image enhancement and other improvements
to the retail outlets, such as signage, lighting and card reader pumps. As a
result of the implementation of this strategy, the number of independent
distributor-owned or operated CITGO branded retail outlets has grown
significantly since 1986 when there were approximately 7,000 outlets (including
7-Eleven convenience stores), with such number increasing by approximately 7%,
6% and 13% in 1995, 1994 and 1993, respectively. In 1995, the National Petroleum
News ranked CITGO third in domestic gasoline market share with 8.2%, up from
approximately 4.5% in 1989. In addition, customers have selected CITGO as the
top branded supplier in three successive biannual Supplier's Cup competitions,
held in 1990, 1992 and 1994 and sponsored by the Petroleum Marketers Association
of America, an organization of independent refined products distributors.
In 1994 CITGO began offering to its distributors a program to enhance their
stations with new card reader pumps. These pumps allow customers to pay for
their gasoline at the pumps with their credit cards instead of going into the
stores to pay. As of December 31, 1995, approximately 1,000 retail outlets had
installed the card reader pumps.
CITGO has also engaged in a strategy to aggressively expand its credit card
program since credit card sales generally are higher per transaction than cash
sales. Since 1992, CITGO has experienced growth in the number of new accounts of
8%, 9% and 11% in 1995, 1994 and 1993, respectively. The point-of-sale ("POS")
system that supports the credit card program has expanded to the point that
approximately 94% of CITGO's branded credit card sales in 1995 were processed on
the POS system.
Sales to 7-Eleven convenience stores are made under a contract that extends
through the year 2006. Under this contract, CITGO arranges all transportation
and delivery of motor fuels and handles all product ordering. CITGO also acts as
processing agent for the purpose of facilitating and implementing orders and
purchases from third-party suppliers. CITGO receives a processing fee for such
services. Sales to independent branded distributors are typically made under
three-year contracts.
13
<PAGE> 15
CITGO markets jet fuel directly to airline customers at 22 airports,
including such major hub cities as Atlanta, Chicago, Dallas/Fort Worth, New York
and Miami. Jet fuel sales volumes to airline customers increased approximately
2%, 18% and 12% in 1995, 1994 and 1993, respectively. The volume increases were
due both to higher levels of purchases by existing customers and to sales to new
customers. Sales of bonded jet fuel, which are exempt from import duties as well
as certain state and local taxes, have increased from 482 million gallons in
1993 to 555 million gallons in 1995 (accounting for over 30% of total jet fuel
sales volume to airline customers in both years).
CITGO's diesel/#2 fuel marketing strategy aims to obtain the best value for
the products manufactured at the Lake Charles and Corpus Christi refineries, as
well as those received from LYONDELL-CITGO. Growth in wholesale rack sales to
distributors has been the primary focus of marketing efforts. Such efforts have
resulted in increases in wholesale rack sales volume from approximately 896
million gallons in 1993 to approximately 1,283 million gallons in 1995. The
remaining diesel/#2 fuel production is sold either in bulk through contract
sales (primarily as heating oil in the Northeast) or on a spot basis.
CITGO's delivery of light fuels to its customers is accomplished in part
through 52 refined product terminals located throughout CITGO's primary market
territory. Of these terminals, 40 are wholly-owned by CITGO and 12 are jointly
owned. CITGO's refined product terminals provide a total of approximately 22
million barrels of storage capacity. Fifteen of CITGO's product terminals have
waterborne docking facilities, which greatly enhance the flexibility of CITGO's
logistical system. In addition, CITGO has active exchange relationships with
over 370 other refined product terminals, providing flexibility and timely
response to distribution needs. CITGO operates fleets of leased and owned trucks
for delivery of refined products from the product terminals to retail locations.
The following table identifies by state the number and capacity of CITGO's
wholly- and jointly-owned refined products terminals:
<TABLE>
<CAPTION>
NUMBER OF
REFINED STORAGE
STATE PRODUCTS TERMINALS CAPACITY(1)
------------------------------------------------------ ------------------ -----------
(THOUSANDS
OF BARRELS)
<S> <C> <C>
Indiana............................................... 2 4,554
New Jersey............................................ 2 4,341
New York.............................................. 3 1,764
Florida............................................... 5 1,613
Texas................................................. 11 1,359
Massachusetts......................................... 1 1,314
Virginia.............................................. 4 1,079
Wisconsin............................................. 3 946
North Carolina........................................ 3 753
Michigan.............................................. 3 675
All others (9 states)................................. 15 3,430
--
------
Total (19 states)........................... 52 21,828
== ======
</TABLE>
- ---------------
(1) CITGO's joint ownership interest in 12 refined products terminals ranges
from 25% to 50%, and the aggregate storage capacity attributable to
jointly-owned refined products terminals is 4,592 thousand barrels.
Petrochemicals and Industrial Products. CITGO sells petrochemicals and
industrial products in bulk to a variety of U.S. manufacturers as raw materials
for finished goods. Sulfur is sold to the U.S. and international fertilizer
industry; cycle oils are sold for feedstock processing and blending; natural gas
liquids are sold to the U.S. fuel and petrochemical industry; petroleum coke is
sold primarily in international markets for use as kiln and boiler fuel; and
residual fuel blendstocks are sold to a variety of fuel oil blenders and
customers. The majority of CITGO's cumene production is sold to a phenol
14
<PAGE> 16
production plant owned by a partnership in which CITGO is a limited partner. The
phenol plant produces phenol and acetone for sale primarily to the principal
partner in the phenol plant for the production of plastics.
Asphalt. CITGO markets asphalt through 10 terminals located along the East
Coast, from Savannah, Georgia to Albany, New York. Asphalt is sold primarily to
independent contractors for use in the construction and resurfacing of roadways.
Lubricants and Waxes. CITGO markets many different types, grades and
container sizes of lubricants and wax products, with the bulk of sales
consisting of automotive oil and lubricants and industrial lubricants. Other
major lubricant products include 2-cycle engine oil and automatic transmission
fluid.
In April 1995, CITGO acquired Cato for a purchase price of approximately
$46.8 million. CITGO sells its finished lubricant products through three classes
of trade: (i) independent distributors that specialize in lubricant sales
(representing 66% of 1995 sales), (ii) mass merchandisers (representing 8% of
1995 sales) and (iii) directly to large industrial end users (representing 26%
of 1995 sales). CITGO emphasizes sales to independent distributors in its
lubricants marketing because of the higher margins realized from these sales.
Large industrial end users include steel manufacturers for industrial lubricants
and automobile manufacturers for "original equipment" quantities of automotive
oils and fluids.
CITGO markets the largest portion of its wax production as coating
materials for the corrugated container industry. CITGO also provides wax for the
manufacture of candles, drinking cups, waxed papers, and a variety of building
and rubber products.
PIPELINE OPERATIONS
CITGO owns and operates a 959 mile crude oil pipeline system and three
product pipelines located in Texas, Oklahoma and Louisiana with a combined total
of approximately 1,100 miles. The crude oil pipeline provides CITGO with access
to extensive gathering systems throughout major production areas in Louisiana
and Texas that provide the Lake Charles refinery with domestic crude oil to
supplement supplies delivered by ship.
CITGO also has joint equity interests in three crude oil pipeline companies
with a total of nearly 5,800 miles of crude oil pipeline. In addition, CITGO has
joint equity interests in six refined product pipeline companies with a total of
approximately 8,000 miles of refined product pipeline. One of the refined
product pipelines in which CITGO has an interest, the Colonial Pipeline, is the
largest refined product pipeline in the United States. It transports gasoline,
jet fuel and diesel/#2 fuel from the Gulf Coast to the mid-Atlantic states.
These equity interest pipelines provide CITGO with access to substantial
refinery feedstocks and reliable transportation to refined product markets.
15
<PAGE> 17
For the year ended December 31, 1995, CITGO's equity interest pipeline
interests provided it with $29 million of dividends. The following table
identifies the pipelines in which CITGO held an ownership interest at December
31, 1995.
<TABLE>
<CAPTION>
CITGO
CITGO 1995
PIPELINE LOCATION SIZE OWNERSHIP DIVIDENDS
- ------------------------- ----------------------------------- ----- --------- ---------
(MILES) (%) ($ IN MILLIONS)
<S> <C> <C> <C> <C>
Crude Oil Pipelines:
CITGO.................. Various locations in TX, LA and AR 959 100.0 $ --
West Texas-Gulf..... Colorado City, TX to Nederland, TX 579 11.4 0.9
Texas-New Mexico.... Aneth, UT to Houston, TX 3,803 10.0 0.9
Kaw................. Ray, KS to Chase, KS 1,396 33.3 0.1
Products Pipelines:
Colonial............... Houston, TX to Linden, NJ 5,317 13.98 $21.5
Explorer............... Lake Charles, LA to Hammond, IN 1,413 6.8 2.8
Eagle.................. Houston, TX to Drumright, OK 722 100.0 --
Casa................... Victoria, TX to Austin, TX 247 100.0 --
Badger................. E. Chicago, IN to Rockford, IL 334 32.0 1.2
Wolverine.............. Joliet, IL to Detroit, MI 618 9.5 1.0
West Shore............. Hammond, IN to Green Bay, WI 321 8.0 0.4
Lake Charles........... Lake Charles, LA 13 50.0 0.2
Lakemont............... Lake Charles, LA to 108 100.0 --
Mont Belvieu, TX
</TABLE>
These pipelines are all common carriers regulated by the Federal Energy
Regulatory Commission except for the Kaw crude oil pipeline, an intrastate
pipeline, regulated by a Kansas state agency. Historically, these pipelines have
paid out 100% of net earnings as dividends, with depreciation expense and
deferred taxes providing adequate cash flow to fund capital expenditures. CITGO,
along with other joint-interest owners (primarily major oil companies), has
obligations with respect to certain throughput and deficiency agreements in
connection with some of its joint-interest pipeline companies under the terms of
which the owners are obliged to transport sufficient product through the
pipeline in the event of a shortfall in transportation volumes. CITGO has
experienced no product shipment requirements under the throughput and deficiency
agreements, and does not anticipate any transportation volume shortfalls in the
foreseeable future.
COMPETITION
The U.S. petroleum refining and marketing industry is highly fragmented and
the Company's competitors include large integrated major oil companies as well
as independent refiners and marketers. No company accounts for more than 10% of
the total volume of gasoline sold in the U.S. Generally, U.S. refiners compete
for sales on the basis of price and brand image and recognition and, in some
product areas, product quality. Competitive factors also include: (i) the
relative balance between a refiner's crude supply sources, refining capacity,
and volumes of refined products needed to supply its marketing network, (ii)
market penetration, (iii) refining margin volatility, (iv) transportation
differentials, and (v) overall capital strength and financial flexibility.
EMPLOYEES
CITGO and its subsidiaries have a total of approximately 5,000 employees,
approximately 1,800 of whom are covered by 15 union contracts. Approximately
1,700 of the union employees are employed in refining operations. The remaining
union employees are located primarily at a lubricant blending and packaging
plant and at certain refined product terminals. The Company has recently
completed negotiations on labor contracts relating to a majority of its union
employees and the Company anticipates that contracts will be negotiated with
respect to the remainder of its union employees before the
16
<PAGE> 18
expiration of existing union contracts at the end of 1996. The Company has not
experienced any work stoppages or significant labor disputes and the Company
believes that its relationship with its employees is good.
ENVIRONMENT AND SAFETY
CITGO's operations are subject to extensive Federal, state and local
environmental laws and regulations governing air emissions, water discharges,
site remediation and the generation, handling and disposal of wastes. CITGO
believes that its operations are in substantial compliance with these laws and
regulations or are operating under consent decrees or similar arrangements with
governmental authorities to attain compliance. Past and present refining,
marketing and distribution activities have resulted in contamination at certain
CITGO properties which may, in some cases, have migrated to adjacent properties.
Upon the discovery of contamination at its refineries, terminals or other
properties, CITGO investigates and, where required, undertakes remedial measures
in accordance with applicable laws and regulations.
The Company is subject to environmental regulations adopted by the U.S.
Environmental Protection Agency ("EPA") and state environmental agencies to
implement the Clean Air Act Amendments of 1990 (the "CAA Amendments"). Among
other things, the CAA Amendments require all major sources of hazardous air
pollutants, as well as certain other sources of air pollutants, to obtain state
operating permits. The permits must contain applicable federal and state
emission limitations and standards as well as satisfy other statutory
requirements. The CAA Amendments also mandated numerous comprehensive
specifications for reformulated motor vehicle fuel, including reduced Reid vapor
pressure, lower benzene content and increased oxygenate content. In addition,
the CAA Amendments mandated significant reductions in the sulfur content of
diesel fuel. In particular, the CAA Amendments specified standards for the
"simple" model of reformulated gasoline to be used after January 1, 1995 in the
nine cities in the United States with the worst air quality and other cities
that voluntarily impose the stringent reformulated fuel specifications. CITGO
has incurred significant capital expenditures during the last several years in
order to satisfy these requirements of the CAA Amendments, and the Company
believes that it currently satisfies such requirements. The CAA Amendments also
provided that more stringent "complex" model requirements for reformulated fuels
are to be utilized in these cities beginning in May 1997, although these
"complex" model requirements have yet to be developed. The Company has budgeted
approximately $195 million for capital expenditures in the five-year period from
1996 to 2000 to modify refinery operations to satisfy the requirements of the
CAA Amendments relating to reformulated gasoline. These estimates may change due
to a variety of factors. See "Item 2. Financial Information -- Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In 1992, CITGO reached an agreement with a state agency to cease usage of
certain surface impoundments at CITGO's Lake Charles, Louisiana refinery by
1994, which has been complied with by CITGO. A mutually acceptable closure plan
was filed with the state in 1993. The Company and a former owner agreed to share
closure costs. Final closure of these impoundments is expected to be completed
no earlier than 1998. Equipment to replace these impoundments required
approximately $146 million of capital expenditures.
CITGO has entered into administrative consent orders with the New Jersey
Department of Environmental Protection to investigate and remediate three New
Jersey properties.
While CITGO is named as a potentially responsible party ("PRP") at a number
of "Superfund" sites, pursuant to a 1992 agreement, a former owner of CITGO has
agreed to indemnify CITGO with respect to Superfund damages where offsite
hazardous waste disposal occurred prior to September 1, 1983. Based on publicly
available information, CITGO believes that such former owner has the financial
capability to fulfill all of its responsibilities under this agreement.
Accordingly, CITGO believes that its offsite liability exposure under the
Federal Superfund and similar state laws is immaterial. In addition, under the
1992 agreement, CITGO assumed any responsibility for certain other environmental
contamination at certain owned terminal properties in return for cash payments
and other agreements.
17
<PAGE> 19
During 1994 and 1995, CITGO received two notices of violations and two
compliance orders from the EPA relating to the operation of certain units at the
Paulsboro Refinery. CITGO has disputed the allegations contained therein, and is
currently in confidential settlement negotiations with the EPA to resolve such
allegations. The resolution of this matter is anticipated shortly and is
expected to include a Consent Decree which will contain the assessment of a
penalty and compliance measures requiring certain capital expenditures. CITGO
does not believe the ultimate resolution of these matters will have a material
adverse effect on CITGO's consolidated financial position or results of
operations.
On March 4, 1994, CITGO received a notice of violation from the EPA
alleging violations related to a crude oil discharge in November 1992 into
Claiborne Parish, Louisiana, and a crude oil discharge in March 1993 into Moody
Creek in Gregg County, Texas. CITGO has agreed to pay $61,400 to the EPA to
settle this matter.
Increasingly stringent regulatory provisions periodically require
additional capital expenditures. During 1995, CITGO expended approximately $34
million for environmental and regulatory capital improvements in its operations.
CITGO currently anticipates that it will spend approximately $330 million for
environmental and regulatory capital projects over the five-year period
1996-2000.
CITGO's accounting policy establishes environmental reserves as probable
site restoration and remediation obligations become reasonably capable of
estimation. At December 31, 1995 and 1994, CITGO had $60 million and $58 million
of environmental accruals included in other noncurrent liabilities. Based on
currently available information, including the continuing participation of
former owners in remediation actions, CITGO believes that these accruals are
sufficient to address its environmental clean-up obligations.
Conditions which require additional expenditures may exist for various
Company sites including, but not limited to, the Company's operating refinery
complexes, closed refinery sites, service stations and crude oil and petroleum
storage terminals. The amount of such future expenditures, if any, is
indeterminable.
CITGO is subject to stringent occupational health and safety laws and
regulations. CITGO maintains comprehensive safety, training and maintenance
programs, and management believes that CITGO is in substantial compliance with
occupational health and safety laws.
18
<PAGE> 20
ITEM 2. FINANCIAL INFORMATION.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial and operating data of the Company as of the end of and for each of the
five years in the period ended December 31, 1995. The following table should be
read in conjunction with the consolidated financial statements of the Company
for the years ended December 31, 1995 and 1994 and for each of the three years
in the period ended December 31, 1995 included elsewhere in this Registration
Statement on Form 10 and the consolidated financial statements as of December
31, 1993, 1992 and 1991 and for each of the two years in the period ended
December 31, 1992 not presented herein. The consolidated financial statements
for each of the years in the five-year period ended December 31, 1995 have been
audited by Deloitte & Touche LLP, independent auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993(1) 1992 1991
------- ------ ------ ------ ------
($ IN MILLIONS, EXCEPT AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................................................... $10,522 $9,247 $9,107 $9,173 $8,922
Equity in earnings (losses) of affiliates.................. 34 29 30 25 32
Other income (expense), net................................ (7) (10) (4) (7) (3)
------- ------ ------ ------ ------
Total revenue........................................ 10,549 9,266 9,133 9,191 8,951
Cost of sales and operating expenses....................... 10,066 8,731 8,654 8,787 8,495
Selling, general and administrative expenses............... 162 157 138 137 125
------- ------ ------ ------ ------
Operating income......................................... 321 378 341 267 331
Interest income............................................ 4 3 1 1 3
Interest expense, including capital lease.................. 107 78 79 77 105
Minority interest.......................................... 2 2 2 2 1
------- ------ ------ ------ ------
Income before income taxes, extraordinary items and
cumulative effect of accounting changes................ 216 301 261 189 228
Income taxes............................................... 80 110 99 69 77
------- ------ ------ ------ ------
Income before extraordinary items and cumulative effect
of accounting changes.................................. 136 191 162 120 151
Extraordinary items(2)..................................... 4 (2) -- (8)
Cumulative effect of accounting changes(3)................. -- (4) -- (87) --
------- ------ ------ ------ ------
Net income............................................... $ 140 $ 185 $ 162 $ 33 $ 143
======= ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES........................... 2.76x 3.85x 3.71x 2.94x 2.92x
OTHER FINANCIAL DATA:
Depreciation and amortization(4)........................... $ 165 $ 157 $ 174 $ 147 $ 112
Capital expenditures....................................... 314 350 345 284 240
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................... $ 4,924 $4,440 $3,866 $3,488 $3,259
Long-term debt (excluding current portion)................. 1,159 1,008 912 1,057 849
Total debt................................................. 1,255 1,068 915 1,057 853
Capital lease obligation (total)........................... 152 162 170 178 184
Shareholder's equity....................................... 1,732 1,577 1,350 1,004 992
OPERATING DATA:
Rated refining capacity (at end of period) (MBPD)(5)....... 604 601 599 544 544
Refined product sales (millions of gallons)................ 18,344 17,173 16,097 14,788 13,118
Gasoline sales (millions of gallons)....................... 11,075 9,747 9,380 8,694 7,615
Number of CITGO branded outlets (at end of period)......... 14,038 13,117 12,546 11,953 11,319
</TABLE>
- ---------------
(1) Includes operations of the Savannah asphalt refinery since April 30, 1993.
(2) Represents extraordinary gain on early extinguishment of debt (net of
related income taxes of $2 million) in 1995; extraordinary charge for early
extinguishment of debt (net of related income tax benefits of $1 million) in
1994; and extraordinary charge for early extinguishment of debt (net of
related income taxes of $5 million) in 1991.
(3) Represents the cumulative effect of the accounting changes relating to the
adoption of SFAS 112 in 1994 (net of related income taxes of $3 million) and
SFAS 106 in 1992 (net of related income taxes of $51 million).
(4) Includes amortization of refinery turnaround costs.
(5) Includes CITGO's proportionate share of refining capacity of LYONDELL-CITGO
based on CITGO's equity interest in LYONDELL-CITGO. Due to the complex
processing required to refine heavy crude oil, the economic refining
capacity of the refineries to process heavy crude oil, such as that
purchased from PDVSA under long-term supply contracts, in generally less
than rated capacity. See "Item 1 and Item 3. Business and
Properties -- Refining."
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the financial condition and results of
operations of CITGO should be read in conjunction with the consolidated
financial statements of CITGO included elsewhere herein.
Petroleum industry operations and profitability are influenced by a large
number of factors, some of which individual petroleum refining and marketing
companies have little control over. Governmental regulations and policies,
particularly in the areas of taxation, energy and the environment, have a
significant impact on petroleum activities, regulating how companies conduct
their operations and formulate their products, and, in some cases, limiting
their profits directly. Demand for crude oil and refined products is largely
driven by the condition of local and worldwide economies, although weather
patterns and taxation relative to other energy sources also play a significant
part. Due to the seasonality of refined products markets and refinery
maintenance schedules, results of operations for any quarter of a calendar year
are not necessarily indicative of results to be expected for a full year.
CITGO's consolidated operating results are affected by these industry factors
and by Company-specific factors, such as the success of wholesale marketing
programs and refinery operations.
The earnings and cash flows of companies engaged in the refining and
marketing business in the United States are primarily dependent upon producing
and selling quantities of refined products at margins sufficient to cover fixed
and variable costs. The refining and marketing business is characterized by high
fixed costs resulting from the significant capital outlays associated with
refineries, terminals and related facilities. This business is also
characterized by substantial fluctuations in variable costs, particularly costs
of crude oil, feedstocks and blending components, and the prices realized for
refined products. Crude oil and refined products are commodities whose price
levels are determined by market forces beyond the control of CITGO.
In general, prices for refined products are significantly influenced by the
price of crude oil, feedstocks and blending components. Although an increase or
decrease in prices for crude oil, feedstocks and blending components generally
results in a corresponding increase or decrease in prices for refined products,
generally there is a lag in the realization of the corresponding increase or
decrease in prices for refined products. The effect of changes in crude oil
prices on CITGO's consolidated operating results therefore depends in part on
how quickly refined product prices adjust to reflect these changes. A
substantial or prolonged increase in crude oil prices without a corresponding
increase in refined product prices, a substantial or prolonged decrease in
refined product prices without a corresponding decrease in crude oil prices, or
a substantial or prolonged decrease in demand for refined products could have a
significant negative effect on the Company's earnings and cash flows. CITGO
purchases a significant amount of its crude oil requirements from PDVSA under
long-term supply agreements (expiring in the years 2006 through 2013). These
supply agreements are designed to reduce the volatility of earnings and cash
flows from CITGO's refining operations by providing a relatively stable level of
gross margin on crude oil supplied by PDVSA. This supply represented
approximately two-thirds of the crude oil processed in refineries operated by
CITGO in 1995. The sale of petrochemicals has been a significant contributor to
CITGO's income during the last two years; however, CITGO expects that industry
profit margins relating to petrochemicals will decrease from 1995 levels in the
near term. For the three years ended December 31, 1995, inflation was not a
significant factor in the operations of CITGO. As a result of these factors, the
earnings and cash flows of CITGO may experience substantial fluctuations.
Effective January 1, 1992, the supply agreements between PDVSA and CITGO
with respect to the Lake Charles, Corpus Christi and Paulsboro refineries were
modified to reduce the price levels to be paid by CITGO by a fixed amount per
barrel of crude oil purchased from PDVSA. Such reductions were intended to
defray CITGO's costs of certain environmental compliance expenditures. This
modification resulted in a decrease in the cost of crude oil purchased under
these agreements of approximately $70 million per year for the years 1992
through 1994 as compared to the amount that would otherwise
20
<PAGE> 22
have been payable thereunder. This modification was to expire at December 31,
1996; however, in 1995, PDVSA and CITGO agreed to adjust this modification so
that the 1992 fixed amount per barrel would be reduced and the adjusted
modification would not expire until December 31, 1999. The effect of this
adjustment to the original modification was to increase the cost of crude oil
purchased under these agreements by approximately $22 million in 1995 as
compared to the amount that would otherwise have been payable thereunder based
on the original modification (resulting in a net decrease of approximately $48
million from the amount otherwise payable under the agreement prior to the 1992
original modification). The Company anticipates that the effect of the
adjustments to the original modifications will be to increase the price of crude
oil purchased from PDVSA under these agreements by approximately $45 million in
1996 (resulting in a net decrease of approximately $25 million from the amount
otherwise payable under the agreement prior to the 1992 original modification)
and to reduce the price of crude oil purchased from PDVSA under these agreements
by approximately $25 million per year in 1997 through 1999, in each case as
compared to the original modification and without giving effect to any other
factors that may affect the price payable for crude oil under these agreements.
Due to the pricing formula under the supply agreements, the aggregate price
actually paid for crude oil purchased from PDVSA under these agreements in each
of these years will depend primarily upon the then current prices for refined
products and certain actual costs of CITGO. These estimates are also based on
the assumption that CITGO will purchase the base volumes of crude oil under the
agreements.
The following table summarizes the sources of CITGO's sales revenue and
sales volumes.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ------------------------------
1995 1994 1993 1995 1994 1993
-------- ------- ------- -------- -------- --------
($ IN MILLIONS) (MILLIONS OF GALLONS)
<S> <C> <C> <C> <C> <C> <C>
Gasoline................. $ 6,367 $ 5,252 $ 5,256 11,075 9,747 9,380
Jet fuel................. 1,163 1,102 1,019 2,249 2,131 1,827
Diesel/#2 fuel........... 1,356 1,491 1,566 2,730 3,067 3,005
Petrochemicals,
industrial products and
other products......... 831 707 602 1,572 1,509 1,247
Asphalt.................. 238 194 179 503 506 430
Lubricants and waxes..... 404 370 370 215 213 208
------- ------ ------ ------- ------- -------
Total refined
product
sales........ $ 10,359 $ 9,116 $ 8,992 18,344 17,173 16,097
Other sales.............. 163 131 115 -- -- --
------- ------ ------ ------- ------- -------
Total sales.... $ 10,522 $ 9,247 $ 9,107 18,344 17,173 16,097
======= ====== ====== ======= ======= =======
</TABLE>
The following table summarizes CITGO's cost of sales and operating
expenses.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1995 1994 1993
-------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C>
Crude oil............................................... $ 2,428 $ 2,180 $ 2,254
Refined products........................................ 5,504 4,547 4,329
Intermediate feedstocks................................. 898 854 838
Refining and manufacturing costs........................ 755 725 693
Other operating costs and expenses and inventory
changes............................................... 481 425 540
------- ------ ------
Total cost of sales and operating expenses.... $ 10,066 $ 8,731 $ 8,654
======= ====== ======
</TABLE>
RECENT RESULTS
Based on preliminary reports, the Company estimates that its revenues,
operating income and net income for the calendar quarter ended March 31, 1996
were $2.6 billion, $49.2 million and $14.8 million,
21
<PAGE> 23
respectively, as compared with revenues, operating income and net income for the
calendar quarter ended March 31, 1995 of $2.4 billion, $98.8 million and $50.5
million, respectively. Operating income for the first quarter of 1996 was
significantly lower than operating income for the corresponding quarter of 1995
due primarily to (i) a decrease in profitability on the sale of petrochemicals
in the first quarter of 1996 from the cyclically higher profitability on the
sale of petrochemicals realized in the first quarter of 1995 and (ii) the
increased cost of crude oil in the first quarter of 1996 as compared with the
first quarter of 1995 as a result of the price adjustments in the PDVSA crude
oil agreements that became effective on July 1, 1995. See "-- Overview" above.
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
Sales increased by $1,275 million, or 14%, from 1994 to 1995. The increase
was due to higher sales volumes and a slight increase in market prices. Sales
volumes of light fuels (gasoline, diesel/#2 fuel and jet fuel), excluding bulk
sales made for logistical reasons, were up 8% from 1994 to 1995 and their
average unit price increased $0.03. Gasoline sales volumes increased primarily
due to successful marketing efforts, including the net addition of approximately
920 new independently-owned CITGO branded retail outlets since December 31,
1994. Petrochemical sales volume rose 3% from 1994 to 1995. This increase,
combined with an average increase in unit prices of $0.14 resulted in a 19%
increase in petrochemical sales revenue from 1994 to 1995. Industrial products
sales volumes increased 14% and average unit prices increased, resulting in a
32% increase in industrial products sales revenue from 1994 to 1995. Asphalt
sales increased 23% from 1994 to 1995. The increase was primarily due to
increases in sales prices. Lubricants and wax sales increased 9% from 1994 to
1995 due to increases in sales prices.
Equity in earnings (losses) of affiliates increased by approximately $5
million, or 17%, from $29 million in 1994 to $34 million in 1995. This increase
was due to increases in equity in earnings of joint interest pipelines and
LYONDELL-CITGO of $2 million and $8 million, respectively, offset by a $6
million decrease in equity earnings of Nelson Industrial Steam Company
("NISCO"). The decrease in NISCO earnings in 1995 was attributable to higher
interest costs in 1995 as a result of the NISCO debt refinancing in September
1994.
Cost of sales and operating expenses increased by $1,335 million, or 15%,
from 1994 to 1995. Higher crude oil costs in 1995 as compared to 1994, resulted
from a 13% increase in crude oil prices in 1995 as compared to 1994, or
approximately $1.74 per barrel which includes approximately $0.13 per barrel
related to the 1995 adjustments of the PDVSA crude and feedstock supply
agreements discussed in the overview, even though volumes were down 2%. Higher
refined product costs in 1995 as compared to 1994 resulted from a 7% increase in
refined product purchase prices and a 14% increase in purchased volumes. The
increased purchased volumes were primarily due to increased sales to branded
distributors.
CITGO purchases refined products to supplement the production from its
refineries to meet marketing demands and resolve logistical issues. The refined
product purchases represented 50%, 52% and 55% of cost of sales for the years
1993, 1994 and 1995, respectively. CITGO estimates that margins on purchased
products, on average, are somewhat lower than margins on produced products due
to the fact that CITGO can only receive the marketing portion of the total
margin received on the produced refined products. However, purchased products
are not segregated from CITGO produced products and margins may vary due to
market conditions and other factors beyond the Company's control. As such, it is
difficult to measure the effects on profitability of changes in volumes of
purchased products. CITGO anticipates its purchased product requirements will
continue to increase, in volume and as a percentage of refined products sold, in
order to meet marketing demands, although in the near term, other than normal
refinery turnaround maintenance, CITGO does not anticipate operational actions
or market conditions which might cause a material change in anticipated
purchased product requirements; however, there could be events beyond the
control of CITGO which impact the volume of refined products purchased.
22
<PAGE> 24
In addition, in the third quarter of 1995, CITGO entered into a contract
with National Response Corporation ("NRC") for marine oil spill removal services
capability and terminated its relationship with the previous provider of that
service. While CITGO paid a cancellation fee of approximately $16 million in
connection with such termination, which is included in cost of sales and
operating expenses, management expects that its contract with NRC will result in
cost savings. Also, a fire damaged an operating unit at CITGO's Corpus Christi
refinery during the third quarter of 1995. There were no injuries. Property and
business interruption insurance policies were in place and mitigated the losses.
Approximately $6 million has been charged to cost of sales to cover, among other
things, the deductible under property insurance policies. The fire did not
materially affect the operations of CITGO.
The gross margin for 1995 was $456 million, or 4.3%, compared to $516
million, or 5.6% for 1994. The 1995 gross margin percentage was adversely
affected by the PDVSA agreement changes, the oil spill removal services
termination fee, the Corpus Christi fire and increased volumes of refined
product purchases as a percentage of sales volume.
Selling, general and administrative expenses increased $6 million, or 4%,
due primarily to increases in marketing expenses partially offset by the
amortization of unrecognized net gain on postretirement benefit obligations
during 1995.
Interest expense increased $30 million from 1994 to 1995. The increase was
due to a decrease of the amount of interest capitalized for 1995 as compared to
1994 and an increase in the level of outstanding debt due to the acquisition of
Cato and investments in LYONDELL-CITGO.
CITGO's provision for income taxes in 1995 was $80 million, representing an
effective tax rate of 37%. In 1994, CITGO's provision for income taxes was $110
million, representing an effective tax rate of 37%.
Net income of $140 million for 1995 included an after-tax extraordinary
gain of $3.4 million on early extinguishment of debt. Net income of $185 million
for 1994 included an after-tax charge of $4.5 million due to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits", and an extraordinary after-tax charge
of $1.6 million for the write-off of deferred loan fees and other costs related
to early extinguishment of debt reported by NISCO.
RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993
Sales increased by $140 million, or 2%, from 1993 to 1994. The increase was
due to higher sales volumes which were partially offset by lower market prices.
Sales volumes of light fuels (gasoline, diesel/#2 fuel and jet fuel), excluding
bulk sales made for logistical reasons, were up 5% from 1993 to 1994 and their
average unit price was down only $0.03 per gallon. Gasoline sales volumes
increased primarily due to successful marketing efforts, including the net
addition of 572 new independently-owned CITGO branded retail outlets since
December 31, 1993. Other product sales include sales of petrochemicals and
industrial products and asphalt, sales volumes for which increased 21% and 18%,
respectively, from 1993 to 1994. Average unit prices of these products
decreased, but were more than offset by sales volume increases. Petrochemical
sales volume alone rose 18% from 1993 to 1994. This increase, combined with an
average increase in unit prices of $0.06 per gallon, resulted in a 27% increase
in petrochemical sales revenue from 1993 to 1994.
Equity in earnings (losses) of affiliates decreased by approximately $1
million, from $30 million in 1993 to $29 million in 1994, due to a decrease in
equity in earnings of NISCO of $3 million, partially offset by increases in
equity in earnings of pipelines of $1 million and LYONDELL-CITGO of $1 million.
Cost of sales and operating expenses increased by $77 million, or 1%, from
1993 to 1994. Lower crude oil costs in 1994 as compared to 1993 resulted from a
7% decline in crude oil prices in 1994 as compared to 1993, even though volumes
were up 3%. Higher intermediate feedstock costs, attributable to higher volumes
purchased, partially offset the lower crude oil costs. Refinery production was
higher in 1994 than in 1993; however, due to the increased sales volumes
mentioned above, refined product
23
<PAGE> 25
purchases increased as well. The increase in refined product purchase volumes
was partially offset by lower refined product prices.
The gross margin for 1994 was $516 million, or 5.6%, compared to $453
million, or 5.0%, for 1993. The 1993 margin was adversely affected by higher
depreciation and amortization costs of approximately $16 million due to
turnaround maintenance expense and a loss on trading of commodity options of
approximately $20 million.
Selling, general and administrative expenses increased by $19 million, or
14%, due primarily to increases in salaries and benefits and expenses related to
CITGO's branded distributor marketing programs and other marketing related
expenditures.
Interest expense was approximately the same in 1994 and 1993.
CITGO's provision for income taxes in 1994 was $110 million, representing
an effective tax rate of 37%. In 1993, CITGO's provision for income taxes was
$99 million, representing an effective tax rate of 38%.
Net income of $185 million in 1994 included an after-tax extraordinary
charge of $1.6 million for the early extinguishment of debt reported by NISCO
and an after-tax charge of $4.5 million due to the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits".
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, CITGO's net cash provided by
operating activities totaled approximately $330 million, primarily reflecting
$140 million of net income, $165 million of depreciation and amortization, and
net changes in other items of $25 million. Accounts receivable and due from
affiliates increased approximately $77 million due to increased sales volumes
and higher prices. Accounts payable and other current liabilities increased by
approximately $133 million due to higher trade payables and payables to
affiliates resulting from higher volumes of crude oil and products purchased and
higher prices, excise tax increases and increases in various other accruals and
reserves.
Net cash used in investing activities in 1995 totaled $497 million
consisting of capital expenditures of $314 million, investments in
LYONDELL-CITGO of $179 million, and investment in Cato of $47 million, offset by
a reduction in restricted cash of $42 million, which were funds received from
tax-exempt financings that were used to pay for certain refinery facilities.
During the same period, net cash provided by financing activities totaled
approximately $171 million, comprised primarily of proceeds of $100 million from
a master shelf agreement, the issuance of $91 million in tax-exempt revenue
bonds, $95 million of net borrowings under CITGO's revolving bank facility, and
$15 million of capital contributions, less the repayment of $7 million on a term
bank loan, the repayment of $47 million of senior notes, the early
extinguishment of $47 million of Louisiana wastewater facility revenue bonds for
cash of $40 million, net repayment of short term bank loans of $28 million and
other uses of $8 million.
CITGO anticipates that its capital expenditures for the years 1996-2000
will total approximately $1.6 billion, exclusive of investments in
LYONDELL-CITGO. These include:
<TABLE>
<S> <C>
Strategic(1)................................................. $1,020 million
Maintenance.................................................. 250 million
Regulatory/Environmental(2).................................. 330 million
--------------
Total.............................................. $1,600 million
==============
</TABLE>
- ---------------
(1) includes approximately $258 million in ongoing capital projects, to be
funded from operating cash flow and existing bank facilities.
(2) includes approximately $195 million in capital expenditures to modify
refinery operations to produce reformulated fuels, as mandated by the Clean
Air Act Amendments of 1990.
24
<PAGE> 26
In addition, as of December 31, 1995, CITGO is committed to make additional
investments in LYONDELL-CITGO consisting of (i) $30 million at the in-service
date of the refinery enhancement project, which is currently scheduled for the
first quarter of 1997, and (ii) up to an additional approximately $150 million
through the in-service date provided that the project costs do not exceed 110
percent of current estimates. In addition, CITGO is committed to fund up to $22
million for certain maintenance and environmental costs to the extent that such
costs exceed certain estimates. CITGO expects to fund the Company's remaining
commitment through cash generated from operations and available credit
facilities.
CITGO's actual capital expenditures and actual investments in
LYONDELL-CITGO during this period may vary substantially from the foregoing
estimates due to a variety of factors, including changes to cost estimates
relating to specific projects, changes in prices for crude oil, feedstocks,
blending components or refined products, changes in technology, changes in
economic and industry conditions and changes in regulatory requirements.
As of December 31, 1995, the Company and its subsidiaries had an aggregate
of $1,280 million of indebtedness outstanding that matures on various dates
through the year 2026. As of December 31, 1995, the Company's contractual
commitments to make principal payments on this indebtedness were $120.2 million,
$95.2 million and $95.2 million for 1996, 1997 and 1998, respectively. The
Company's bank credit facility consists of a $117.6 million term loan, payable
in quarterly installments of principal and interest through December 1999, and a
$675 million revolving credit facility maturing in December 1999, of which $290
million was outstanding at December 31, 1995. One of CITGO's subsidiaries has a
separate credit agreement under which $42.8 million was outstanding at December
31, 1995. The Company's other principal indebtedness consists of (i) $260
million in outstanding principal amount of senior notes issued pursuant to a
master shelf agreement with an insurance company (of which notes in the
aggregate principal amount of $100 million were issued in 1995), (ii) $352.7
million in outstanding principal amount of senior notes issued in 1991, and
(iii) $191.3 million in outstanding principal amount of obligations related to
tax exempt bonds issued by various governmental units. See Note 10 to
Consolidated Financial Statements.
As of December 31, 1995, capital resources available to CITGO include cash
generated by operations, available borrowing capacity of $385 million under
CITGO's revolving credit facility and $155 million in unused availability under
uncommitted short-term borrowing facilities with various banks. CITGO believes
that it has sufficient capital resources to carry out planned capital spending
programs, including regulatory and environmental projects in the near term, and
to meet currently anticipated future obligations as they arise. CITGO
periodically evaluates other sources of capital in the marketplace and
anticipates long-term capital requirements will be satisfied with current
capital resources and future financing arrangements, including the issuance of
debt securities.
CITGO's debt instruments impose significant restrictions on CITGO's ability
to incur additional debt, place liens on property, sell or acquire fixed assets
and make restricted payments, including dividends.
CITGO is a member of the PDV America, Inc. consolidated Federal income tax
return. CITGO has a tax allocation agreement with PDV America, Inc. which is
designed to provide PDV America, Inc. with sufficient cash to pay its
consolidated income tax liabilities.
DERIVATIVE, COMMODITY AND FINANCIAL INSTRUMENTS
CITGO enters into petroleum futures contracts primarily to reduce its
inventory exposure to market risk. The Company also buys and sells commodity
options for delivery and receipt of crude oil and refined products. Such
contracts are entered into through major brokerage houses and traded on national
exchanges and can be settled in cash or through delivery of the commodity.
Such activity generally qualifies for hedge accounting. In order for a
transaction to qualify as a hedge, the Company requires that the item to be
hedged expose the Company to price risk and that the commodity contract reduce
that risk and be designated as a hedge. The high correlation between price
25
<PAGE> 27
movements of a product and the commodity contract in that product is well
demonstrated in the petroleum industry and generally the Company relies on those
historical relationships and on periodic comparisons of market price changes to
price changes of futures and options contracts accounted for as hedges. Gains or
losses on contracts which qualify as hedges are recognized when the related
inventory is sold or the hedged transaction is consummated. Changes in the
market value of futures and option positions which do not qualify as hedges are
recorded as gains or losses in the period in which they occur.
Since the contracts described above generally qualify as hedges and
correlate to price movements of crude oil and refined products, gains or losses
resulting from market changes in these contracts generally will be offset by
losses or gains on CITGO's hedged inventory or future purchases and sales.
Unrealized and deferred gains and losses on these contracts at December 31, 1995
and 1994 and the effects on cost of sales and pretax earnings for 1995 and 1994
were not material. At times, the Company enters into commodity option agreements
that are not related to the hedging program discussed above. This activity and
its results were not material in 1995 or 1994; 1993 cost of sales includes an
approximate $20 million loss from this activity. Since 1993, the Company has
significantly restricted its non-hedging activities in these instruments.
The Company has only limited involvement with other derivative financial
instruments, and does not use them for trading purposes. They are used to manage
well defined interest rate and commodity price risks arising out of the
Company's core activities.
The Company has entered into various interest rate swap and cap agreements
to manage its risk related to interest rate changes on its debt. Premiums paid
for purchased interest rate swap and cap agreements are amortized to interest
expense over the terms of the agreements. Unamortized premiums are included in
other assets. The interest rate differentials received or paid by the Company
related to these agreements are recognized as adjustments to interest expense
over the term of the agreements. Gains or losses on terminated swap agreements
are either amortized over the original term of the swap agreement if the hedged
borrowings remain in place or are recognized immediately if the hedged
borrowings are no longer held.
CITGO has entered into the following interest rate swap agreements to
reduce the impact of interest rate changes on its variable interest rate debt:
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
AMOUNT
EXPIRATION FIXED RATE ----------------------
VARIABLE RATE INDEX DATE PAID 1995 1994
------------------- ---------- ---------- -------- --------
(%) (IN THOUSANDS)
<S> <C> <C> <C> <C>
One-month LIBOR................. September 1998 4.85 $ 25,000 $25,000
One-month LIBOR................. September 1998 4.77 -- 25,000
One-month LIBOR................. November 1998 5.09 25,000 25,000
One-month LIBOR................. May 2000 6.28 25,000 --
J.J. Kenny...................... May 2000 4.72 25,000 --
J.J. Kenny...................... February 2005 5.30 12,000 --
J.J. Kenny...................... February 2005 5.27 15,000 --
J.J. Kenny...................... February 2005 5.49 15,000 --
-------- -------
$142,000 $75,000
======== =======
</TABLE>
The fair value of the interest rate swap agreements in place at December
31, 1995, based on the estimated amount that CITGO would receive or pay to
terminate the agreements as of that date, taking into account current interest
rates, was an unrealized loss of approximately $3 million. In connection with
the determination of such fair market value, the Company considered the credit
worthiness of the counterparties but no adjustment was determined to be
necessary.
Interest expense includes $0.1 million, $0.4 million and $0.3 million in
1995, 1994 and 1993, respectively, related to interest paid on these agreements.
During 1995, CITGO converted $25 million of
26
<PAGE> 28
variable rate debt to fixed rate borrowings and terminated the interest rate
swap agreement matched to the variable rate debt. Other income in 1995 includes
a $2.4 million gain related to the termination of this interest rate swap
agreement.
During 1995, CITGO entered into a 9% interest rate cap agreement with a
notional amount of $25 million, a reference rate of three-month LIBOR and an
expiration date of February 1997. Other interest rate cap agreements to which
CITGO was a party expired in November 1994. The effect of these agreements was
not material in 1995 or 1994.
The Company from time to time enters into refined product price collars and
crackspread hydrocarbon swaps. No premiums are required for these agreements.
Gains and losses under these agreements, which primarily fix margins on
anticipated sales, are accrued as receivables or payables and as adjustments of
the carrying amount of inventories. The amounts are recognized in income through
cost of sales when the related refined products are sold, unless an earlier
write-down is required to recognize anticipated nonrecovery of deferred amounts.
The Company believes the market risk associated with these agreements is not
significant. At December 31, 1995, CITGO had no such agreements in place.
Neither CITGO nor the counterparties are required to collateralize their
obligations under these derivative commodity and financial instruments. CITGO is
exposed to credit loss in the event of nonperformance by the counterparties to
these agreements, but has no off-balance-sheet credit risk of accounting loss
for the notional amounts. CITGO does not anticipate nonperformance by the
counterparties, which consist primarily of major financial institutions at
December 31, 1995.
NEW ACCOUNTING STANDARD
In March 1995, SFAS No. 121 "Accounting for Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of" was issued and contains significant
changes to current accounting practices that must be adopted for fiscal years
beginning after December 15, 1995. SFAS 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 also requires that
such assets to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. Based on a preliminary review, management believes
that the effect of adopting SFAS 121 in 1996 will not be material to CITGO's
financial position or results of operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
CITGO is a direct wholly-owned subsidiary of PDV America and an indirect
wholly-owned subsidiary of PDVSA.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names, ages and titles of the directors
and executive officers of CITGO.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Luis Urdaneta................. 54 Chairman of the Board and Director
Ralph S. Cunningham........... 55 President, Chief Executive Officer and
Director
Roberto V. Mandini............ 55 Executive Vice President and Director
William J. Beckert............ 53 Senior Vice President, Operations
Steven R. Berlin.............. 51 Senior Vice President, Finance and
Administration and Chief Financial Officer
Lawrence H. Brittain, Jr. .... 61 Senior Vice President, Marketing, Light Oils
and Lubricants
Eduardo Lopez Quevedo......... 55 Director
Angel E. Olmeta............... 58 Director
</TABLE>
27
<PAGE> 29
The only standing committee of the Company's Board of Directors is the
Audit Committee. The Audit Committee is comprised of Messrs. Mandini, Lopez
Quevedo and Olmeta.
Set forth below are the biographies of each of the Company's directors and
executive officers.
Luis Urdaneta, Chairman of the Board and Director. Mr. Urdaneta has been a
Vice President of PDVSA since March 1994. Prior to such time, he was a Vice
President of Lagoven, a subsidiary of PDVSA engaged in the exploration,
production, refining and retailing of crude, products, gas and LPG, from
February 1992 to February 1994; the President of Carbozulia, the coal subsidiary
of PDVSA from 1986 to 1992; a Director of Pequiven, the petrochemical subsidiary
of PDVSA from January 1985 to 1986; a Director of Intevep, the research and
development subsidiary of PDVSA from January 1985 to 1986; a director of
Bariven, a subsidiary of PDVSA engaged in materials purchasing for U.S. and
European operations, from January 1985 to 1986; the General Refining Manager of
Lagoven, a subsidiary of PDVSA engaged in the exploration, production, refining
and retailing of crude, products, gas and LPG, in 1984; and the Manager of Amuay
Refinery, from 1981 to 1983.
Ralph S. Cunningham, President, Chief Executive Officer and Director. Mr.
Cunningham has been President and Chief Executive Officer since May 1, 1995.
Prior to such time, he was Vice Chairman of Huntsman Corporation (a privately
held petrochemical company headquartered in Houston, Texas) from 1994 to 1995,
President of Texaco Chemical Company from 1990 to 1994, Chairman and Chief
Executive Officer of Clark Oil & Refining Corporation from 1989 to 1990,
President of Tenneco Oil Processing & Marketing from 1982 to 1989 and Executive
Vice President of Tenneco Oil Processing & Marketing from 1980 to 1982. Mr.
Cunningham is a Director of Bank of Oklahoma, N.A., Enterprise Products Company
(a natural gas liquids service business), Huntsman Corporation, International
Technology Corporation (an environmental waste management company), and
Sherritt, Inc. (a fertilizer production company).
Roberto V. Mandini, Executive Vice President and Director. Mr. Mandini has
been Executive Vice President since January 1995. Prior to such time, he was
Chief Executive Officer and Chairman of the Board of Directors of Corpoven S.A.,
a subsidiary of PDVSA engaged in the exploration, production, refining and
retailing of crude, products, gas and LPG, from December 1986 to December 1994.
Mr. Mandini was also Executive Vice President of Corpoven S.A. from June 1986 to
December 1986, Executive Vice President of Meneven S.A., a company that was
merged into Corpoven in 1986, from January 1985 to June 1986, a member of the
Board of Directors of Lagoven S.A., a subsidiary of PDVSA engaged in the
exploration, production, refining and retailing of crude, products, gas and LPG,
from 1981 to 1985, and Producing Function Coordinator with PDVSA from 1980 to
1981.
William J. Beckert, Senior Vice President, Operations. Mr. Beckert has been
Senior Vice President, Operations since December 1994, with responsibility for
the Lake Charles Manufacturing Complex, Corpus Christi Refinery, Petrochemicals,
Supply and Logistics, Asphalt Business Unit, Refinery Coordination, Industrial
Products, Corporate Planning and Economics, and Health, Safety and
Environmental. Prior to such time, he was Vice President, Corporate Planning and
Economics from 1986 to 1995 and General Manager, Operations and Planning from
1985 to 1986. Prior to such time, he was Manager, Product Management with Gulf
Oil Corporation from 1982 to 1985 and Manager, Business Performance and
Coordination from 1980 to 1982 and Manager, International Planning and
Coordination from 1978 to 1980. Mr. Beckert currently serves as Chairman of the
Board of Directors of THYSSEN-CITGO Petcoke Corporation (a joint venture
downstream petroleum coke marketing company) and as a Director of PDV Services,
Inc. and the American Petroleum Institute.
Steven R. Berlin, Senior Vice President, Finance and Administration and
Chief Financial Officer. Mr. Berlin has been Senior Vice President and Chief
Financial Officer since August 1992, with responsibility for Finance and
Administration Organizations including Benefits Planning, Corporate Controller
and Treasurer, Government and Public Affairs, Information Systems, Procurement
and Corporate Services, and Tax. Prior to such time, he was Vice President and
Chief Financial Officer of CITGO from 1986 to 1992, General Manager Industrial
Products of CITGO (which included responsibility for refining by-products such
as sulfur and petroleum coke) from 1985 to 1986 and General Manager, Financial
Services of CITGO from 1983 to 1985. Prior to such time, he was Controller,
Refining, Marketing
28
<PAGE> 30
and Transportation of Cities Service Company from 1982 to 1983 and Natural Gas
Liquids from 1979 to 1982 and Manager, Operations Control from 1976 to 1979.
Prior to such time, he was Professor of Accounting, University of Houston, from
1971 to 1973 and part-time Professor of Accounting, University of Tulsa, from
1973 to 1980. Mr. Berlin is a director of the American Petroleum Institute and a
director of the American Assembly of Collegiate Schools of Business.
Lawrence H. Brittain, Jr., Senior Vice President, Marketing, Light Oils and
Lubricants. Mr. Brittain has been Senior Vice President Marketing, Light Oils &
Lubricants since March 1, 1996. Prior to such time, he was Vice President,
Marketing of CITGO from 1986 to 1996 with responsibility for Light Oils
Marketing, Credit Card Operations, Pricing, Aviation and Government Sales,
Advertising, Brand Operations and Program Development, Business Services, and
Terminal Facilities. Prior to such time, he was General Manager Retail
Operations of CITGO from 1985 to 1986. Prior to such time, he was Division
Manager with Chevron in 1985; General Manager of the Houston and Nashville
Districts with Gulf Oil Corporation from 1974 to 1985; District Sales Manager
(Atlanta) from 1971 to 1974; Sales Manager (Jacksonville) from 1968 to 1971;
Regional Merchandising Manager, Southern Region from 1967 to 1968 and All
Markets Sales Representative from 1962 to 1966. Mr. Brittain currently serves on
the Board of Directors for Deltaven, S.A., a subsidiary of PDVSA responsible for
marketing petroleum products in Venezuela.
Eduardo Lopez Quevedo, Director. Mr. Lopez Quevedo has been President of
Interven, S.A., a company engaged in the monitoring of the international
operations of PDVSA, since 1994. Prior to such time, he was the President of
Maraven, S.A., a subsidiary of PDVSA engaged in the exploration, production,
refining and retailing of crude, products, gas and LPG, from 1992 to 1994. Prior
to such time, he was Vice President of Maraven, S.A., from 1990 to 1992; a Vice
President of Interven, S.A. from 1988 to 1990; Vice President of Corpoven, S.A.,
a subsidiary of PDVSA engaged in the exploration, production, refining and
retailing of crude, products, gas and LPG from 1986 to 1988; President of
Cevegas, S.A., an industrial gas company in Venezuela, from 1986 to 1988; a
Director of Lagoven, S.A., a subsidiary of PDVSA engaged in the exploration,
production, refining and retailing of crude, products, gas and LPG, from January
1985 to December 1986; a Director of Corpoven, S.A. from December 1978 to
January 1985; the Trading and Supply Coordinator of PDVSA from 1977 to 1978; and
a Director of Llanoven, the successor to Mobil Oil in Venezuela, from 1975 to
1977. Mr. Lopez Quevedo currently serves as a Director of Interven, S.A.; Vice
Chairman of the Board of AB Nynas Petroleum of Sweden; Vice Chairman of the
Supply and Marketing Committee of Ruhr Oel Gmbh of the Federal Republic of
Germany; and Chairman of PDV Europa of The Hague and The Netherlands.
Angel E. Olmeta, Director. Mr. Olmeta has been Presidential Advisor of
PDVSA since January 1, 1996. Prior to such time he was Vice President of PDV
America Corporation, the holding company for the U.S. operations of PDVSA, from
September 1994 to December 1995; Executive Vice President and Chief Operating
Officer of CITGO from August 1992 to August 1994; Executive Vice President of
CITGO from August 1991 to August 1992; Managing Director of Petroleos de
Venezuela (USA) Corporation, a subsidiary of PDVSA, from 1987 to 1991; a
Director of Lagoven, a subsidiary of PDVSA engaged in the exploration,
production, refining and retailing of crude, products, gas and LPG, from 1985 to
1987; Corporate Planning Coordinator of PDVSA from 1981 to 1985; and
International Marketing Manager of Maraven, a subsidiary of PDVSA engaged in the
exploration, production, refining and retailing of crude, products, gas and LPG
from 1976 to 1981. Mr. Olmeta currently serves as a Director of PDV America and
PDVSA.
29
<PAGE> 31
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the annual salary, bonuses and other
compensation and long-term incentive award payouts earned during 1995 by CITGO's
President and Chief Executive Officer, former President and Chief Executive
Officer and each of its four other most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
NAME AND -------------------------------- INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER PAYOUT(L) COMPENSATION
- --------------------------------- ---- -------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ralph S. Cunningham(a)
President and Chief
Executive Officer.............. 1995 $366,667 $250,000 $193,642(b) $ -- $ 13,752(g)
Ron E. Hall(a)
Former President and
Chief Executive Officer........ 1995 $276,500 $ -- $ 93,457(c) $617,250 $457,942(h)
Roberto V. Mandini
Executive Vice President....... 1995 $400,000 $240,000 $ 98,821(d) $ -- $ 13,500(i)
Steven R. Berlin
Sr. Vice President, Finance &
Administration and Chief
Financial Officer.............. 1995 $357,500 $146,000 $ 51,647(e) $201,635 $ 23,582(j)
William J. Beckert
Sr. Vice President,
Operations..................... 1995 $283,500 $130,000 $ --(f) $142,214 $ 13,500(i)
Peter E. Luitwieler
Vice President, Systems
Modernization.................. 1995 $244,000 $ 90,000 $ --(f) $148,140 $ 19,521(k)
</TABLE>
- ---------------
(a) Mr. Cunningham was elected President and Chief Executive Officer of the
Company upon Mr. Hall's retirement effective May 1, 1995. The amount shown
as "Salary" for Mr. Cunningham is reflective of the fact that he was
employed by the Company for only eight months in 1995, and the amount shown
as "Salary" for Mr. Hall is reflective of the fact that he was employed by
the Company for only four months in 1995.
(b) Includes $81,448 of interest paid by the Company on Mr. Cunningham's home
mortgage and the related federal and state income tax and FICA remitted as
additional withholding by the Company on Mr. Cunningham's behalf. The
balance represents the value of perquisites that, individually, do not
constitute more than 25% of the total perquisites for Mr. Cunningham.
(c) Includes $26,981 for Company-paid financial planning services provided to
Mr. Hall and the related federal and state income tax and FICA remitted as
additional withholding by the Company on Mr. Hall's behalf. The balance
represents the value of perquisites that, individually, do not constitute
more than 25% of the total perquisites for Mr. Hall.
(d) Includes a $40,456 housing allowance paid to Mr. Mandini and the related
federal and state income tax and FICA remitted as additional withholding by
the Company on Mr. Mandini's behalf. The balance represents the value of
perquisites that, individually, do not constitute more than 25% of the
total perquisites for Mr. Mandini.
(e) Includes $16,760 related to Mr. Berlin's use of a Company car and the
related federal and state income tax and FICA remitted as additional
withholding by the Company on Mr. Berlin's behalf. The balance represents
the value of perquisites that, individually, do not constitute more than
25% of the total perquisites for Mr. Berlin.
(f) Perquisites and other personal benefits are less than the lesser of $50,000
or 10% of the total of annual salary and bonus for the named executive
officer.
30
<PAGE> 32
(g) Represents moving expenses of $13,752 paid in connection with Mr.
Cunningham's relocation to Tulsa, Oklahoma to commence employment with the
Company.
(h) In connection with his retirement on May 1, 1995, Mr. Hall received a cash
payment of $120,000, a cash payment of $31,904 in lieu of vacation for 1995
and other property and related tax payment adjustments of $149,484. All
Other Compensation also includes Company contributions of $13,500 to Mr.
Hall's account in the Company's Section 401(k) plan for 1995 and $143,054
earned during 1995 on long-term incentive plan compensation.
(i) Represents Company contributions to the named executive officer's account
in the Company's Section 401(k) plan for 1995.
(j) Includes Company contributions of $13,500 to Mr. Berlin's account in the
Company's Section 401(k) plan for 1995 and $10,082 earned during 1995 on
long-term incentive compensation.
(k) Includes Company contributions of $13,500 to Mr. Luitwieler's account in
the Company's Section 401(k) plan for 1995 and $6,021 earned during 1995 on
long-term incentive compensation.
(l) Represents long-term incentive plan awards granted in 1992 and earned over
the three-year performance period from 1992 through 1994. Messrs. Hall,
Beckert and Luitwieler received their payouts during 1995; pursuant to an
irrevocable election made during 1992 by Mr. Berlin, his payout has been
deferred. Payout was based on the achievement of the three years' earnings
goals as modified. The LTIP provides that generally performance goals
established for any period will not change. However, the plan provides that
certain extraordinary circumstances may warrant, at the discretion of the
Board of Directors, a modification to the performance goals. Certain of the
performance goals were modified in accordance with the terms of the plan in
order to take into account certain extraordinary circumstances.
LONG-TERM INCENTIVE PLAN
The Company has established the CITGO Petroleum Corporation Long-Term
Incentive Plan (the "LTIP") pursuant to which the Company may award cash to plan
participants in order to attract and retain key management employees. Grants are
made on an annual basis to participants pursuant to the recommendation of the
President and Chief Executive Officer and the approval of the Board of
Directors. In making grants and selecting participants, the nature of the
services rendered by the participant and his or her present and potential
contributions to the long-term financial success of the Company are considered.
The following table provides information concerning awards granted under the
Company's LTIP during the last fiscal year to the executive officers named in
the Summary Compensation Table.
LONG-TERM INCENTIVE PLAN -- GRANTS IN 1995
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
PERIOD ESTIMATED FUTURE PAYOUTS UNDER
UNTIL NON-STOCK PRICE-BASED PLANS
MATURATION --------------------------------------------
NAME OR PAYOUT THRESHOLD ($) TARGET ($) MAXIMUM ($)
---- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Ralph S. Cunningham................... 3 years $ 317,777 $ 635,554 $1,271,108
Ron E. Hall........................... 3 years $ 359,450 $ 718,900 $1,437,800
Roberto V. Mandini.................... 3 years $ 240,000 $ 480,000 $ 960,000
Steven R. Berlin...................... 3 years $ 210,000 $ 420,000 $ 840,000
William J. Beckert.................... 3 years $ 168,000 $ 336,000 $ 672,000
Peter E. Luitwieler................... 3 years $ 119,000 $ 238,000 $ 476,000
</TABLE>
Under the LTIP, payouts are based upon the Company's achievement of
specified operating and financial goals over a maximum of a three-year period
ending on the maturity date. The performance goals are established by the Board
of Directors pursuant to the recommendation of the President and
31
<PAGE> 33
Chief Executive Officer. The performance goals may not be modified except in
certain extraordinary circumstances at the discretion of the Board of Directors.
Whether a payout is at the threshold, target or maximum amount depends upon the
degree to which performance goals are achieved. If actual performance is 120% or
more of the goal, participants earn the maximum award. If actual performance is
100% of the goal, the target award is earned. If actual performance is 80% of
the goal, the threshold award is earned. Straight-line interpolation is used for
percentages between the 120% level and the 100% level and between the 100% level
and the 80% level. No payouts are earned if the actual performance is less than
80% of the goal.
Within 30 days of the grant of any annual LTIP award, participants may
irrevocably elect to defer all of their award past maturity date. However, if a
participant terminates employment, other than by retirement, all deferred
amounts are immediately payable. Awards under the 1995 program were granted in
March 1995, will mature on December 31, 1997 and are payable in March 1998
unless an election to defer was made.
Target awards for each of the named executive officers are based upon their
annual salary in effect as of the beginning of the first year in the three-year
performance period multiplied by the applicable percentages as specified in the
LTIP. Awards for Mr. Cunningham and Mr. Hall were pro-rated to reflect their
partial years of participation in 1995.
In the event of a participant's termination of employment prior to the end
of a performance period or upon a change in control (as defined in the plan),
awards may be modified, payouts may be accelerated, and in certain circumstances
(e.g., termination for reasons other than death, disability, retirement) awards
may be forfeited.
RETIREMENT PLANS
Certain employees of the Company, including each of the named executive
officers reflected in the Summary Compensation Table, are participants in
CITGO's Pension Plan for Salaried Employees (the "Pension Plan"). The Pension
Plan is a qualified, noncontributory, defined benefit retirement plan governed
by the Employee Retirement Income Security Act of 1974. The Pension Plan was
established January 1, 1991 and is administered by a committee appointed by the
President and Chief Executive Officer. All salaried employees of CITGO and its
participating subsidiaries (including officers) are eligible to participate in
the Pension Plan provided they meet certain service requirements.
The following table illustrates the estimated annual retirement benefits
payable as a straight-life annuity beginning at age 65 under the Pension Plan to
participants in the following classifications of final average base earnings and
years of service. Benefits under the Pension Plan are not reduced by Social
Security benefits or other offset amounts.
PENSION PLAN TABLE
FOR THE
PENSION PLAN FOR SALARIED EMPLOYEES
<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF BENEFIT CREDIT SERVICE
BASE ---------------------------------------------------
EARNINGS: 15 20 25 30 35
- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 50,000................................... $ 7,500 $10,000 $12,500 $15,000 $17,500
$ 75,000................................... $12,750 $17,000 $21,250 $25,500 $29,750
$100,000................................... $18,000 $24,000 $30,000 $36,000 $42,000
$125,000................................... $23,250 $31,000 $38,750 $46,500 $54,250
$150,000................................... $28,500 $38,000 $47,500 $57,000 $66,500
$175,000................................... $28,500 $38,000 $47,500 $57,000 $66,500
$200,000................................... $28,500 $38,000 $47,500 $57,000 $66,500
</TABLE>
Benefits are paid to or on behalf of each participant upon retirement,
normally at age 65, and under certain circumstances upon death or disability.
The amount of annual pension payable at normal retirement age under the Pension
Plan is calculated by [A + B] x C, where A equals 1% of final average
32
<PAGE> 34
base earnings (up to the breakpoint), B equals 1.4% of final average base
earnings (above the breakpoint), and C equals the years of benefit credit
service after January 1, 1991 (up to 40 years). "Final average base earnings" is
the annual average of the highest 36 consecutive months of base salary during
the final ten years of the participant's employment, limited in accordance with
federal law to the amount that may be considered in determining qualified plan
benefits. For purposes of the table above, it has been assumed that the current
federal limit of $150,000 remains unchanged. The breakpoint is 125% of the
35-year rolling average of the individual's covered compensation for Social
Security purposes ending with the year the individual participant reaches Social
Security retirement age. For purposes of the table above, the breakpoint is
assumed to be $50,000. The benefits payable under the Pension Plan are
actuarially adjusted to reflect the form of payment elected by the participant
and are subject to the limitations on maximum benefits imposed by applicable
federal law. At December 31, 1995, the executive officers named in the Summary
Compensation Table had the following years of benefit credit service under the
Pension Plan:
<TABLE>
<CAPTION>
NAMED
EXECUTIVE YEARS OF BENEFIT
OFFICERS CREDIT SERVICE
--------- ----------------
<S> <C>
Mr. Cunningham................................ 0
Mr. Hall...................................... 4.3334
Mr. Mandini................................... 1
Mr. Berlin.................................... 5
Mr. Beckert................................... 5
Mr. Luitwieler................................ 5
</TABLE>
The Company also provides pension benefits to certain executives under
CITGO's non-qualified supplemental defined benefit plan for selected key
executives (the CITGO Petroleum Corporation Executive Protection Plan, referred
to herein as the "Supplemental Pension Plan"). The following table illustrates
the estimated annual straight-life annuity benefits payable at age 65 to a
participant (at the level of Vice President or higher) under the Supplemental
Pension Plan in the following classifications of compensation and years of
participation.
PENSION PLAN TABLE
FOR THE
SUPPLEMENTAL PENSION PLAN FOR SELECTED KEY EXECUTIVES
<TABLE>
<CAPTION>
YEARS OF PLAN PARTICIPATION
------------------------------------------------------------
COMPENSATION: 15 20 25 30 35
- ------------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 200,000....................... $ 46,500 $ 62,000 $ 77,500 $ 93,000 $ 108,500
$ 250,000....................... $ 65,250 $ 87,000 $108,750 $ 130,500 $ 152,250
$ 300,000....................... $ 84,000 $112,000 $140,000 $ 168,000 $ 196,000
$ 350,000....................... $102,750 $137,000 $171,250 $ 205,500 $ 239,750
$ 400,000....................... $121,500 $162,000 $202,500 $ 243,000 $ 283,500
$ 500,000....................... $159,000 $212,000 $265,000 $ 318,000 $ 371,000
$ 600,000....................... $196,500 $262,000 $327,500 $ 393,000 $ 458,500
$ 700,000....................... $234,000 $312,000 $390,000 $ 468,000 $ 546,000
$ 800,000....................... $271,500 $362,000 $452,500 $ 543,000 $ 633,500
$ 900,000....................... $309,000 $412,000 $515,000 $ 618,000 $ 721,000
$1,000,000....................... $346,500 $462,000 $577,500 $ 693,000 $ 808,500
$1,250,000....................... $440,250 $587,000 $733,750 $ 880,500 $1,027,250
$1,500,000....................... $534,000 $712,000 $890,000 $1,068,000 $1,246,000
</TABLE>
The Supplemental Pension Plan is unfunded and is designed to supplement the
benefits paid to certain executives of the Company pursuant to the qualified
Pension Plan. Eligibility to participate is limited to the senior executive
staff and a group of key management employees as selected by the President and
Chief Executive Officer on an annual basis. The plan is noncontributory and
provides that
33
<PAGE> 35
the normal retirement age is 65. The benefits shown above are not subject to
reduction for Social Security benefits but may be reduced, as described in the
following sentence, for benefits payable under the Pension Plan. The annual
pension benefit under the Supplemental Pension Plan of a participant at the
level of Vice President or higher is the greater of (i) the product of 2.5% and
the number of years of plan participation, reduced by benefits payable under the
Pension Plan, and (ii) 20% of compensation. For any participant that is below
the level of Vice President, the annual pension benefit is calculated as 15% of
compensation. Compensation for purposes of the Supplemental Pension Plan is the
participant's annual base salary, as in effect generally at the date of
retirement, plus the greater of (a) the most recently awarded annual bonus and
(b) the average of the last three awarded annual bonuses. Compensation for
purposes of the Supplemental Pension Plan of each named executive officer,
except Mr. Hall, is substantially equivalent to the respective amounts set forth
in the Summary Compensation Table under the headings Salary and Bonus. For Mr.
Hall, who retired effective May 1, 1995, compensation for purposes of the
Supplemental Pension Plan is $1,462,000. At December 31, 1995, the executive
officers named in the Summary Compensation Table had the following years of plan
participation:
<TABLE>
<CAPTION>
YEARS OF PLAN
NAMED EXECUTIVE OFFICERS PARTICIPATION
------------------------ -------------
<S> <C>
Mr. Cunningham................................... 0.6667
Mr. Hall......................................... 9.8333
Mr. Mandini...................................... 1
Mr. Berlin....................................... 11.55
Mr. Beckert...................................... 9.5
Mr. Luitwieler................................... 10.5
</TABLE>
Benefits generally commence under the Supplemental Pension Plan upon the
participant's retirement and are paid on a joint and survivor basis, which
provides for a lesser annual benefit to be paid to the participant's designated
beneficiary upon the death of the retired participant. The plan also provides
for certain disability benefits, pre- and post-retirement death benefits and a
pre-retirement spouse's benefit. A participant generally vests in his plan
benefit upon completion of sixty consecutive months of plan participation.
However, as allowed under the plan, the Board of Directors granted Mr.
Cunningham an accelerated phase-in of his vested right to a Supplemental Pension
Plan benefit.
In 1996, the Company approved the adoption of the Retirement Restoration
Plan, an unfunded, nonqualified, defined benefit plan available to selected
participants in the Pension Plan, providing benefits not otherwise payable by
the Pension Plan due to limitations imposed by federal law. The tables and
disclosures above do not take into account any excess benefits that may be
payable under the Retirement Restoration Plan; however, any benefits payable
under the Retirement Restoration Plan will reduce the benefits payable under the
Supplemental Pension Plan in the same manner as for benefits payable under the
Pension Plan.
COMPENSATION OF DIRECTORS
The members of the Board of Directors of CITGO receive no compensation in
their capacity as directors on the Board. There are no standard agreements or
any other arrangements, including consulting contracts, with any director.
EMPLOYMENT CONTRACTS/TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In connection with Mr. Cunningham's appointment in May 1995 as President
and Chief Executive Officer following Mr. Hall's retirement, the Company and Mr.
Cunningham entered into an agreement that provides that if Mr. Cunningham is
terminated by the Company without cause during his first twelve months of
employment, he will receive a lump sum payment equal to his annual salary, he
will be moved at Company expense to Houston and the Company will buy his home in
Tulsa. Additionally, if Mr. Cunningham is terminated by the Company without
cause after he completes twelve months of employment, he will receive a lump sum
payment equal to one-half his annual salary and he will be moved
34
<PAGE> 36
at Company expense to Houston. The agreement also provides for preferential
vesting in the Supplemental Pension Plan.
Mr. Berlin also has an employment agreement with the Company to provide
services until July 1, 1998 on substantially the same economic terms as were in
effect during 1995. The agreement also provides that if he elects to terminate
his employment with the Company on July 1, 1998, the Company will (i) make a
one-time lump-sum payment of his accrued annual retirement benefits under the
Supplemental Pension Plan and (ii) administer outstanding grants under the
Company's LTIP according to the LTIP's provisions applicable to retirees.
In connection with Mr. Hall's retirement as President and Chief Executive
Officer, the Company and Mr. Hall entered into a retirement agreement that
provided that Mr. Hall would receive the property and cash detailed in the
Summary Compensation Table and related footnotes.
There are no other employment contracts or arrangements in place.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
CITGO has no formal compensation committee (or other board committee
performing equivalent functions). The following officers and employees of CITGO
and former CITGO officer participated in deliberations of CITGO's Board of
Directors concerning executive officer compensation during 1995:
<TABLE>
<CAPTION>
NAME OF OFFICER, PRINCIPAL POSITION
EMPLOYEE WITH REGISTRANT AT THE PARTICIPATED IN BOARD DISCUSSION
OR FORMER EMPLOYEE TIME OF DELIBERATIONS AS A RESULT OF POSITION AS:
- -------------------- --------------------------------- --------------------------------
<S> <C> <C>
Ralph S. Cunningham President and CEO Member of Board of Directors
Ron E. Hall President and CEO Member of Board of Directors
Angel E. Olmeta Former Executive Vice President Member of Board of Directors
Roberto V. Mandini Executive Vice President Member of Board of Directors
Tom G. Richardson Vice President, Human Resources Vice President, Human Resources
</TABLE>
During 1995, no executive officer of CITGO served on the compensation
committee (or other board committee performing equivalent functions) or as a
director of another entity as to which any executive officer served on CITGO's
Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CITGO is wholly-owned direct subsidiary of PDV America and a wholly-owned
indirect subsidiary of PDVSA. As a result, PDVSA, either directly or indirectly,
nominates and selects the members of the Board of Directors of CITGO and its
subsidiaries. Certain members of the Board of Directors of CITGO are also
directors or executive officers of PDVSA.
CITGO has entered into several transactions with PDVSA or other affiliates
of PDVSA, including crude oil and feedstock supply agreements, agreements for
the purchase of refined products and transportation agreements. CITGO purchased
an aggregate of $1.9 billion, $1.8 billion and $2.0 billion of crude oil,
feedstocks and refined products from PDVSA under contractual arrangements and
other negotiated purchases in 1995, 1994 and 1993, respectively. See "Item 1 and
Item 3. Business and Properties -- Refining -- Crude Oil Purchases" and Note 4
to Consolidated Financial Statements.
During 1995, 1994 and 1993, CITGO purchased approximately $1.4 billion,
$1.1 billion and $1.0 billion, respectively, of crude oil, feedstocks and
refined products from LYONDELL-CITGO under a long-term product sales agreement
and other negotiated purchases. Such agreement incorporates formula prices based
on published market prices and variable factors.
35
<PAGE> 37
ITEM 8. LEGAL PROCEEDINGS.
Various lawsuits and claims arising in the ordinary course of business are
pending against the Company. Among the lawsuits pending, the Company is in
litigation filed in April 1994 in the United States District Court for the
Western District of Louisiana (CITGO Petroleum Corporation v. OHM Remediation
Services Corp.) concerning a contract for sludge removal and treatment at the
Company's Lake Charles, Louisiana refinery, in which the Company is seeking
contractual penalties for non-performance and breach of contract and also a
determination that a portion of any damages awarded would be recoverable from a
former owner. In this lawsuit, the contractor has counterclaimed seeking
monetary damages of $35,000,000 plus interest.
The Company is also in litigation filed in September 1995 in the 14th
Judicial District Court for the Parish of Calcasieu, State of Louisiana (State
of Louisiana and Ben Morrison, Secretary, Department of Revenue and Taxation v.
CITGO Petroleum Corporation) in which the State of Louisiana is seeking an
assessment upon the Company of a use tax on petroleum coke which accumulates on
catalyst during refining operations and a change to the calculation on the
sales/use tax on gas generated by refining operations. Similar lawsuits are
pending between the State of Louisiana and other refiners.
In addition, the Company is in litigation filed in May 1993 in the United
States District Court for the Western District of Louisiana (Celestine, et al v.
CITGO Petroleum Corporation and subsequently filed related cases which have been
consolidated into this proceeding) in which a number of current and former
employees and applicants on behalf of themselves and a class of similarly
situated persons have asserted claims under Federal and state laws of racial
discrimination in connection with the employment practices at the Company's Lake
Charles, Louisiana refining complex. The plaintiffs seek injunctive relief and
monetary damages. The Court has denied a motion for certification of similarly
situated persons as a class, and the plaintiffs are appealing the Court's denial
of class certification.
The Company is vigorously contesting the lawsuits and claims pending
against it and the Company believes that its positions are sustainable. The
Company has recorded accruals for losses it considers probable and reasonably
estimable. However, due to uncertainties involved in litigation, there are cases
in which the outcome is not reasonably predictable and the losses, if any, are
not reasonably estimable. If such lawsuits and claims were to be determined in a
manner adverse to the Company, and in amounts in excess of the Company's
accruals, it is reasonably possible that such determinations could have a
material adverse effect on the Company's results of operations in a given year.
The term "reasonably possible" is used herein to mean that the chance of a
future transaction or event occurring is more than remote but less than likely.
However, based upon current assessments of these lawsuits and claims by the
Company's counsel and the capital resources available to the Company, management
believes that the ultimate resolution of these lawsuits and claims is unlikely
to exceed the aggregate of the amounts accrued in respect of such lawsuits and
the insurance coverages and indemnification available to the Company by a
material amount and should not have a material adverse effect on the Company.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Not applicable.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
There have been no sales of unregistered securities of CITGO during the
last three years.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Notes are to be issued under an Indenture (the "Indenture") between the
Company and The First National Bank of Chicago, as Trustee (the "Trustee"). A
copy of the form of Indenture is an exhibit to this Registration Statement on
Form 10. The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the
36
<PAGE> 38
provisions of the Indenture, including the definitions therein of certain terms.
Wherever particular provisions of the Indenture or terms defined therein are
referred to herein, such provisions or defined terms are incorporated herein by
reference, and the statements are qualified in their entirety by such reference.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Indenture.
GENERAL
The Notes will be general unsecured senior obligations of the Company. The
Notes will rank pari passu in right of payment with all existing and future
senior unsecured indebtedness of the Company and senior in right of payment to
all existing and future indebtedness of the Company that is designated as
subordinate or junior in right of payment to the Notes. The Notes will be
effectively subordinated to all obligations (including trade payables) of the
Company's subsidiaries. At December 31, 1995, the Company's subsidiaries had
balance sheet liabilities of approximately $606 million. The subsidiaries also
have other liabilities (including contingent liabilities) which may be
substantial.
Except as otherwise set forth below under "Book-Entry System", the Notes
will be represented by Global Securities deposited with a Depositary (as defined
below). Owners of beneficial interests will not be entitled to receive
certificated Notes and will not be considered the "holders" of the Notes for
purposes of the Indenture. See "-- Book-Entry System."
The Indenture does not contain covenants or other provisions designed to
afford Holders of Notes protection in the event of a highly leveraged
transaction, change in credit rating or other similar occurrence.
MATURITY AND PAYMENT DATES
The Notes will mature on June 1, 2006, and will be limited to an aggregate
principal amount of $200,000,000. The Notes will bear interest at % per
annum from May , 1996 (the "Issue Date"), or from the most recent interest
payment date to which interest has been paid, payable semi-annually on May 1 and
November 1 of each year, beginning on November 1, 1996, to the person in whose
name the Note (or any predecessor Note) is registered at the close of business
on the preceding April 15 or October 15, as the case may be. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes are not redeemable at the option of the Company prior to their
maturity.
DENOMINATIONS, PAYMENTS OF PRINCIPAL AND INTEREST
The Notes will be issuable in denominations of $1,000 and integral
multiples thereof (Section 302 of the Indenture) and will be issued only in
fully registered form without coupons.
The principal of (and applicable premium, if any) and interest, if any, on
the Notes will be payable at the corporate trust office of the Trustee, provided
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in the
Security Register or by wire transfer of funds to such Person at an account
maintained within the United States (Sections 301, 305, 306, 307 and 1002 of the
Indenture).
BOOK-ENTRY SYSTEM
The Depository Trust Company, New York, New York, will act as securities
depositary (the "Depositary") for the Notes. The Notes will be represented by
one or more global securities (collectively, the "Global Securities") registered
in the name of Cede & Co., the Depositary's nominee. Accordingly, beneficial
interests in the Notes will be shown on, and transfers thereof will be effected
only through, records maintained by the Depositary and its participants. Except
as described below, owners of
37
<PAGE> 39
beneficial interests in the Global Securities will not be entitled to receive
Notes in definitive form and will not be considered holders of Notes.
Upon the issuance of a Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by such Global Security to the accounts of institutions
that have accounts with the Depositary or its nominee ("participants"). The
accounts to be credited will be designated by the underwriters, dealers or
agents. Ownership of beneficial interests in a Global Security will be limited
to participants or persons that may hold interests through participants.
Ownership of interests in such Global Security will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depositary (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in such Global
Security). The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer beneficial interests in a
Global Security.
So long as the Depositary, or its nominee, is the registered holder and
owner of such Global Security, the Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the related Notes for all
purposes of such Notes and for all purposes under the Indenture. Except as set
forth below, owners of beneficial interests in a Global Security will not be
entitled to have the Notes represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Notes in definitive form and will not be considered to be the owners or Holders
of any Notes under the Indenture or such Global Security.
Accordingly, each person owning a beneficial interest in a Global Security
must rely on the procedures of the Depositary and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder of Notes under the Indenture or
such Global Security. The Indenture permits the Depositary to authorize
participants, as its agents, to take any action which the Depositary, as the
holder of a Global Security, is entitled to take under the Indenture or such
Global Security. The Company understands that under existing industry practice,
in the event the Company requests any action of Holders of Notes or an owner of
a beneficial interest in a Global Security desires to take any action that the
Depositary, as the holder of such Global Security is entitled to take, the
Depositary would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of and premium, if any, and interest, if any, on Notes
represented by a Global Security will be made to the Depositary or its nominee,
as the case may be, as the registered owner and holder of such Global Security.
Upon receipt of any payment of principal, premium, if any, or interest, if
any, in respect of a Global Security, the Depositary will credit immediately
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
as shown on the records of the Depositary. Payments by participants to owners of
beneficial interests in a Global Security held through such participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants. The Company
will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in a
Global Security for any Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for any other aspect
of the relationship between the Depositary and its participants or the
relationship between such participants and the owners of beneficial interests in
such Global Security owning through such participants.
Unless and until it is exchanged in whole or in part for Notes in
definitive form, a Global Security may not be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
38
<PAGE> 40
Securities represented by a Global Security are exchangeable for Notes in
definitive form of like tenor as such Global Security in denominations of $1,000
and in any greater amount that is an integral multiple thereof if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time the Depositary ceases to
be a clearing agency registered under the Securities Exchange Act of 1934, as
amended, (ii) the Company in its discretion at any time determines not to have
all of the Notes represented by a Global Security and notifies the Trustee
thereof, or (iii) an Event of Default has occurred and is continuing with
respect to the Notes. Any Note that is exchangeable pursuant to the preceding
sentence is exchangeable for Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
foregoing, a Global Security is not exchangeable, except for a Global Security
or Global Securities of the same aggregate denominations to be registered in the
name of the Depositary or its nominee.
The following summary is based on information furnished by the Depositary:
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the United States Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
United States Securities Exchange Act of 1934, as amended. The Depositary holds
securities that its participants ("Direct Participants") deposit with the
Depositary. The Depositary also facilitates the settlement among Direct
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Direct Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations and certain other organizations. The Depositary is owned
by a number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depositary's system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The rules applicable to the Depositary
and its Direct and Indirect Participants are on file with the United States
Securities and Exchange Commission.
Purchases of Notes under the Depositary's system must be made by or through
Direct Participants, which will receive a credit for such Notes on the
Depositary's records. The ownership interest of each actual purchaser of each
Note represented by the Global Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which such Beneficial Owner
entered into the transaction. Transfers of ownership interests in the Global
Securities are to be accomplished by entries made on the books of Direct or
Indirect Participants acting on behalf of Beneficial Owners. The Depositary has
no knowledge of the actual Beneficial Owners of the Global Securities; the
Depositary's records reflect only the identity of the Direct Participants to
whose accounts such Notes are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Security. Under its usual procedures, the Depositary mails an omnibus
proxy (an "Omnibus Proxy") to the Company as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s consenting
39
<PAGE> 41
or voting rights to those Direct Participants to whose accounts the Notes are
credited on the applicable record date (identified in a listing attached to the
Omnibus Proxy).
Principal and interest payments on the Global Security representing the
Notes will be made in immediately available funds to the Depositary. The
Depositary's practice is to credit Direct Participants' accounts on the
applicable payment date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on such date. Payments by Direct or Indirect
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such Participant and not of the Depositary, the Trustee or the
Company, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and interest to the
Depositary is the responsibility of the Company or the Trustee, disbursement of
such payments to Direct Participants shall be the responsibility of the
Depositary, and disbursement of such payments to the Beneficial Owners shall be
the responsibility of Direct and Indirect Participants. Neither the Company nor
the Trustee will have any responsibility or liability for the disbursement of
payments in respect of ownership interests in the Notes by the Depositary or the
Direct or Indirect Participants or for maintaining or reviewing any records of
the Depositary or the Direct or Indirect Participants relating to ownership
interests in the Notes or the disbursement of payments in respect thereof.
The Depositary may discontinue providing its services as securities
depositary with respect to the Notes at any time by giving reasonable notice to
the Company or the Trustee. Under such circumstances, and in the event that a
successor securities depositary is not obtained, Notes in definitive form are
required to be printed and delivered to each holder.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depositary). In that
event, Notes in definitive form will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof
and such information is subject to any changes to the arrangements between the
Company and the Depositary and any changes to such procedures that may be
instituted unilaterally by the Depositary.
SAME-DAY SETTLEMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. So long as the Depositary continues to make its Same-Day Funds
Settlement System available to the Company, all payments of principal and
interest on the Notes will be made by the Company in immediately available
funds.
Secondary trading in long term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
will trade in the Depositary's Same-Day Funds Settlement System until maturity,
and secondary market trading activity in the Notes will therefore be required by
the Depositary to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.
40
<PAGE> 42
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Company will not (and will not
permit any Restricted Subsidiary to), directly or indirectly, make any
Restricted Payment, unless:
(a) after giving effect thereto, the aggregate amount of all
Restricted Payments during the period commencing on April 1, 1996, and
ending on the date of the payment of such Restricted Payment (the
"Computation Period") shall not exceed an amount equal to the sum of:
(1) $450,000,000, plus
(2) 100% of the aggregate amount received by the Company as (i) the
net cash proceeds or (ii) the Fair Market Value of Marketable Assets
from the sale (other than to a Subsidiary of the Company) of shares of
Capital Stock of the Company or otherwise received as a capital
contribution during the Computation Period, minus
(3) 100% of the aggregate amount of all PDVSA Investments made
during the Computation Period, plus
(4) 100% of the aggregate amount received during the Computation
Period by the Company and its Restricted Subsidiaries (except, in the
case of any such amount received and held by a Restricted Subsidiary, to
the extent that such Restricted Subsidiary is prohibited, whether by
contract, applicable law or otherwise, from paying such amount as
dividends to the Company or any other Restricted Subsidiary) (i) as
earnings (whether in the form of dividends or otherwise) on PDVSA
Investments and (ii) as net cash proceeds in connection with the sale,
redemption or other disposition of one or more PDVSA Investments or any
part thereof or any interest therein, plus
(5) 75% (or minus 100% if negative) of the aggregate Consolidated
Net Income for the period commencing on April 1, 1996, and ending on and
including the last day of the fiscal quarter ended immediately prior to
the date of payment of such Restricted Payment, plus
(6) 100% of the aggregate principal amount of any Senior
Indebtedness of the Company converted into or exchanged for Capital
Stock of the Company during the Computation Period;
(b) immediately after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing; and
(c) immediately after giving effect to any such Restricted Payment,
Consolidated Net Worth shall be at least equal to the sum of:
(1) $1,400,000,000, plus
(2) an amount equal to $10,000,000 multiplied by the number of
completed fiscal quarters of the Company since April 1, 1996.
Notwithstanding the foregoing, the foregoing provisions do not prohibit the
payment of any dividend or making of any distribution within 90 days after the
date of its declaration if the dividend or distribution would have been
permitted on the date of declaration; provided, however, that such dividend
shall be deemed to have been made as of its date of declaration for purposes of
this covenant.
Specified Agreements. The Company will not, and will not permit any of its
Restricted Subsidiaries to, amend, modify or waive:
(a) any Pricing Term of any Specified Agreement, unless the Trustee
shall have first received (i) a certified resolution of the Board of
Directors of the Company to the effect that such amendment, modification or
waiver would not have a Materially Adverse Effect and (ii) the written
41
<PAGE> 43
opinion of a nationally recognized firm of investment bankers that such
amendment, modification or waiver is fair, from a financial point of view,
to the Company and its Restricted Subsidiaries;
(b) any Material Non-Pricing Term of any Specified Agreement; or
(c) any provision of the CITGO Supplemental Supply Agreement (unless
an amendment thereto shall be required to conform the CITGO Supplemental
Supply Agreement to the CITGO Supply Agreement following an amendment of
the CITGO Supply Agreement effected in compliance with the provisions of
this covenant or otherwise not in violation of the Indenture).
Transactions with Affiliates. The Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in any transaction with an Affiliate
of the Company (other than the Company or a Restricted Subsidiary of the
Company) on terms less favorable to the Company or such Restricted Subsidiary
(as the case may be) than would have been obtainable in arms' length dealing
with a Person other than an Affiliate; provided that nothing in this covenant
shall prohibit any transaction where the amount involved is less than
$1,000,000; provided further that the aggregate amount involved in all
transactions consummated in reliance on the preceding proviso in any
twelve-month period shall not exceed $10,000,000. In determining whether, for
purposes of this covenant, any transaction between or among parties is arms'
length, all other contemporaneous transactions between or among such parties
shall be taken into account so that such transaction and such other transactions
shall be considered as a single transaction.
The limitations of the preceding paragraph do not apply to transactions
with Affiliates contemplated by agreements in effect on the date of the
Indenture in accordance with the terms of such agreements as in effect on the
date of the Indenture or any renewals or extensions thereof on substantially the
same terms (and, with respect to Specified Agreements, as amended in compliance
with the "Specified Agreements" covenant or otherwise not in violation of the
Indenture).
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
Incur any Lien on or with respect to any Significant Property of the Company or
such Restricted Subsidiary, or any interest therein or any income or profits
therefrom, unless the Notes are secured equally and ratably with (or prior to)
any and all other Indebtedness secured by such Lien, except for: (a) Liens
existing on the Issue Date; (b) Liens on Property existing at the time of
acquisition thereof or Liens affecting Property of a Person existing at the time
it becomes a Subsidiary of the Company or at the time it is merged into or
consolidated with the Company or a Subsidiary of the Company; provided that, in
either case, such Liens do not extend to or cover any Property of the Company or
of any of its Restricted Subsidiaries other than the Property that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Subsidiary; (c) Liens on Property Incurred to
secure payment of all or a part of the purchase price thereof or to secure
Indebtedness Incurred prior to, at the time of, or within 12 months after the
acquisition thereof for the purpose of financing all or part of the purchase
price thereof; (d) Liens on any Property to secure all or part of the cost of
improvements or construction thereon or Indebtedness Incurred to provide funds
for such purpose in a principal amount not exceeding the cost of such
improvements or construction and Incurred within 12 months after completion of
such improvements or construction; (e) Liens to government entities granted to
secure pollution control or industrial revenue bond financings; (f) Liens which
secure Indebtedness owing by a Restricted Subsidiary of the Company to the
Company, by the Company to a Restricted Subsidiary or by one Restricted
Subsidiary to another Restricted Subsidiary; (g) Liens imposed by law, including
mechanics', materialmens', carriers' or other like Liens, arising in the
ordinary course of business; (h) any Lien Incurred to secure the performance of
surety or appeal bonds Incurred in the ordinary course of business consistent
with past practice; (i) any Lien incidental to the normal conduct of the
business of the Company or any Restricted Subsidiary or the ownership of its
property or the conduct of the ordinary course of its business (including,
without limitation, (A) zoning restrictions, easements, rights of way, licenses,
covenants, reservations, restrictions on the use of real property and other
minor irregularities of title, (B) rights of lessees under leases, (C) rights of
collecting banks having rights of setoff, revocation, refund or
42
<PAGE> 44
chargeback with respect to money or instruments of the Company or any Restricted
Subsidiary on deposit with or in the possession of such banks, (D) Liens to
secure the performance of statutory obligations, tenders, bids, leases, progress
payments, performance or return-of-money bonds, performance or other similar
bonds or other obligations of a similar nature incurred in the ordinary course
of business, (E) Liens required by any contract or statute in order to permit
the Company or a Subsidiary of the Company to perform any contract or
subcontract made by it with or pursuant to the requirements of a governmental
entity and (F) "first purchaser" Liens on crude oil), in each case which are not
Incurred in connection with the borrowing of money, the obtaining of advances or
credit or the payment of the deferred purchase price of Property and which do
not in the aggregate impair the use of Property in the operation of the business
of the Company and its Restricted Subsidiaries taken as a whole; (j) Liens for
taxes not yet due or which are being contested in good faith by appropriate
proceedings, so long as reserves have been established to the extent required by
GAAP; (k) Liens securing obligations in respect of Interest Rate Protection
Agreements or Exchange Rate Contracts; (l) Liens on the assets of the Company or
any Restricted Subsidiary created or existing to secure stay or appeal bonds or
otherwise resulting from any litigation or legal proceeding which are currently
being contested in good faith by appropriate action promptly initiated and
diligently conducted, including the Lien of any judgment, provided that the
aggregate amount secured by all such Liens does not exceed $25 million; and (m)
any extension, renewal, replacement or refinancing of any Lien referred to in
the foregoing clauses (a) through (e); provided, however, that (X) such new Lien
shall be limited to all or part of the same property that secured the original
Lien (plus improvements on such property) and (Y) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the sum of
(A) the outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (a) through (e) at the time the original
Lien became a Lien permitted under this "Limitation on Liens" covenant and (B)
an amount necessary to pay any fees and expenses, including premiums, related to
such refinancing, refunding, extension, renewal or replacement. Notwithstanding
the foregoing, the Company and any one or more of its Restricted Subsidiaries
may, without securing the Notes, Incur Liens which would otherwise be subject to
the foregoing restrictions securing (x) Current Indebtedness and (y) Funded
Indebtedness in an aggregate principal amount which, together with all other
such Funded Indebtedness of the Company and its Restricted Subsidiaries which
would otherwise be subject to the foregoing restrictions (not including
Indebtedness permitted to be secured under clauses (f) through (k), inclusive,
above) and the aggregate Attributable Indebtedness of Sale and Leaseback
Transactions does not at the time such Lien is Incurred exceed 15% of
Consolidated Net Tangible Assets of the Company and its consolidated Restricted
Subsidiaries.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
the Company will not, and will not cause or permit any Restricted Subsidiary to,
enter into, assume, Guarantee or otherwise become liable with respect to any
Sale and Leaseback Transaction, unless (a) the obligation of the Company or such
Restricted Subsidiary with respect thereto would be permitted under the
"Limitation on Liens" covenant; (b) after the Issue Date and within a period
commencing six months prior to the effective date of such Sale and Leaseback
Transaction (or, if later, commencing on the Issue Date) and ending six months
after such effective date, the Company or any Restricted Subsidiary shall have
expended (or entered into a binding commitment to expend) for any Property
(including amounts expended or committed for the acquisition of such Property,
and for additions, alterations, improvements and repairs thereto; provided that
such expenditures constitute additions to property, plant and equipment under
GAAP; and provided further that any expenditure which shall have been financed
by Indebtedness secured by a Lien permitted under clause (c) or (d) of the
"Limitation on Liens" covenant shall be disregarded for purposes of determining
whether the Company or such Restricted Subsidiary shall have satisfied the
requirements of this clause (b)) an amount equal to all or a portion of the net
proceeds received from such transaction (but excluding any portion of such
proceeds which are applied as set forth in (c) below); or (c) the Company,
within six months after the effective date of any such Sale and Leaseback
Transaction, applies to the defeasance or retirement of the Notes or other
Senior Indebtedness an amount equal to the net proceeds of the sale or transfer
of the Property leased in such
43
<PAGE> 45
transaction (with any such amount required to be applied under this clause (c)
to be reduced to reflect any amount utilized by the Company or a Restricted
Subsidiary as set forth in (b) above).
Restricted and Unrestricted Subsidiaries. Subject to the following
paragraph, the Company may designate a Subsidiary (including a newly formed or
newly acquired Subsidiary) of itself or of any of its Restricted Subsidiaries as
an Unrestricted Subsidiary if (i) such Subsidiary does not have any obligations
which, if in default, would result in a cross default on Indebtedness of the
Company and (ii) either (a) such Subsidiary has total assets of $1,000 or less,
or (b) such designation is effective immediately upon such Person becoming a
Subsidiary of the Company or any of its Restricted Subsidiaries. Unless so
designated an Unrestricted Subsidiary, any Person that becomes a wholly-owned
Subsidiary of the Company or its Restricted Subsidiaries shall be classified as
a Restricted Subsidiary thereof. Except as provided in the first sentence of
this paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary. Subject to the following paragraph, an Unrestricted Subsidiary may
be redesignated as a Restricted Subsidiary. No Restricted Subsidiary may be a
Subsidiary of an Unrestricted Subsidiary. The designation of an Unrestricted
Subsidiary or the removal of such designation in compliance with the following
paragraph shall be made by the delivery to the Trustee of a certificate of
designation executed by the President, the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer, any Executive Vice President,
any Senior Vice President or the Treasurer of the Company.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition, the redesignation of an Unrestricted Subsidiary
or otherwise) unless after giving effect to such action, transaction or series
of transactions, on a pro forma basis, (i) no Default or Event of Default would
occur or be continuing, and (ii) there exist no Liens with respect to the
Property of such Person other than Liens permitted under the "Limitation on
Liens" covenant.
Reports to Holders. Whether or not the Company is then required to do so
under the Exchange Act, the Company will file with the Securities and Exchange
Commission (the "Commission") the documents, reports and other information
required by the Exchange Act to be filed by domestic issuers of debt securities
registered under the Exchange Act and, upon such filing, will promptly furnish
such reports, documents and information to the Trustee and, within 15 days after
such filing with the Commission, the Holders of the Notes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not, and shall not permit any Restricted Subsidiary to,
consolidate or merge with or into any other Person, or convey, transfer or lease
all or substantially all its assets to any Person, unless: (1) either (a) the
Company shall be the continuing Person in the case of a merger or consolidation
or (b) the resulting, surviving or transferee Person if other than the Company
(the "Successor Company") shall be a solvent corporation, limited partnership or
limited liability company organized and validly existing under the laws of the
United States of America, any State thereof or the District of Columbia, and the
Successor Company shall expressly assume, by a supplement to the Indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (2)
immediately before and after giving effect to such transaction on a pro forma
basis (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted Subsidiary
at the time of such transaction), no Default or Event of Default shall have
occurred and be continuing; and (3) the Company shall have delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel, each stating that
such transaction and such supplemental indenture (if any) comply with the
Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture, and the
predecessor Company (except in the case of a lease and except in the case of any
conveyance or transfer of assets in which the transferee does not acquire
44
<PAGE> 46
the assets of the Company as an entirety or virtually as an entirety) will be
released from its obligations in respect of the Notes.
MODIFICATION OF THE INDENTURE; WAIVER OF COVENANTS
Subject to certain exceptions, the provisions of the Indenture applicable
to the Notes may be amended or supplemented with the written consent of the
Holders of at least a majority in principal amount of the Notes then outstanding
and compliance with any provisions may be waived with the consent of the Holders
of at least a majority in principal amount of the Notes then outstanding.
However, without the consent of each Holder of each Note so affected, no
amendment or waiver may, among other things, (i) reduce the amount of Notes
whose Holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Notes, (iii) reduce the principal of or
extend the Stated Maturity of any Notes, (iv) reduce the premium payable upon
the redemption of any Note or change the time or times at which any Notes may be
redeemed, (v) make any Note payable in money other than that stated in the Note,
or (vi) impair the right of any Holder to institute suit for the enforcement of
any payment on or with respect to any Notes.
Without the consent of any Holder of the Notes, the Company and the Trustee
may, among other things, amend or supplement the Indenture to cure any
ambiguity, omission, defect or inconsistency provided that such change does not
adversely affect the rights of any Holder, to provide for the assumption by a
Successor Company of the obligations of the Company under the Indenture, to add
Guarantees with respect to the Notes or to secure the Notes, to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the Securities and Exchange Commission in connection with the qualification of
the Indenture under the Trust Indenture Act of 1939.
EVENTS OF DEFAULT
An "Event of Default" will occur under the Notes if:
(i) the Company defaults in the payment of interest on any Note when
it becomes due and payable and such default continues for a period of 30
days; or
(ii) the Company defaults in the payment of the principal of or
premium, if any, on any Note when the same becomes due and payable at
maturity, upon acceleration, required repurchase or otherwise; or
(iii) the Company fails to comply with any of its agreements or
covenants in, or provisions of, the Notes or the Indenture (other than
clause (i) or (ii) above) and the default continues for the period and
after the notice specified below; or
(iv) any Indebtedness of the Company or any Restricted Subsidiary
having an outstanding principal amount of $25 million or more in the
aggregate, whether such Indebtedness now exists or shall hereafter be
created, is (A) declared to be due and payable prior to its Stated Maturity
or (B) not paid when due by the Company or any Restricted Subsidiary (after
giving effect to any extension of such due date by the holder of such
Indebtedness and after the expiration of any grace period in respect of
such due date contained in the instrument under which such Indebtedness is
outstanding), or any combination of (A) and (B); or
(v) one or more judgments or orders for the payment of money are
entered by a court of competent jurisdiction against the Company or any
Restricted Subsidiary in an aggregate amount in excess of $50 million and
such judgments or orders are not discharged, waived, stayed or satisfied
for a period of 60 consecutive days after judgment is entered; or
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary occur.
45
<PAGE> 47
A default under clause (iii) above is not an Event of Default with respect
to the Notes until the Trustee notifies the Company in writing, or the Holders
of at least 25% in principal amount of the Notes then Outstanding notify the
Company and the Trustee, in writing, of the default, and the Company does not
cure the default within 60 days after receipt of the notice. The notice must
specify the default, demand that it be remedied and state that the notice is a
"Notice of Default". Such notice to the Company shall be given by the Trustee if
so requested in writing by the Holders of at least 25% of the principal amount
of the Notes then Outstanding.
If an Event of Default with respect to Notes (other than an Event of
Default specified in clause (vi)) occurs and is continuing, the Trustee, by
written notice to the Company, or the Holders of at least 25% in principal
amount of the Notes by written notice to the Company and the Trustee, may
declare the principal of all Notes to be due and payable immediately. Upon such
declaration, such principal will be due and payable immediately. If an Event of
Default specified in clause (vi) occurs, the principal of all Notes will become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holders. The Holders of a majority in principal
amount of the Notes by written notice to the Company and the Trustee may rescind
an acceleration and its consequences if the rescission is made before any
judgment or decree for payment of the money due has been obtained by the Trustee
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration and the Company has paid or deposited with the Trustee a sum
sufficient to pay in the currency or currency unit or composite currency in
which the Notes are payable (except as otherwise specified):
(A) all overdue installments of interest on and any Additional Amounts
payable in respect of all Outstanding Notes and any related coupons,
(B) the principal of (and premium, if any, on) any Outstanding Notes which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate or rates borne by or provided for in the
Notes,
(C) to the extent that payment of such interest is lawful, interest upon
overdue installments of interest and any Additional Amounts at the rate
or rates borne by or provided for in the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel.
No such rescission will affect any subsequent default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Outstanding Notes by
notice to the Trustee may on behalf of all Holders of Notes and any related
coupons waive an existing or past default and its consequences except (i) a
default in the payment of the principal of or interest on or Additional Amounts
payable in respect of any Note or any related coupons or (ii) a default in
respect of a provision that cannot be amended without the consent of each Holder
of each Outstanding Note. When a default is waived such default shall cease to
exist and any Event of Default arising therefrom shall be deemed to have been
cured, but no such waiver will extend to any subsequent or other default or
Event of Default or impair any consequent right thereon.
The Holders of a majority in principal amount of the Outstanding Notes may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes. However, such direction may not be in
conflict with any rule of law or with the Indenture and the Trustee may refuse
to follow any direction that the Trustee determines is unduly prejudicial to the
rights of other Holders of each Outstanding Note or would involve the Trustee in
personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction.
A Holder of Notes or any related coupons may not pursue any remedy with
respect to the Indenture or any Notes unless: (i) such Holder has previously
given to the Trustee written notice stating that an
46
<PAGE> 48
Event of Default with respect to the Notes is continuing; (ii) Holders of at
least 25% in principal amount of the Outstanding Notes shall have made a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer
to the Trustee reasonable security or indemnity against any loss, liability or
expense to be incurred in compliance with such request; (iv) the Trustee does
not comply with the request within 60 days after receipt of the request and the
offer of security or indemnity; and (v) the Holders of a majority in principal
amount of the Notes do not give the Trustee a written direction inconsistent
with the request during such 60-day period; it being understood and intended
that no one or more of such Holders shall have any right in any manner whatever
by virtue of, or by availing of, any provision of the Indenture to affect,
disturb or prejudice the rights of any other of such Holders, or to obtain or to
seek to obtain priority or preference over any other of such Holders or to
enforce any right under the Indenture, except in the manner provided in the
Indenture and for the equal and ratable benefit of all such Holders.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Subsidiary (or a Restricted Subsidiary, in the case of the Company) of the
referent Person or at the time it merges or consolidates with the referent
Person or any of the referent Person's Subsidiaries (or Restricted Subsidiaries,
in the case of the Company) or assumed by the referent Person or any Subsidiary
(or any Restricted Subsidiary, in the case of the Company) of the referent
Person in connection with the acquisition of assets from such other Person.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, controls, is under common control with, or is controlled by, such
Person. As used in this definition, "control" (and, with correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that (a) each
Unrestricted Subsidiary shall be deemed to be an Affiliate of the Company and of
each Restricted Subsidiary of the Company, (b) no individual shall be deemed to
be an Affiliate of a Person solely by reason of his or her being an officer or
director (or equivalent) of such Person and (c) none of the Company or any of
its Restricted Subsidiaries shall be deemed to be Affiliates of each other.
"Attributable Indebtedness" means, in respect of a Sale and Leaseback
Transaction at the time of determination thereof, the capitalized amount in
respect of such transaction that would appear on the face of a balance sheet of
the lessee thereunder in accordance with GAAP.
"Bankruptcy Law" means Title 11, United States Code, or any similar Federal
or state law for the relief of debtors.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other arrangement conveying the
right to use) real or personal property of such Person which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person in accordance with GAAP. For purposes of the
"Limitation on Liens" covenant, a Capital Lease Obligation shall be deemed to be
secured by a Lien on the property being leased.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities
47
<PAGE> 49
convertible into an equity interest), warrants or options to subscribe for or to
acquire an equity interest in such Person; provided, however, that "Capital
Stock" shall not include Redeemable Stock.
"Cit-Con" means Cit-Con Oil Corporation, a Delaware corporation.
"CITGO Supplemental Supply Agreement" means that certain Supplemental Crude
Supply Agreement, dated as of September 30, 1986, by and between the Company and
PDVSA, and as amended, supplemented, restated or otherwise modified from time to
time in compliance with the provisions of the "Specified Agreements" covenant or
otherwise not in violation of the Indenture.
"CITGO Supply Agreement" means that certain Crude Supply Agreement dated as
of September 30, 1986, by and between the Company and PDVSA, and as amended,
supplemented, restated or otherwise modified from time to time in compliance
with the provisions of the "Specified Agreements" covenant or otherwise not in
violation of the Indenture, which Agreement has been heretofore assigned by the
Company to CIVESCO, and by PDVSA to Commercit, S.A., a Venezuelan corporation
and a Subsidiary of PDVSA, and by Commercit, S.A. partially to PMI.
"CIVESCO" means CITGO Venezuela Supply Company, a Delaware corporation and
a Restricted Subsidiary of the Company.
"Common Stock" of any Person means any and all shares, interests or other
participations or other equivalents in the equity interest (however designated
and whether voting or non-voting) of such Person, which have no preference as to
dividends or liquidation over any other equity interest, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP (as in effect and applied by the
Company on the Issue Date), after eliminating (without duplication) all (a)
gains (net of expenses and taxes applicable thereto) or losses arising from the
sale or other disposition of assets other than current assets, (b) gains arising
from any write-up of assets (other than write-ups of inventories as a result of
the lower of cost or market adjustments), (c) gains arising from the acquisition
by any such Person of its outstanding Indebtedness, (d) that portion (if any) of
the net income of any Restricted Subsidiary which such Restricted Subsidiary is
prohibited (whether by contract, applicable law or otherwise) from paying as
dividends to the Company or any other Restricted Subsidiary, (e) amounts
representing the equity of the Company or any Restricted Subsidiary in the
undistributed earnings of any other Person (other than a Restricted Subsidiary),
(f) in the case of a successor to the Company by consolidation or merger or a
transferee of its assets after the Issue Date, any earnings of the successor or
transferee corporation prior to the consolidation, merger or transfer of assets,
(g) any earnings of any Restricted Subsidiary prior to becoming a Restricted
Subsidiary, (h) any deferred credit (or amortization of a deferred credit)
arising from the acquisition after the date hereof of any Restricted Subsidiary
representing the excess of equity in such Restricted Subsidiary at the date of
acquisition thereof over the cost of investment in such Restricted Subsidiary,
(i) any reversal of any contingency reserve, except to the extent that provision
for such contingency reserve shall have been made from income arising after the
Issue Date and (j) the aggregate amount received during such period by the
Company and all Restricted Subsidiaries as earnings (whether in the form of
dividends or otherwise) on PDVSA Investments or as net cash proceeds in
connection with the sale, redemption or other disposition of one or more PDVSA
Investments or any part thereto or interest therein.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the sum of the amounts that would appear on a consolidated balance sheet of the
Company and its Restricted Subsidiaries for the total assets (less accumulated
depletion, depreciation or amortization, allowances for doubtful receivables,
other applicable reserves and other properly deductible items) of the Company
and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, after giving effect to purchase accounting and after
deducting therefrom, to the extent included in total assets, in each case as
determined on a consolidated basis in accordance with GAAP (without
duplication): (a) the
48
<PAGE> 50
aggregate amount of liabilities of the Company and its Restricted Subsidiaries
which may properly be classified as current liabilities (including taxes accrued
as estimated); (b) current Indebtedness and current maturities of long-term
Indebtedness; (c) minority interests in the Company's Restricted Subsidiaries
held by Persons other than the Company or a wholly owned Restricted Subsidiary
of the Company; and (d) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items.
"Consolidated Net Worth" means, at any date, all assets of the Company and
its Restricted Subsidiaries at such date determined on a consolidated basis in
accordance with GAAP minus all liabilities of the Company and its Restricted
Subsidiaries (including minority interests in consolidated Subsidiaries of the
Company) at such date determined on a consolidated basis in accordance with
GAAP.
"CRCCLP" means CITGO Refining and Chemicals Company L.P., a Delaware
limited partnership and successor by merger to CRCI, and a Restricted
Subsidiary.
"CRCCLP Supply Agreement" means that certain Crude Oil and Feedstock Supply
Agreement dated as of March 31, 1987, originally by and between CRCI and PDVSA,
and currently between CRCCLP and PDVSA, and as amended, supplemented, restated
or otherwise modified from time to time in compliance with the provisions of the
"Specified Agreements" covenant or otherwise not in violation of the Indenture.
"CRCI" means CITGO Refining and Chemicals, Inc., a Delaware corporation
formerly known as Champlin Refining & Chemicals, Inc., and a Restricted
Subsidiary.
"Current Indebtedness" means any Indebtedness for borrowed money which is
not Funded Indebtedness.
"Custodian" will mean any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Default" will mean any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Fair Market Value" means, with respect to any assets to be transferred or
any noncash consideration or Property received by any Person, the fair market
value of such consideration or Property (a) in the case of a contribution to
capital in the form of Marketable Assets, as determined by the applicable
readily ascertainable market price and (b) in all other cases, as determined in
good faith by the Board of Directors of the Company, as evidenced by a certified
resolution delivered to the Trustee, provided that, in the case of clause (b)
above, if such resolution indicates that such fair market value exceeds $25
million, such resolution shall be accompanied by the written opinion of a
nationally recognized firm of investment bankers to the effect that such
consideration or Property is fair, from a financial point of view, to such
Person.
"Funded Indebtedness" means Indebtedness having a Stated Maturity, as of
the time such Indebtedness was Incurred, in excess of one year (or outstanding
under a revolving credit agreement with a scheduled expiration date in excess of
one year after the date such facility originally became available to the obligor
thereunder).
"GAAP" means generally accepted accounting principles in the United States
as in effect as of the date of the Indenture, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP consistently applied.
49
<PAGE> 51
"Guarantee" by any person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including, without limitation, any Lien on the
assets of such Person securing obligations of the primary obligor and any
obligation of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase or payment of) any security for the payment of
such Indebtedness, (b) to purchase Property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (c) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "Guaranteed" and
"Guarantor" shall have meanings correlative to the foregoing); provided,
however, that a Guarantee by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (a) any obligation of such Person for borrowed
money, (b) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, including, without limitation, any such
obligations Incurred in connection with the acquisition of Property, assets or
businesses, (c) any reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (d) any obligation of such Person issued or assumed as
the deferred purchase price of Property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business), (e) any Capital Lease Obligation of such Person, (f) the maximum
fixed redemption or repurchase price of Redeemable Stock of such Person at the
time of determination, (g) any obligation to pay rent or other payment amounts
of such person with respect to any Sale and Leaseback Transaction to which such
Person is a party and (h) any obligation of the type referred to in clauses (a)
through (g) of this paragraph of another Person and all dividends of another
Person the payment of which, in either case, such Person has Guaranteed or is
responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise. For purposes of this definition, the maximum fixed repurchase price
of any Redeemable Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture; provided, however, that if
such Redeemable Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Redeemable Stock. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any contingent obligations in respect thereof at such date.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, interest rate cap or collar agreement or other
financial agreement or arrangement designed to protect such Person or its
Restricted Subsidiaries against fluctuations in interest rates, as in effect
from time to time.
"Investment" means, as applied to the Company or any Restricted Subsidiary,
(a) any direct or indirect purchase or other acquisition by the Company or such
Restricted Subsidiary (as the case may be) of stock or other securities of any
Person or (b) any direct or indirect loan, advance or capital contribution by
the Company or such Restricted Subsidiary (as the case may be) to any other
Person.
50
<PAGE> 52
"Issue Date" means, with respect to the Notes, the date of original issue
of the Notes by the Company.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing). For purposes of
the "Limitation on Liens" covenant, a Capital Lease Obligation shall be deemed
to be secured by a Lien on the property being leased.
"Marketable Assets" means crude oil or petroleum products which are readily
marketable and have a readily ascertainable market price.
"Material Non-Pricing Term" means (a) any provision of Section 2.10 (force
majeure; liability exemptions), 2.11 (limitation of liabilities; remedies), 3.1
(grounds for termination), 3.2 (other rights and remedies) or 4.3 (commercial
acts and obligations; waiver of immunities; consent to jurisdiction) of the
CITGO Supply Agreement; and (b) any provision of Section 2.10 (force majeure;
liabilities exemptions), 2.11 (limitation of liabilities; and remedies), 3.1
(grounds for termination), 3.2 (other rights and remedies) or 5.3 (commercial
acts and obligations; waiver of immunities) of the CRCCLP Supply Agreement.
"Materially Adverse Effect" means, relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding) and after taking into account
insurance coverage and effective indemnification with respect to such
occurrence, a materially adverse effect on a consolidated basis for the Company
and its Restricted Subsidiaries on (a) the consolidated financial condition,
business, operations or properties of the Company and its Restricted
Subsidiaries or (b) the ability of the Company to perform any of its payment
obligations or other obligations under the Indenture.
"Officers' Certificate" will mean a certificate signed by two officers of
the Company at least one of whom shall be the principal executive officer,
principal accounting officer or principal financial officer of the Company.
"Opinion of Counsel" will mean a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"PDVSA" means Petroleos de Venezuela, S.A., a Venezuelan corporation.
"PDVSA Investment" means any Investments made by the Company or any
Restricted Subsidiary (other than Investments in the Company or a Restricted
Subsidiary) using funds or other Property contributed after March 31, 1996, to
the Company or any Restricted Subsidiary by PDVSA or its Affiliates (but
excluding the Company and its Restricted Subsidiaries) in exchange for Capital
Stock or as an equity contribution.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PMI" means PDVSA Marketing International, S.A., a Panamanian corporation
and a Subsidiary of PDVSA.
"Pricing Term" means (a) any provision of a Supply Agreement or the CITGO
Supplemental Supply Agreement, the proposed amendment, modification or waiver of
which, directly or indirectly, would (i) materially increase the price the
purchaser under such agreement (the "Purchaser") would pay for oil or feedstocks
or (ii) materially reduce the volumes of oil or feedstocks (whether base,
supplemental or incremental) the seller thereunder would be required to sell and
the Purchaser would be required or entitled to purchase; or (b) any provision of
the Tax Allocation Agreement, the proposed amendment,
51
<PAGE> 53
modification or waiver of which, directly or indirectly, would materially
increase the amount or materially accelerate the payment of amounts otherwise
payable thereunder by the Company or its Restricted Subsidiaries.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), is or could be required to be redeemed or is or could be redeemable at
the option of the holder thereof, in whole or in part, on or prior to the Stated
Maturity of the Debt Securities, or is or could be exchangeable for Indebtedness
at any time, in whole or in part, on or prior to the Stated Maturity of the Debt
Securities.
"Restricted Payment" means:
(a) the payment of dividends by the Company on, or
(b) other payments or distributions (whether made by the Company or
any of its Restricted Subsidiaries) on account, or to the Holders, of, or
(c) the purchase, redemption, retirement or other acquisition (whether
by the Company or any of its Restricted Subsidiaries) of,
any shares of any class of Capital Stock or Redeemable Stock of the Company or
any warrant, option or other right to acquire such Capital Stock or Redeemable
Stock (whether in cash, Property, obligations or other securities), but
excluding dividends or other distributions payable solely in Common Stock of the
Company. Notwithstanding the foregoing, Restricted Payments shall not include
(i) the acquisition of Capital Stock of the Company either (A) solely in
exchange for shares of Capital Stock of the Company, or (B) through application
of net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Capital Stock of the Company; and (ii)
payments by the Company under the Tax Allocation Agreement.
"Restricted Subsidiary" means any direct or indirect wholly-owned
Subsidiary of the Company that, as of the date of determination, is not an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement between
such Person and a Restricted Subsidiary of such Person or between one or more
Restricted Subsidiaries of such Person) pursuant to which a Significant Property
is sold or transferred by such Person or a Restricted Subsidiary of such Person
and is thereafter leased back from the purchaser or transferee thereof by such
Person or one of its Restricted Subsidiaries for a term of more than one year.
"Senior Indebtedness" means, at any date, any outstanding Indebtedness of
the Company that is pari passu in right of payment with the Notes.
"Significant Property" means (a) the Company's refinery located at Lake
Charles, Louisiana, (b) the Company's lubricants blending plant located at
Cicero, Illinois and (c) CRCCLP's refinery located at Corpus Christi, Texas, in
each case including all associated interests in real property, fixtures,
equipment and other tangible and intangible assets used in connection with such
facilities.
"Specified Agreements" means (a) the Supply Agreements, (b) the CITGO
Supplemental Supply Agreement and (c) the Tax Allocation Agreement.
"Stated Maturity" means, when used with respect to any security or debt
obligation, the date specified in such security or obligation as the fixed date
on which the principal or redemption price of such security or obligation is due
and payable and, when used with respect to any installment of interest on a
security or debt obligation, the fixed date on which such installment of
interest is due and payable.
52
<PAGE> 54
The Stated Maturity of the deemed principal amount of a Capital Lease Obligation
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Subsidiary" of a Person means (a) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such Person, by one or
more subsidiaries of such Person or by such Person and one or more subsidiaries
of such Person, (b) a partnership in which such Person or a subsidiary of such
Person is, at the date of determination, a general or limited partner of such
partnership, but only if such Person or its subsidiary is entitled to receive
more than 50% of the assets of such partnership upon its dissolution, or (c) any
other Person (other than a corporation or partnership) in which such Person,
directly or indirectly, at the date of determination thereof, has (i) at least a
majority ownership interest or (ii) the power to elect or direct the election of
a majority of the directors or other governing body of such Person.
"Supply Agreements" means (a) the CRCCLP Supply Agreement and (b) the CITGO
Supply Agreement.
"Tax Allocation Agreement" means the Tax Allocation Agreement dated as of
June 24, 1993, among PDV America, VPHI Midwest, Inc., the Company, and PDV USA,
Inc., as in effect on the date of the Indenture and as amended, supplemented,
restated or otherwise modified from time to time in compliance with the
"Specified Agreements" covenant or otherwise not in violation of the Indenture.
"Unrestricted Subsidiary" means Cit-Con and any other Subsidiary of the
Company that the Company has classified, in accordance with the terms of the
Indenture, as an Unrestricted Subsidiary and that has not been reclassified as a
Restricted Subsidiary.
"Voting Stock" means all classes of Capital Stock of a Person then
outstanding normally entitled to vote in elections of directors or Persons
performing similar functions.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may at its option, by Board
Resolution, at any time, elect to (a) defease all of the Company's obligations
with respect to the Notes and any coupons appertaining thereto ("legal
defeasance option") or (ii) defease the Company's obligations to comply with
certain restrictive covenants, including certain of the covenants described
under "Certain Covenants" ("covenant defeasance option") with respect to the
Notes and any coupons appertaining thereto. The Company may exercise its legal
defeasance option with respect to the Notes notwithstanding its prior exercise
of its covenant defeasance option with respect thereto.
If the Company exercises its legal defeasance option with respect to the
Notes, payment of the Notes may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option with respect to
the Notes, payment of the Notes may not be accelerated because of certain Events
of Default described under "Events of Default" (not including, among others,
Events of Default relating to nonpayment, bankruptcy and insolvency events) or
because of the failure of the Company to comply with certain covenants specified
in the Indenture.
The Company may exercise its legal defeasance option or its covenant
defeasance option with respect to the Notes only if (a) the Company irrevocably
deposits with the Trustee in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Notes and any coupons appertaining thereto, (i) an
amount in such currency, currencies or currency unit in which the Notes and any
coupons appertaining thereto are then specified as payable at Stated Maturity,
(ii) U.S. Government Obligations applicable to the Notes and coupons
appertaining thereto (determined on the basis of the currency, currencies or
currency unit in which the Notes and coupons appertaining thereto are then
specified as payable at Stated Maturity) which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide money in an amount, or (iii) a combination thereof, in any case, in an
amount, sufficient, without consideration of any reinvestment of such principal
and interest, to pay (A) the
53
<PAGE> 55
principal of (and premium, if any) and interest, if any, on the Outstanding
Notes and any coupons appertaining thereto on the Stated Maturity of such
principal or installment of principal or interest and (B) any mandatory sinking
fund payments or analogous payments applicable to the Outstanding Notes and any
coupons appertaining thereto on the day on which such payments are due and
payable in accordance with the terms of the Indenture and of the Notes and any
coupons appertaining thereto; (b) the Company delivers to the Trustee a
certificate from a nationally recognized firm of independent certified public
accountants expressing their opinion that such deposit without reinvestment will
provide cash at such times and in such amounts as will be sufficient to pay (i)
the principal of (and premium, if any) and interest, if any, on the Outstanding
Notes and any coupons appertaining thereto on the Stated Maturity of such
principal or installment of principal or interest and (ii) any mandatory sinking
fund payments or analogous payments applicable to the Outstanding Notes and any
coupons appertaining thereto on the day on which such payments are due and
payable in accordance with the terms of the Indenture and of the Notes and any
coupons appertaining thereto; (c) the deposit does not constitute a default
under any other agreement or instrument binding on the Company; (d) no Default
or Event of Default has occurred and is continuing on the date of such deposit
and after giving effect thereto; (e) the Company delivers to the Trustee an
Opinion of Counsel to the effect that the trust resulting from the deposit does
not constitute, or is not qualified as, a regulated investment company under the
Investment Company Act of 1940; (f) in the case of the legal defeasance option,
the Company delivers to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of the Indenture there has been a
change in the applicable Federal income tax law, to the effect, in either case,
that, and based thereon such Opinion of Counsel shall confirm that, the Holders
of the Notes and any coupons relating thereto will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred; (g)
in the case of the covenant defeasance option, the Company delivers to the
Trustee an Opinion of Counsel to the effect that the Holders of the Notes and
any coupons relating thereto will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not occurred;
and (h) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
have been complied with as required by the Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect with regard to the Notes
(except as otherwise expressly provided for in the Indenture) when (a) either
(i) all Outstanding Notes and all coupons relating thereto have been delivered
(other than (A) coupons appertaining to the Notes in bearer form surrendered for
exchange for Notes in registered form and maturing after such exchange, whose
surrender is not required or has been waived, (B) the Notes and all coupons
relating thereto which have been destroyed, lost or stolen and which have been
replaced or paid, (C) coupons appertaining to the Notes called for redemption
and maturing after the relevant Redemption Date, whose surrender has been waived
and (D) Notes and all coupons relating thereto for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003 of the Indenture) to the Trustee for cancellation or
(ii) all outstanding Notes and all coupons relating thereto (A) have become due
and payable, (B) will become due and payable at their Stated Maturity within one
year or (C) if redeemable at the option of the Company, are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company has irrevocably deposited with the
Trustee funds in the currency or currencies, currency unit or units or composite
currency or currencies in which the Notes are payable, sufficient to pay at
maturity or upon redemption all outstanding Notes and such coupons, including
interest thereon and any Additional Amounts with respect thereto, to the date of
such deposit
54
<PAGE> 56
(in the case of Notes which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, (b) the Company has paid all
sums payable by it under the Indenture and (c) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent herein provided for relating to the satisfaction and
discharge of the Indenture as to such series have been complied with. The
Trustee will be required to acknowledge satisfaction and discharge of the
Indenture on demand of the Company accompanied by such Officer's Certificate and
Opinion of Counsel at the cost and expense of the Company.
NOTICES
Notices to holders of Notes will be given by mail to the registered
addresses of such holders.
CONCERNING THE TRUSTEE
The First National Bank of Chicago is the Trustee under the Indenture. The
Trustee has lending and other customary banking relationships with the Company
and its subsidiaries in the ordinary course of business and receives customary
fees and compensation in connection therewith.
GOVERNING LAW
The Indenture will provide that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides:
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all
55
<PAGE> 57
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections (a) and
(b). Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors or if such
directors so direct, by independent legal counsel in a written opinion, or
(3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under the provisions of this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation
if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee
56
<PAGE> 58
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
Section 102(b)(7) of the General Corporation Law of the state of Delaware
provides that a corporation's certificate of incorporation may contain the
following:
(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall
not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under section 174 of this
title, or (iv) for any transaction from which the director derived an
improper personal benefit. No such provision shall eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision becomes effective. All references in this paragraph to
a director shall also be deemed to refer (x) to a member of the governing
body of a corporation which is not authorized to issue capital stock and
(y) to such other person or persons, if any, who, pursuant to a provision
of the certificate of incorporation in accordance with subsection (a) of
141 of this title, exercise or perform any of the powers or duties
otherwise conferred or imposed upon the board of directors by this title.
The Company's Certificate of Incorporation provides that the Company may
indemnify each of its officers and directors to the full extent authorized by
Section 145 of the General Corporation Law of the State of Delaware. Article
Fifth of the Certificate of Incorporation reads as follows:
FIFTH: the Corporation may, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
Pursuant to such provision, CITGO has entered into indemnification
agreements with each of its directors and executive officers which obligate
CITGO to indemnify such persons in accordance with such agreements, and to the
fullest extent permitted by applicable laws.
The Company's Certificate of Incorporation limits the personal liability of
directors to the Company and its stockholders for monetary damages resulting
from certain breaches of the directors' fiduciary duties. Article Seventh of the
Certificate of Incorporation provides as follows:
SEVENTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the
State of Delaware, as the same may be amended or supplemented.
CITGO maintains liability insurance for directors and executive officers
including insurance against liabilities under the Securities Act.
57
<PAGE> 59
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
a. Financial Statements:
<TABLE>
<S> <C>
Independent Auditors' Report.................................................. F-1
Consolidated Balance Sheets at December 31, 1995 and 1994..................... F-2
Consolidated Statements of Income for the years ended December 31, 1995, 1994
and 1993.................................................................... F-3
Consolidated Statements of Shareholder's Equity for the years ended December
31, 1995, 1994 and 1993..................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993............................................................... F-5
Notes to Consolidated Financial Statements.................................... F-6
</TABLE>
b. Supplementary Data
Not Applicable.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements:
<TABLE>
<S> <C>
Independent Auditors' Report.................................................. F-1
Consolidated Balance Sheets at December 31, 1995 and 1994..................... F-2
Consolidated Statements of Income for the years ended December 31, 1995, 1994
and 1993.................................................................... F-3
Consolidated Statements of Shareholder's Equity for the years ended December
31, 1995, 1994 and 1993..................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993............................................................... F-5
Notes to Consolidated Financial Statements.................................... F-6
</TABLE>
b. Exhibits
<TABLE>
<C> <S>
**3.1 -- Restated Certificate of Incorporation of CITGO Petroleum Corporation
**3.2 -- Bylaws of CITGO Petroleum Corporation
**4.1 -- Indenture, dated as of May , 1996, between CITGO Petroleum
Corporation and The First National Bank of Chicago, as Trustee,
relating to the securities being registered
*10.1 -- CITGO Credit Facility (incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form F-1 of PDV America, Inc. (No.
33-63742))
**10.2(i) -- First Amendment to the Second Amended and Restated Senior Term Loan
Agreement, by and between CITGO Petroleum Corporation and Bank of
America National Trust and Savings Association et al, dated as of
February 15, 1994
**10.2(ii) -- Second Amendment to Second Amended and Restated Senior Term Loan
Agreement by and among CITGO Petroleum Corporation and Bank of
America Illinois et al, dated as of October 21, 1994
**10.2(iii) -- First Amendment to the Second Amended and Restated Senior Revolving
Credit Facility Agreement by and among CITGO Petroleum Corporation
and Bank of America National Trust and Savings Association et al,
dated as of February 15, 1994
**10.2(iv) -- Second Amendment to Second Amended and Restated Senior Revolving
Credit Facility Agreement by and among CITGO Petroleum Corporation
and Bank of America Illinois et al, dated as of October 21, 1994
</TABLE>
58
<PAGE> 60
<TABLE>
<C> <S>
**10.3 -- Master Shelf Agreement (1994) by and between Prudential Insurance
Company of America and CITGO Petroleum Corporation ($100,000,000),
dated March 4, 1994
**10.4(i) -- Letter Agreement by and between the Company and Prudential Insurance
Company of America, dated March 4, 1994
**10.4(ii) -- Letter Amendment No. 1 to Master Shelf Agreement with Prudential
Insurance Company of America, dated November 14, 1994
*10.5 -- CITGO Senior Debt Securities (1991) Agreement (incorporated by
reference to Exhibit 4.4 to the Registration Statement on Form F-1 of
PDV America, Inc. (No. 33-63742))
**10.6 -- CITCON Credit Agreement between CITCON Oil Corporation and The Chase
Manhattan Bank N.A., as Agent, dated as of April 30, 1992.
**10.7(i) -- First Amendment to the CITCON Credit Agreement, between CITCON Oil
Corporation and The Chase Manhattan Bank (National Association),
dated as of June 30, 1992
**10.7(ii) -- Second Amendment to the CITCON Credit Agreement, between CITCON Oil
Corporation and The Chase Manhattan Bank (National Association),
dated as of March 31, 1994
**10.7(iii) -- Third Amendment to the CITCON Credit Agreement, between CITCON Oil
Corporation and The Chase Manhattan Bank (National Association),
dated as of June 10, 1994
*10.8 -- Crude Supply Agreement between CITGO Petroleum Corporation and
Petroleos de Venezuela, S.A., dated as of September 30, 1986
(incorporated by reference to Exhibit 10.1 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
*10.9(i) -- Supplemental Crude Supply Agreement between CITGO Petroleum
Corporation and Petroleos de Venezuela S.A., dated September 30, 1986
(incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
**10.9(ii) -- Amendment, Guideline Interpretation No. 8B Crude Supply Agreement
between Commercit, S.A. and CITGO, dated August 31, 1995
*10.10 -- Crude Oil and Feedstock Supply Agreement between Champlin Refining
Company and Petroleos de Venezuela, S.A., dated March 31, 1987
(incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
*10.11(i) -- Supplemental Crude Oil and Feedstock Supply Agreement between
Champlin Refining Company and Petroleos de Venezuela, S.A., dated as
of March 31, 1987 (incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form F-1 of PDV America, Inc. (No.
33-63742))
**10.11(ii) -- Supplement 8C, Crude Oil and Feedstock Supply Agreement between
Commerchamp, S.A. and CITGO Refining and Chemicals, Inc., dated
August 31, 1995
*10.12 -- Contract for the Purchase/Sale of Boscan Crude Oil between Tradecal
S.A. and CITGO Asphalt Refining Company, dated June 2, 1993
(incorporated by reference to Exhibit 10.5 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
*10.13 -- Restated Contract for the Purchase/Sale of Heavy/Extra Heavy Crude
Oil by and between Maraven, S.A. and Lagoven, S.A., and Seaview Oil
Company, dated December 28, 1990 (incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form F-1 of PDV
America, Inc. (No. 33-63742))
*10.14 -- Sublease Agreement between Champlin Petroleum Company, Sublessor, and
Champlin Refining Company, Sublessee dated as of March 31, 1987
(incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
*10.15 -- Operating Agreement among Cit-Con Oil Corporation, CITGO Petroleum
Corporation and Conoco, Inc. dated as of May 1, 1984 (incorporated by
reference to Exhibit 10.9 to the Registration Statement on Form F-1
of PDV America, Inc. (No. 33-63742))
</TABLE>
59
<PAGE> 61
<TABLE>
<C> <S>
*10.16 -- Amended and Restated Limited Liability Company Regulations of
LYONDELL-CITGO Refining Company, Ltd., dated July 1, 1993
(incorporated by reference to Exhibit 10.9 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
**10.17(i) -- Amendment No. 1 to Amended and Restated Limited Liability Company
Regulations of LYONDELL-CITGO Refining Company Ltd., dated as of
April 28, 1995
**10.17(ii) -- Amendment No. 2 to Amended and Restated Limited Liability Company
Regulations of LYONDELL-CITGO Refining Company Ltd., dated August 28,
1995
*10.18 -- Contribution Agreement between Lyondell Petrochemical Company and
LYONDELL-CITGO Refining Company Ltd., dated July 1, 1993
(incorporated by reference to Exhibit 10.10 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
*10.19 -- Crude Oil Supply Agreement between LYONDELL-CITGO Refining Company,
Ltd. and Lagoven, S.A., dated as of May 5, 1993 (incorporated by
reference to Exhibit 10.11 to the Registration Statement on Form F-1
of PDV America, Inc. (No. 33-63742))
*10.20 -- Supplemental Supply Agreement between LYONDELL-CITGO Refining
Company, Ltd. and Petroleos de Venezuela, S.A., dated as of May 5,
1993 (incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form F-1 of PDV America, Inc. (No. 33-63742))
*10.21 -- Tax Allocation Agreement dated as of June 24, 1993 among PDV America,
Inc., VPHI Midwest, Inc., CITGO Petroleum Corporation and PDV USA,
Inc., as amended (incorporated by reference to Exhibit 10.17 to the
Registration Statement on Form F-1 of PDV America, Inc. (No.
33-63742))
***10.22 -- Agreement for the Purchase and Sale of Domestic Crude Oil dated as of
August 31, 1983, among Occidental Petroleum Corporation, OXY
Petroleum, Inc., Cities Service Oil and Gas Corporation, CITGO
Petroleum Corporation and The Southland Corporation
***10.23 -- CITGO Petroleum Corporation Executive Protection Plan, amended and
restated effective November 21, 1994
***10.24 -- CITGO Petroleum Corporation Long Term Incentive Plan -- 1994
***10.25 -- Employment letter agreement dated March 27, 1995 between CITGO
Petroleum Corporation and Ralph S. Cunningham
***10.26 -- Employment letter agreement dated August 30, 1995 between CITGO
Petroleum Corporation and Steven R. Berlin
***12. -- Statement of computation of ratio of earnings to fixed charges
**21. -- Subsidiaries of the registrant
***23.1. -- Consent of Deloitte & Touche LLP
**24. -- Power of Attorney (included in Part II of this Registration
Statement)
***27 -- Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the Registration Statement on Form F-1 of PDV
America, Inc. (No. 33-63742)
** Previously filed.
*** Filed herewith.
60
<PAGE> 62
LOGO
----------------------------------------
Suite 2400 Telephone: (918) 586-8800
One Williams Center
Facsimile: (918) 592-3856
Tulsa, Oklahoma 74172-0124
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
CITGO Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of CITGO Petroleum
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholder's equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CITGO Petroleum Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for postemployment benefits to conform
with Statement of Financial Accounting Standards No. 112.
Deloitte & Touche LLP
Tulsa, Oklahoma
February 12, 1996
LOGO
F-1
<PAGE> 63
CITGO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 19,863 $ 16,271
Accounts receivable............................................. 817,990 752,744
Due from affiliates............................................. 28,991 19,651
Inventories..................................................... 785,275 778,844
Prepaid expenses and other...................................... 30,199 19,302
----------- -----------
Total current assets.................................... 1,682,318 1,586,812
PROPERTY, PLANT AND EQUIPMENT -- Net.............................. 2,491,849 2,277,240
RESTRICTED CASH................................................... 1,258 42,887
INVESTMENTS IN AFFILIATES......................................... 650,360 461,807
OTHER ASSETS...................................................... 97,793 71,282
----------- -----------
$ 4,923,578 $ 4,440,028
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term bank loans........................................... $ 25,000 $ 53,500
Accounts payable................................................ 438,172 401,371
Payables to affiliates.......................................... 176,800 149,713
Taxes other than income......................................... 173,915 138,296
Other........................................................... 224,077 196,002
Current portion of long-term debt............................... 95,240 60,454
Current portion of capital lease obligation..................... 10,557 9,462
----------- -----------
Total current liabilities............................... 1,143,761 1,008,798
LONG-TERM DEBT.................................................... 1,159,263 1,007,606
CAPITAL LEASE OBLIGATION.......................................... 141,504 152,061
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS....................... 167,905 175,309
OTHER NONCURRENT LIABILITIES...................................... 186,376 166,075
DEFERRED INCOME TAXES............................................. 367,644 329,771
MINORITY INTEREST................................................. 25,618 23,625
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock -- $1.00 par value, 1,000 shares authorized, issued
and outstanding.............................................. 1 1
Additional capital.............................................. 1,222,345 1,207,345
Retained earnings............................................... 509,161 369,437
----------- -----------
Total shareholder's equity.............................. 1,731,507 1,576,783
----------- -----------
$ 4,923,578 $ 4,440,028
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 64
CITGO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Net sales....................................... $10,279,579 $9,093,562 $8,986,839
Sales to affiliates............................. 242,581 153,143 120,569
----------- ---------- ----------
10,522,160 9,246,705 9,107,408
Equity in earnings (losses) of affiliates......... 33,530 28,585 30,117
Other income (expense) - net...................... (2,985) (6,265) (3,819)
----------- ---------- ----------
10,552,705 9,269,025 9,133,706
----------- ---------- ----------
COST OF SALES AND EXPENSES:
Cost of sales and operating expenses (including
purchases of $3,321,128, $2,915,696 and
$3,058,445 from
affiliates).................................. 10,066,012 8,730,971 8,654,315
Selling, general and administrative expenses.... 162,260 156,635 137,530
Interest expense, excluding capital lease....... 88,655 58,899 59,581
Capital lease interest charge................... 17,913 18,893 19,773
Minority interest............................... 1,993 2,394 1,810
----------- ---------- ----------
10,336,833 8,967,792 8,873,009
----------- ---------- ----------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE....................................... 215,872 301,233 260,697
INCOME TAXES...................................... 79,528 110,444 98,562
----------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE...... 136,344 190,789 162,135
EXTRAORDINARY GAIN, early extinguishment of debt,
net of related income taxes of $2,160........... 3,380 -- --
EXTRAORDINARY CHARGE, early extinguishment of
debt, net of related income tax benefit of
$956............................................ -- (1,627) --
CUMULATIVE EFFECT, change in accounting for post-
employment benefits, net of related income tax
benefit of $2,823............................... -- (4,477) --
----------- ---------- ----------
NET INCOME........................................ $ 139,724 $ 184,685 $ 162,135
============ ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 65
CITGO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ADDITIONAL RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993.............. 1 $1 $ 952,804 $ 51,100 $ 1,003,905
Net income.......................... -- -- -- 162,135 162,135
Capital contributions received from
Parent........................... -- -- 212,000 -- 212,000
Dividends to Parent................. -- -- -- (28,483) (28,483)
- --
---------- -------- ----------
BALANCE, DECEMBER 31, 1993............ 1 1 1,164,804 184,752 1,349,557
Net income.......................... -- -- -- 184,685 184,685
Capital contributions received from
Parent........................... -- -- 42,541 -- 42,541
- --
---------- -------- ----------
BALANCE, DECEMBER 31, 1994............ 1 1 1,207,345 369,437 1,576,783
Net income.......................... -- -- -- 139,724 139,724
Capital contributions received from
Parent........................... -- -- 15,000 -- 15,000
- --
---------- -------- ----------
BALANCE, DECEMBER 31, 1995............ 1 $1 $1,222,345 $509,161 $ 1,731,507
= == ========== ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 66
CITGO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $139,724 $184,685 $162,135
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 164,570 157,071 173,879
Provision for losses on accounts receivable.......... 9,070 6,250 9,387
Deferred income taxes................................ 16,957 29,087 16,520
Equity earnings (losses) of affiliates in excess of
distributions...................................... (4,490) (3,930) (3,808)
(Gain) charge from early extinguishment of debt...... (3,380) 1,627 --
Other adjustments.................................... 3,652 5,483 1,657
Changes in operating assets and liabilities, net of
investment in subsidiary:
Accounts receivable and due from affiliates........ (77,412) (170,874) (38,287)
Inventories........................................ 2,212 (46,878) 14,296
Prepaid expenses and other current assets.......... 4,766 2,653 (7,394)
Accounts payable and other current liabilities..... 133,110 98,187 123,990
Other assets....................................... (68,114) (38,688) (51,362)
Other liabilities.................................. 9,685 55,422 10,101
-------- -------- --------
Total adjustments............................... 190,626 95,410 248,979
-------- -------- --------
Net cash provided by operating activities....... 330,350 280,095 411,114
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (314,225) (350,492) (345,430)
Proceeds from sales of property, plant and equipment.... 843 2,734 242
Decrease (increase) in restricted cash.................. 41,629 (42,887) --
Return of partnership capital........................... -- 49,256 --
Investments in LYONDELL-CITGO Refining Company Ltd...... (178,875) (138,416) (118,880)
Investment in subsidiary and advances to other
affiliates........................................... (46,805) (1,531) (18,308)
-------- -------- --------
Net cash used in investing activities........... (497,433) (481,336) (482,376)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term bank
loans................................................ (28,500) 16,500 28,000
Net borrowings (repayments) of revolving bank loan...... 95,000 55,000 (190,000)
Payments on term bank loan.............................. (7,353) (150,000) --
Payments on senior notes................................ (47,321) -- --
Proceeds from master shelf agreement.................... 100,000 160,000 --
Proceeds from issuance of tax-exempt bonds.............. 90,700 70,000 50,000
Payments on tax-exempt bonds............................ (40,237) -- --
Payments of capital lease obligations................... (9,011) (8,691) (7,841)
Borrowings (repayments) of other debt................... 2,397 18,510 (2,380)
Capital contributions received from Parent.............. 15,000 42,541 212,000
Dividends paid to Parent................................ -- -- (28,483)
-------- -------- --------
Net cash provided by financing activities....... 170,675 203,860 61,296
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 3,592 2,619 (9,966)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 16,271 13,652 23,618
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 19,863 $ 16,271 $ 13,652
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized................. $ 97,788 $ 75,538 $ 84,255
======== ======== ========
Income taxes, net of refunds of $3,682 in 1995....... $ 64,437 $ 94,551 $ 72,684
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 67
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- CITGO Petroleum Corporation ("CITGO") is a subsidiary
of PDV America, Inc., an indirect wholly owned subsidiary of Petroleos de
Venezuela, S.A. ("PDVSA"), the national oil company of Venezuela.
CITGO manufactures or refines and markets quality transportation fuels as well
as lubricants, refined waxes, petrochemicals, asphalt and other industrial
products. Transportation fuel customers include primarily CITGO branded
wholesale distributors, convenience stores and airlines located primarily east
of the Rocky Mountains. Crude oil and refined products are also sold for
refinery supply, logistical and marketing purposes. Such sales are primarily to
major and independent oil companies and traders. Lubricants are sold to
independent distributors, mass marketers and industrial customers and
petrochemical feedstocks and industrial products are sold to various
manufacturers and industrial companies throughout the United States. Sales are
made primarily on account, based on pre-approved unsecured credit terms
established by CITGO management, except sales to airlines, which are made
primarily on a prepaid basis. The Company also has a proprietary credit card
program which allows retail consumers to purchase fuel and convenience items at
CITGO branded outlets. Allowances for uncollectible accounts are established
based on several factors which include, but are not limited to, analysis of
specific customers, historical trends, current economic conditions and other
information.
Principles of Consolidation -- The consolidated financial statements include the
accounts of CITGO and its subsidiaries (collectively referred to as the
"Company"). All subsidiaries are wholly owned except for Cit-Con Oil Corporation
("Cit-Con"), which is 65 percent owned. All material intercompany transactions
and accounts have been eliminated.
The Company's investments in affiliates are accounted for by the equity method.
The excess of the investments over the equity in the underlying net assets of
the affiliates is amortized on a straight-line basis over 40 years, which is
based upon the estimated useful lives of the affiliates' assets.
Pervasiveness of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition -- Revenue is recognized upon transfer of title to products
sold, based upon the terms of delivery.
Supply and Marketing Activities -- The Company engages in the buying and selling
of crude oil to supply its refineries. The net results of this activity are
recorded in cost of sales. The Company also engages in the buying and selling of
refined products to facilitate the marketing of its refined products. The
results of this activity are recorded in cost of sales and sales.
Refined product exchange transactions that do not involve the payment or receipt
of cash are not accounted for as purchases or sales. Any resulting volumetric
exchange balances are accounted for as inventory in accordance with the
Company's LIFO inventory method. Exchanges that are settled through payment or
receipt of cash are accounted for as purchases or sales.
Excise Taxes -- The Company collects excise taxes on sales of gasoline and other
motor fuels. Excise taxes of approximately $2.2 billion, $2.1 billion and $1.4
billion were collected from customers and paid to various governmental entities
in 1995, 1994 and 1993, respectively. Excise taxes are not included in sales.
F-6
<PAGE> 68
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Crude oil and refined product inventories are stated at the lower
of cost or market and cost is primarily determined using the last-in, first-out
("LIFO") method. The average cost method is used for materials and supplies.
Property, Plant and Equipment -- Property, plant and equipment is reported at
cost, less accumulated depreciation. Depreciation is based upon the estimated
useful lives of the related assets using the straight-line method. Depreciable
lives are generally as follows: buildings and leaseholds -- 10 to 24 years;
machinery and equipment -- 5 to 24 years; and vehicles -- 3 to 10 years.
The Company capitalizes interest on projects when construction takes
considerable time and entails major expenditures. Such interest is allocated to
property, plant and equipment and amortized over the estimated useful lives of
the related assets. Capitalized interest totaled $5 million, $12 million and $4
million in 1995, 1994 and 1993, respectively.
Futures Contracts and Commodity Options Activity and Other Derivatives -- The
Company enters into petroleum futures contracts to hedge a portion of the price
risk associated with crude oil and refined products. The Company also buys and
sells commodity options for delivery and receipt of crude oil and refined
products. In order for a transaction to qualify as a hedge, the Company requires
that the item to be hedged exposes the Company to price risk and that the
commodity contract reduce that risk and be designated as a hedge. The high
correlation between price movements of a product and the commodity contract in
that product is well demonstrated in the petroleum industry and generally the
Company relies on those historical relationships and on periodic comparisons of
market price changes to price changes of futures and options contracts accounted
for as hedges. Gains or losses on contracts which qualify as hedges are
recognized when the related inventory is sold or the hedged transaction is
consummated. Changes in the market value of futures and option positions which
are not hedges are recorded as gains or losses in the period in which they
occur.
The Company has only limited involvement with other derivative financial
instruments, and does not use them for trading purposes. They are used to manage
well defined interest rate and commodity price risks arising out of the
Company's core activities.
The Company has entered into various interest rate swap and cap agreements to
manage its risk related to interest rate changes on its debt. Premiums paid for
purchased interest rate swap and cap agreements are amortized to interest
expense over the terms of the agreements. Unamortized premiums are included in
other assets. The interest rate differentials received or paid by the Company
related to these agreements are recognized as adjustments to interest expense
over the term of the agreements. Gains or losses on terminated swap agreements
are either amortized over the original term of the swap agreement if the hedged
borrowings remain in place or are recognized immediately if the hedged
borrowings are no longer held.
The Company from time to time enters into refined product price collars and
crackspread hydrocarbon swaps. No premiums are required for these agreements.
Gains and losses under these agreements, which primarily fix margins on
anticipated sales, are accrued as receivables or payables and as adjustments of
the carrying amount of inventories. The amounts are recognized in income through
cost of sales when the related refined products are sold, unless an earlier
writedown is required to recognize anticipated nonrecovery of deferred amounts.
The market risk associated with these agreements is not significant.
Refinery Maintenance -- Costs of refinery turnaround maintenance are charged to
operations over the average period between turnarounds. Turnaround periods range
approximately from one to seven years. Unamortized costs are included in other
assets. Amortization of refinery turnaround costs is included in depreciation
and amortization expense. Amortization was $43 million, $54 million and $86
million for 1995, 1994 and 1993, respectively. Ordinary maintenance is expensed
as incurred.
F-7
<PAGE> 69
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental Expenditures -- Environmental expenditures that relate to current
or future revenues are expensed or capitalized as appropriate. Expenditures that
relate to an existing condition caused by past operations and do not contribute
to current or future revenue generation are expensed. Liabilities are recorded
when environmental assessments and/or cleanups are probable and the costs can be
reasonably estimated. Subsequent adjustments to estimates, to the extent
required, may be made as more refined information becomes available.
Income Taxes -- In 1992, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," effective at the
beginning of fiscal 1990. This statement requires an asset and liability
approach for financial accounting and reporting of income taxes.
The Company is included in the consolidated U.S. Federal income tax return filed
by PDV America, Inc. The Company's current and deferred income tax has been
computed on a stand alone basis.
Postretirement Benefits -- In addition to pension benefits, the Company, at
present, provides certain health care and life insurance benefits to eligible
employees at retirement. The Company accounts for these benefits in accordance
with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This statement requires costs related to postretirement benefits to
be accrued during the period an employee provides service.
Postemployment Benefits -- The Company provides various postemployment benefits
for eligible former or inactive employees, including disability, severance, and
salary continuation benefits. Effective January 1, 1994, the Company adopted
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The principal
effect of adopting this standard is the accrual of postemployment benefits
during the period the employees provide service rather than expensing costs as
paid. The cumulative effect of adopting this standard was $4.5 million, which is
net of the income tax benefit of $2.8 million. The effect on 1994 net income,
excluding the cumulative effect, was not material.
Restricted Cash -- Restricted cash represents short-term, highly liquid
investments held in trust accounts in accordance with a tax-exempt bond
agreement. Funds are released solely for financing environmental facilities as
defined in the bond agreements.
Consolidated Statement of Cash Flows -- For purposes of the consolidated
statement of cash flows, the Company considers highly liquid short-term
investments with original maturities of three months or less to be cash
equivalents. In addition, borrowings with original maturities of three months or
less are presented net of repayments.
Reclassifications -- Certain minor reclassifications have been made to the 1993
and 1994 financial statements to conform with the classifications used in 1995.
2. INVESTMENT IN LYONDELL-CITGO REFINING COMPANY LTD.
On July 1, 1993, subsidiaries of CITGO and Lyondell Petrochemical Company
("Lyondell") executed definitive agreements with respect to LYONDELL-CITGO
Refining Company Ltd. ("LYONDELL-CITGO"), a Texas limited liability company
which owns and operates a 265 MBPD refinery previously owned by Lyondell and
located in Houston, Texas. As of December 31, 1995, CITGO has invested
approximately $436 million in cash for a minority participation interest in
LYONDELL-CITGO and to fund the initial portion of CITGO's commitment to the
refinery enhancement project described below, while Lyondell contributed the
refinery and related assets in exchange for the remaining participation interest
in the new company. As of December 31, 1995, LYONDELL-CITGO has spent
approximately $600 million on a refinery enhancement project to increase the
refinery's heavy crude oil high conversion capacity. This heavy crude oil will
be entirely supplied by a subsidiary of PDVSA under a long-term crude oil supply
contract. CITGO purchases substantially all of the refined products produced at
the Houston
F-8
<PAGE> 70
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
refinery under a long-term contract through the year 2017, thereby significantly
reducing CITGO's need to purchase refined products from third party sources to
supply its distribution network. LYONDELL-CITGO estimates expenditures to
complete this project will total approximately $400 million to $500 million.
As of December 31, 1995, CITGO is committed to invest an additional (i) $30
million at the in-service date of the refinery enhancement project, which is
currently scheduled for 1997, and (ii) up to an additional approximately $150
million through the in-service date provided that the project costs do not
exceed 110 percent of current estimates. In addition, CITGO is required to fund
certain fees, expenses and interest on LYONDELL-CITGO's initial $200 million
construction loan, and is committed to fund up to $22 million for certain
maintenance and environmental costs, to the extent that maintenance and
environmental costs exceed expectations. Although CITGO is committed to fund the
investments described above, CITGO does not currently expect that its aggregate
investments will exceed $630 million (including the initial investment, but
exclusive of reinvested earnings) through the in-service date. CITGO's expected
aggregate investment in LYONDELL-CITGO, plus its share of LYONDELL-CITGO's
earnings, which must be reinvested through the in-service date, will give CITGO
approximately a 40 percent participation interest in LYONDELL-CITGO; CITGO also
has the option to make an additional investment which, if made, would increase
CITGO's participation interest to 50 percent. As of December 31, 1995, CITGO has
received $258 million of equity contributions to fund the investments in
LYONDELL-CITGO. CITGO expects to fund the Company's remaining commitment through
cash generated from operations and available credit facilities.
The Company accounts for its investment in LYONDELL-CITGO using the equity
method. At December 31, 1995 and 1994, the Company's investment, including
reinvested earnings, was $461 million and $268 million, which represented an
approximate 12 percent and 11 percent participation interest, respectively. The
Company's equity in the earnings of LYONDELL-CITGO was $14 million, $6 million
and $5 million for 1995, 1994 and 1993, respectively.
3. ACQUISITION OF BUSINESS
On May 1, 1995, the Company purchased Cato Oil & Grease ("Cato"). Cato is
primarily engaged in the manufacture and distribution of lubricants. The results
of operations of Cato are included in the accompanying financial statements
since the date of acquisition. Proforma results of operations for this business
are not material to the Company's consolidated statement of income. The total
cost of this acquisition was $46,805,500 which was allocated as follows:
<TABLE>
<S> <C>
Property, plant and equipment......................................... $27,000,000
Inventory............................................................. 8,643,000
Accounts receivable................................................... 6,144,000
Other assets (net).................................................... 5,018,500
-----------
$48,805,500
===========
</TABLE>
4. RELATED PARTY TRANSACTIONS
Under long-term crude oil supply agreements, which extend through the years 2012
and 2006, and other agreements, including vessel transportation contracts, the
Company purchased $1.9 billion, $1.8 billion and $2.0 billion of crude oil,
feedstocks and other products from wholly owned subsidiaries of PDVSA in 1995,
1994 and 1993, respectively. These crude oil, feedstock, and other product
purchases comprised 31 percent, 34 percent and 37 percent of the Company's total
acquisitions in 1995, 1994 and 1993, respectively. The crude oil supply
contracts incorporate formula prices based on the market value of a number of
refined products deemed to be produced from each particular crude oil, less (i)
certain
F-9
<PAGE> 71
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deemed refining costs adjustable for inflation; (ii) certain actual costs,
including transportation charges, import duties and taxes and (iii) a deemed
margin, which varies according to the grade of crude oil. Prior to 1995, certain
costs were used in the formula aggregating approximately $70 million per year
which were to cease being deductible after 1996. Commencing in the third quarter
of 1995, a portion of such deductions were and will be deferred from 1995 and
1996 to the years 1997 through 1999. As a result of the deferrals, crude oil
costs for 1995 increased by approximately $22 million and crude oil costs for
1996 are estimated to increase by approximately $45 million. However, from 1997
through 1999, crude oil costs are estimated to decrease by approximately $25
million per year as a result of the deferral. At December 31, 1995 and 1994,
$146 million and $128 million, respectively, were included in payables to
affiliates as a result of these transactions.
During 1995, 1994 and 1993, the Company also purchased $1.4 billion, $1.1
billion and $1.0 billion of crude oil, feedstocks and refined products from
LYONDELL-CITGO primarily under a product sales agreement. The product sales
agreement incorporates formula prices based on published market prices and
defined marketing discounts and variable factors. At December 31, 1995 and 1994,
$31 million and $22 million were included in payables to affiliates as a result
of these transactions.
The Company had refined product, feedstock, crude oil and other product sales of
$243 million, $153 million and $121 million to affiliates in 1995, 1994 and
1993, respectively. At December 31, 1995 and 1994, $29 million and $20 million
were included in due from affiliates as a result of these transactions.
Under a separate guarantee of rent agreement, PDVSA has guaranteed payment of
rent, stipulated loss value and terminating value due under the lease of the
Corpus Christi refinery facilities described in Note 14.
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Trade........................................................ $620,690 $566,208
Credit card.................................................. 166,492 154,300
Other........................................................ 49,105 47,320
-------- --------
836,287 767,828
Allowance for uncollectible accounts......................... (18,297) (15,084)
-------- --------
$817,990 $752,744
======== ========
</TABLE>
6. INVENTORIES
<TABLE>
<CAPTION>
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Refined product.............................................. $588,696 $601,146
Crude oil.................................................... 149,414.. 136,086
Materials and supplies....................................... 47,165 41,612
-------- --------
$785,275 $778,844
======== ========
</TABLE>
As of December 31, 1995 and 1994, replacement costs exceeded LIFO carrying
values by approximately $112 million and $40 million.
F-10
<PAGE> 72
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(000'S OMITTED)
<S> <C> <C>
Land...................................................... $ 112,542 $ 112,061
Buildings and leaseholds.................................. 410,903 378,367
Machinery and equipment................................... 2,184,920 1,982,970
Vehicles.................................................. 44,211 39,231
Construction in process................................... 218,146 127,981
---------- ----------
2,970,722 2,640,610
Accumulated depreciation and amortization................. (478,873) (363,370)
---------- ----------
$2,491,849 $2,277,240
========== ==========
</TABLE>
Depreciation expense for 1995, 1994 and 1993 was $122 million, $103 million and
$88 million, respectively.
Other income includes gains and losses on disposals and retirements of property,
plant and equipment. Such net losses were approximately $4 million, $7 million
and $5 million in 1995, 1994 and 1993, respectively.
8. INVESTMENTS IN AFFILIATES
In addition to LYONDELL-CITGO, the Company's investments in affiliates consist
of equity interests of 6.8 to 50 percent in joint interest pipelines and
terminals, including a 13.98 percent interest in Colonial Pipeline Company, a
49.5 percent partnership interest in Nelson Industrial Steam Company ("NISCO"),
which is a qualified cogeneration facility; and a 49 percent partnership
interest in Mount Vernon Phenol Plant. The carrying value of these investments
exceeded the Company's equity in the underlying net assets by approximately $164
million and $168 million at December 31, 1995 and 1994, respectively.
In September 1994, NISCO refinanced its long-term debt. In connection with this
transaction CITGO received a $75 million cash distribution from NISCO and NISCO
wrote off deferred loan fees and other costs associated with the extinguished
debt. CITGO's share of NISCO's write-off, $1.6 million, was reported as an
extraordinary after tax charge in 1994. The distribution received exceeded
CITGO's investment and capital account in NISCO by approximately $26 million.
This amount was recorded in other noncurrent liabilities based on the terms of
the NISCO partnership agreement and has subsequently been adjusted to reflect
capital transactions and CITGO's share of NISCO's earnings and losses. At
December 31, 1995 and 1994, other noncurrent liabilities include approximately
$40 million and $35 million related to the Company's partnership interest in
NISCO.
Information on the Company's investments, including LYONDELL-CITGO, follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(000'S OMITTED)
<S> <C> <C> <C>
Company's investments in affiliates............... $650,360 $461,807 $370,400
Company's equity in net income (losses) of
affiliates...................................... 33,530 28,585 30,117
Dividends received from affiliates................ 29,040 26,282 26,309
</TABLE>
F-11
<PAGE> 73
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Selected financial information provided by the affiliates is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Summary of financial position:
Current assets..................................... $ 547,479 $ 529,206 $ 489,303
Noncurrent assets.................................. 2,345,695 1,876,688 1,669,291
Current liabilities................................ 596,723 510,613 381,014
Noncurrent liabilities............................. 1,659,729 1,400,805 1,267,436
Summary of operating results:
Revenues........................................... $3,900,653 $3,474,306 $2,319,239
Gross profit....................................... 574,103 522,059 511,150
Net income......................................... 344,817 276,633 279,155
</TABLE>
9. SHORT-TERM BANK LOANS
As of December 31, 1995, the Company has established $179.5 million of
uncommitted, unsecured, short-term borrowing facilities with various banks.
Interest rates on these facilities are determined daily based upon the Federal
funds interest rates, and maturity options vary up to 30 days. The weighted
average interest rates actually incurred in 1995, 1994 and 1993 were 6.2
percent, 6.4 percent and 3.5 percent, respectively. The Company had $25.0
million and $53.5 million of borrowings outstanding under these facilities at
December 31, 1995 and 1994.
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(000'S OMITTED)
<S> <C> <C>
Revolving bank loan....................................... $ 290,000 $ 195,000
Term bank loan............................................ 117,647 125,000
Senior Notes:
8.75% Series A due 1998................................. 56,250 75,000
9.03% Series B due 2001................................. 171,429 200,000
9.30% Series C due 2006................................. 125,000 125,000
Master Shelf Agreement:
8.55% Senior Notes due 2002............................. 25,000 --
8.68% Senior Notes due 2003............................. 50,000 50,000
7.29% Senior Notes due 2004............................. 20,000 20,000
8.59% Senior Notes due 2006............................. 40,000 40,000
8.94% Senior Notes due 2007............................. 50,000 50,000
7.17% Senior Notes due 2008............................. 25,000 --
7.22% Senior Notes due 2009............................. 50,000 --
Tax-Exempt Bonds:
Pollution control revenue bonds due 2004................ 15,800 15,800
Port facilities revenue bonds due 2007.................. 11,800 11,800
Louisiana wastewater facility revenue bonds due 2023.... 3,020 50,000
Louisiana wastewater facility revenue bonds due 2024.... 20,000 20,000
Louisiana wastewater facility revenue bonds due 2025.... 40,700 --
Gulf Coast solid waste facility revenue bonds due
2025................................................. 50,000 --
Gulf Coast solid waste facility revenue bonds due
2026................................................. 50,000 50,000
Cit-Con bank credit agreement............................. 42,857 40,460
---------- ----------
1,254,503 1,068,060
Current portion of long-term debt......................... (95,240) (60,454)
---------- ----------
$1,159,263 $1,007,606
========== ==========
</TABLE>
F-12
<PAGE> 74
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revolving and Term Bank Loans -- The Company's credit agreement with various
banks was amended during 1994. The primary result of the amendments was a
reduction in borrowings under the term bank loan of $150 million. At December
31, 1995, this agreement consists of a $125 million term loan and a $675 million
revolving loan. The term loan is unsecured, has various interest rate options
(year-end rate of 6.3 percent, 6.6 percent and 4.0 percent at December 31, 1995,
1994 and 1993) and principal amounts are payable in quarterly installments
commencing in December 1995. The revolving loan is unsecured, has various
borrowing maturities and interest rate options (year-end rate of 6.4 percent,
6.7 percent and 3.9 percent at December 31, 1995, 1994 and 1993), and is
committed through December 31, 1999. Both the term and revolving loans contain
certain covenants that, depending upon the level of the Company's capitalization
and earnings, could impose limitations on the Company for paying dividends,
incurring additional debt, placing liens on property, and selling fixed assets.
The Company was in compliance with the debt covenants at December 31, 1995.
Senior Notes -- At December 31, 1995, the Company has outstanding approximately
$352.7 million of Senior Notes (the "Notes"). Guarantees of these Notes by
significant subsidiaries of CITGO were released during 1995. Principal amounts
are payable in annual installments commencing in November, 1995 for the Series A
and Series B Notes and November, 1996 for the Series C Notes. Interest is
payable semi-annually in May and November. The Notes contain certain covenants
that, depending upon the level of the Company's capitalization and earnings,
could impose limitations on the Company for paying dividends, incurring
additional debt, placing liens on property, and selling fixed assets. The
Company was in compliance with the debt covenants at December 31, 1995.
Master Shelf Agreement -- During 1994, CITGO entered into an unsecured Master
Shelf Agreement with an insurance company to place up to $260 million of senior
notes in private markets. A total of $260 million has been drawn under this
facility as of December 31, 1995, with various fixed interest rates and
maturities. The agreement contains certain covenants that, depending upon the
level of the Company's capitalization and earnings, could impose limitations on
the Company for paying dividends, incurring additional debt, placing liens on
property, and selling fixed assets. The Company was in compliance with the debt
covenants at December 31, 1995.
Tax-Exempt Bonds -- Through state entities, the Company has issued $27.6 million
of industrial development bonds for certain Lake Charles, Louisiana port
facilities and pollution control equipment and $163.7 million of environmental
revenue bonds to finance a portion of the Company's environmental facilities at
its Lake Charles, Louisiana refinery and at the LYONDELL-CITGO refinery.
The pollution control and port facilities revenue bonds are secured by letters
of credit. Interest rates vary weekly and the interest rates at December 31,
1995, 1994 and 1993 were 5.1 percent, 5.5 percent and 3.2 percent, respectively.
The Louisiana Revenue Bonds due in the year 2023 have a fixed interest rate of 6
percent. Guarantees of these bonds by certain CITGO subsidiaries were released
during 1995. During 1995 the Company repurchased approximately $47 million of
these bonds at a discount, resulting in an extraordinary gain of approximately
$3.4 million net of related income taxes of approximately $2.2 million. The
Louisiana Revenue Bonds due in the year 2024 are secured by a letter of credit
and have a floating interest rate which was 6.2 percent and 5.7 percent at
December 31, 1995 and 1994, respectively. The Louisiana Revenue Bonds due in the
year 2025 are secured by a letter of credit and have a floating interest rate
which was 6.2 percent at December 31, 1995. The Gulf Coast Revenue Bonds due in
the year 2025 are secured by a letter of credit and have a floating interest
rate which was 6.2 percent at December 31, 1995. The Gulf Coast Revenue Bonds
due in the year 2026 are secured by a letter of credit and have a floating
interest rate which was 6.2 percent and 5.7 percent at December 31, 1995 and
1994, respectively.
Cit-Con Bank Credit Agreement -- The Cit-Con bank credit agreement provided for
borrowings of up to $50 million and was converted to a term loan during 1995.
The agreement is collateralized by throughput
F-13
<PAGE> 75
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements of the owner companies, has various interest rate options (weighted
average effective rates of 6.8 percent, 6.7 percent and 3.8 percent at December
31, 1995, 1994 and 1993, and requires quarterly principal payments through
December 2001.
Debt Maturities -- Future maturities of long-term debt as of December 31, 1995
are: 1996 -- $95.2 million; 1997 -- $95.2 million; 1998 -- $95.2 million;
1999 -- $366.6 million; 2000 -- $47.1 million and $555.2 million thereafter.
Interest Rate Swap and Cap Agreements -- The Company has entered into the
following interest rate swap agreements to reduce the impact of interest rate
changes on its variable interest rate debt:
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
AMOUNT
EXPIRATION FIXED RATE --------------------
VARIABLE RATE INDEX DATE PAID 1995 1994
---------------------------------- -------------- ---------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C> <C>
One-month LIBOR................... September 1998 4.85% $ 25,000 $25,000
One-month LIBOR................... September 1998 4.77% -- 25,000
One-month LIBOR................... November 1998 5.09% 25,000 25,000
One-month LIBOR................... May 2000 6.28% 25,000 --
J. J. Kenny....................... May 2000 4.72% 25,000 --
J. J. Kenny....................... February 2005 5.30% 12,000 --
J. J. Kenny....................... February 2005 5.27% 15,000 --
J. J. Kenny....................... February 2005 5.49% 15,000 --
-------- -------
$142,000 $75,000
======== =======
</TABLE>
Interest expense includes $0.1 million, $0.4 million and $0.3 million in 1995,
1994 and 1993 related to interest paid on these agreements. During 1995, the
Company converted $25 million of variable rate debt to fixed rate borrowings and
terminated the interest rate swap agreement matched to the variable rate debt.
Other income in 1995 includes a $2.4 million gain related to the termination of
this interest rate swap agreement.
During 1995, the Company entered into a 9 percent interest rate cap agreement
with a notional amount of $25 million, a reference rate of three-month LIBOR and
an expiration date of February, 1997. Other interest rate cap agreements to
which the Company was a party expired in November, 1994. The effect of these
agreements was not material in 1995, 1994 or 1993.
11. EMPLOYEE BENEFIT PLANS
Employee Savings -- The Company sponsors three qualified defined contribution
retirement and savings plans covering substantially all eligible salaried and
hourly employees. Participants make voluntary contributions to the plans and the
Company makes contributions, including matching of employee contributions, based
on plan provisions. The Company charged $16 million, $15 million and $15 million
to operations related to its contributions to these plans for the years 1995,
1994 and 1993, respectively.
Pension Benefits -- The Company sponsors three qualified noncontributory defined
benefit pension plans, two of which cover eligible hourly employees and one of
which covers eligible salaried employees. The Company also sponsors two
nonqualified defined benefit plans for certain eligible employees. The qualified
plans' assets include corporate securities, a fixed income mutual fund, and a
short-term investment fund. The nonqualified plans are not funded.
The Company's policy is to fund the qualified pension plans in accordance with
applicable laws and regulations and not to exceed the tax deductible limits. The
nonqualified plans are funded as necessary
F-14
<PAGE> 76
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to pay retiree benefits. The plan benefits for each of the qualified pension
plans are primarily based on an employee's years of plan service and
compensation as defined by each plan.
The Company's net periodic pension costs for these plans included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Service cost-benefits earned during the year................ $ 11,498 $ 11,757 $10,684
Interest cost on projected benefit obligation............... 11,496 10,164 9,585
Actual loss (return) on plan assets......................... (34,784) 3,166 (7,421)
Net amortization and deferral............................... 23,777 (14,529) (3,348)
-------- -------- -------
Net periodic pension cost................................... $ 11,987 $ 10,558 $ 9,500
======== ======== =======
</TABLE>
The following table summarizes the funded status of these plans and the related
amounts recognized in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
1995 1994
------------------------- ------------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLANS PLANS PLANS
---------- ----------- ---------- -----------
(000'S OMITTED) (000'S OMITTED)
<S> <C> <C> <C> <C>
Plan assets at fair value................... $ 155,997 -- $ 90,497 $ 28,048
Actuarial present value of benefit
obligation:
Vested benefits........................... (103,046) (10,292) (64,429) (34,033)
Nonvested benefits........................ (16,661) -- (8,912) (4,861)
---------- --------- -------- ---------
Accumulated benefit obligation.............. (119,707) (10,292) (73,341) (38,894)
Effect of projected long-term compensation
increases................................. (41,012) (1,729) (24,036) (9,599)
---------- --------- -------- ---------
Total projected benefit obligation
("PBO")................................... (160,719) (12,021) (97,377) (48,493)
---------- --------- -------- ---------
PBO in excess of plan assets.............. $ (4,722) $ (12,021) $ (6,880) $ (20,445)
========== ========= ======== ========
Pension liability recognized in the
consolidated balance sheets............... $ (27,467) $ (10,292) $(16,010) $ (17,301)
Amounts not recognized:
Prior service costs....................... 1,928 (1,786) (407) 549
Net gain at date of adoption.............. 2,085 -- 1,078 1,275
Net amount resulting from plan experience
and changes in actuarial assumptions... 18,732 (862) 8,459 (5,894)
Additional minimum liability.............. -- 919 -- 926
---------- --------- -------- ---------
Funded status as of year end........... $ (4,722) $ (12,021) $ (6,880) $ (20,445)
========== ========= ======== =========
</TABLE>
The underfunded plans relate to the plans in which plan assets at fair value are
exceeded by the accumulated benefit obligation.
F-15
<PAGE> 77
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following are the significant assumptions used in determining the costs and
funded status of these plans:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate:
Pension costs................................................ 8.0 % 7.5 % 8.0 %
Benefit obligations.......................................... 7.5 % 8.0 % 7.5 %
Rate of long-term compensation increase:
Pension costs................................................ 5.0 % 5.0 % 6.0 %
Benefit obligations.......................................... 5.0 % 5.0 % 5.0 %
Expected long-term rate of return on assets.................... 8.5 % 9.0 % 9.0 %
</TABLE>
Postretirement Benefits Other Than Pensions -- In addition to pension benefits,
the Company also provides certain health care and life insurance benefits for
eligible salaried and hourly employees at retirement. These benefits are subject
to deductibles, copayment provisions and other limitations and are primarily
funded on a pay as you go basis. The Company reserves the right to change or to
terminate the benefits at any time.
The following sets forth the funded status of the accumulated postretirement
benefit obligation reconciled with amounts reported in the Company's
consolidated balance sheets:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO"):
Retirees................................................... $ 49,853 $ 47,526
Fully eligible active employees............................ 38,393 39,477
Other active employees..................................... 73,295 60,106
-------- --------
Total APBO......................................... 161,541 147,109
Trust assets at fair value................................... 799 756
-------- --------
APBO in excess of trust assets............................... 160,742 146,353
Plus unrecognized net gain................................... 10,863 32,632
-------- --------
Postretirement benefit liability recognized in the
consolidated balance sheets including $3.7 million in
other current liabilities in 1995 and 1994.............. $171,605 $178,985
========= =========
</TABLE>
The Company's net periodic postretirement benefit cost (credit) included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Service cost -- benefits earned during the year.... $ 5,819 $ 7,421 $ 7,770
Interest cost on APBO.............................. 12,089 11,833 12,120
Actual return on trust assets...................... (43) (41) --
Other -- amortization of unrecognized net gain..... (21,603) (5,333) --
-------- ------- -------
Net periodic postretirement benefit cost
(credit)......................................... $ (3,738) $13,880 $19,890
========= ======== ========
</TABLE>
The amortization of unrecognized net gain (or loss) is due to changes in the
APBO resulting from experience different from that assumed and from changes in
assumptions. Gains (or losses) are recognized as a component of net
postretirement benefit cost by the amount the beginning of year unrecognized net
gain (or loss) exceeds 7.5 percent of the APBO. Increases in the per capita
costs of covered health care benefits of 11 percent, 12 percent and 15 percent
were assumed for 1995, 1994 and
F-16
<PAGE> 78
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993, respectively, gradually decreasing to a 6 percent ultimate rate by the
year 2004. Increasing the assumed health care cost trend rates by one percentage
point in each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by $30.4 million and increase the aggregate
of the service cost and interest cost components of net periodic postretirement
benefit cost for 1995 by $3.8 million. Discount rates of 8 percent, 7.5 percent
and 8 percent for 1995, 1994 and 1993, respectively, were used to determine the
net periodic postretirement cost. Discount rates of 7.5 percent and 8 percent
for 1995 and 1994, respectively, were used to determine the accumulated
postretirement benefit obligation.
12. INCOME TAXES
The provisions for income taxes are comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Current:
Federal............................................ $57,435 $ 70,665 $72,117
State.............................................. 5,136 6,913 9,925
------- -------- -------
62,571 77,578 82,042
Deferred............................................. 16,957 32,866 16,520
------- -------- -------
$79,528 $110,444 $98,562
======= ======== =======
</TABLE>
The Federal statutory tax rate differs from the effective tax rate due to the
following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate................................ 35.0% 35.0% 35.0%
State taxes, net of Federal benefit....................... 3.2% 2.5% 2.9%
Dividend exclusions....................................... (3.3)% (2.2)% (2.3)%
New tax legislation....................................... -- -- 2.9%
Other..................................................... 1.9% 1.4% (0.7)%
---- ---- ----
Effective tax rate........................................ 36.8% 36.7% 37.8%
==== ==== ====
</TABLE>
Effective August 10, 1993, Federal tax legislation was enacted which, among
other changes, increased the Federal statutory tax rate from 34 percent to 35
percent retroactive to January 1, 1993. The effect, which decreased net income
for 1993 by $8.5 million, was recognized as a component of the provision for
income taxes for 1993. Net deferred tax liabilities were increased by $7.9
million as a result of this rate increase.
In 1995, the Company generated alternative minimum tax of approximately $18
million which is available to offset regular federal income taxes in future
years, subject to certain alternative minimum tax limitations.
The Company and PDV America, Inc. are parties to a tax allocation agreement
which is designed to provide PDV America, Inc. with sufficient cash to pay its
consolidated income tax liabilities. Current amounts payable to PDV America,
Inc. under this agreement of $12.2 million and $7.5 million are included in
other current liabilities at December 31, 1995 and 1994, respectively.
In 1993, the Company incurred a net capital loss of $19.8 million which, for
Federal income tax purposes, may only offset capital gains to decrease the
Company's tax liability. The Federal income tax benefit was fully recognized in
the 1993 provision for income taxes based on losses utilized during the
carryback
F-17
<PAGE> 79
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period and anticipated future capital gains. The Company has utilized
approximately $10.4 million of the capital loss to offset capital gains, and at
December 31, 1995, the remaining capital loss carryforward was $9.4 million
which expires in 1998.
Deferred income taxes reflect the net tax effects of (i) temporary differences
between the financial and tax bases of assets and liabilities and (ii) loss and
tax credit carryforwards. The tax effects of significant items comprising the
Company's net deferred tax liability as of December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(000'S OMITTED)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment.............................. $387,298 $351,715
Inventories................................................ 72,452 71,033
Investments in affiliates.................................. 68,038 61,016
Environmental charges...................................... 6,739 7,054
Other...................................................... 1,218 2,054
-------- --------
535,745 492,872
-------- --------
Deferred tax assets:
Postretirement benefit obligations......................... 70,284 72,527
Marketing and promotional accruals......................... 23,603 20,033
Employee benefit accruals.................................. 25,487 22,542
Alternative minimum tax credit carryforward................ 18,166 --
Other...................................................... 43,384 39,906
-------- --------
180,924 155,008
-------- --------
Net deferred tax liability (of which $12,823 is a current
asset at December 31, 1995 and $8,093 is a current
liability at December 31, 1994)............................ $354,821 $337,864
======== ========
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Litigation and Injury Claims -- Various lawsuits and claims arising in the
ordinary course of business are pending against the Company. Included among
these are (i) litigation with a contractor who is claiming additional
compensation for sludge removal and treatment at the Company's Lake Charles,
Louisiana refinery; the Company is seeking contractual penalties for
non-conformance and breach of contract and also a determination that a portion
of any damages awarded would be recoverable from a former owner; (ii) litigation
against the State of Louisiana concerning a potential assessment to the Company
and other refiners of a use tax on petroleum coke which accumulates on catalyst
during refining operations and a change to the calculation of the sales/use tax
on fuel gas generated by refinery operations; and (iii) litigation against the
Company by a number of current and former employees and applicants on behalf of
themselves and a class of similarly situated persons asserting claims under
Federal and state laws of racial discrimination in connection with the
employment practices at the Company's Lake Charles, Louisiana refining complex;
the plaintiffs have appealed the Court's denial of class certification. The
Company is vigorously contesting such lawsuits and claims and believes that its
positions are sustainable. The Company has recorded accruals for losses it
considers probable and reasonably estimable. However, due to uncertainties
involved in litigation, there are cases in which the outcome is not reasonably
predictable and the losses, if any, are not reasonably estimable. If such
lawsuits and claims were to be determined in a manner adverse to the Company,
and in amounts in excess of the Company's accruals, it is reasonably possible
that such determinations could have a material adverse effect on the
F-18
<PAGE> 80
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's results of operations in a given year. The term "reasonably possible"
is used herein to mean that the chance of a future transaction or event
occurring is more than remote but less than likely. However, based upon
management's current assessments of these lawsuits and claims and that provided
by counsel in such matters, and the capital resources available to the Company,
management of the Company believes that the ultimate resolution of these
lawsuits and claims would not exceed the aggregate of the amounts accrued in
respect of such lawsuits and claims and the insurance coverages available to the
Company by a material amount and, therefore, should not have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
Environmental Compliance and Remediation -- The Company is subject to various
Federal, state and local environmental laws and regulations which may require
the Company to take action to correct or improve the effects on the environment
of prior disposal or release of petroleum substances by the Company or other
parties. Management believes the Company is in compliance with these laws and
regulations in all material respects. Maintaining compliance with environmental
laws and regulations could require significant capital expenditures and
additional operating costs.
In 1992, the Company reached an agreement with a state agency to cease usage of
certain surface impoundments at the Company's Lake Charles, Louisiana refinery
by 1994. A mutually acceptable closure plan was filed with the state in 1993.
The Company and a former owner are sharing the closure costs. The remediation
commenced in December 1993 and is expected to be completed no earlier than 1998.
Equipment to replace these impoundments required approximately $146 million of
capital expenditures.
In 1992, an agreement was reached between the Company and a former owner
concerning a number of environmental issues. The agreement consisted, in part,
of payments to the Company totaling $46 million, of which $31 million was
received in 1992 and $5 million in each of the years 1993, 1994, and 1995. The
former owner will continue to share the costs of certain specific environmental
remediation and certain tort liability actions based on ownership periods and
specific terms of the agreement.
At December 31, 1995 and 1994, the Company had $60 million and $58 million of
environmental accruals included in other noncurrent liabilities. Based on
currently available information, including the continuing participation of
former owners in remediation actions, management believes these accruals are
adequate. Conditions which require additional expenditures may exist for various
Company sites including, but not limited to, the Company's operating refinery
complexes, closed refineries, service stations and crude oil and petroleum
product storage terminals. The amount of such future expenditures, if any, is
indeterminable.
Capital Expenditures -- The Company's anticipated capital expenditures,
excluding the investments in LYONDELL-CITGO, for the five-year period 1996 to
the year 2000 total approximately $1.6 billion. The expenditures include
environmental and regulatory capital projects as well as strategic capital
expenditures. At December 31, 1995, authorized expenditures on incomplete
capital projects totaled approximately $258 million.
Supply Agreements -- The Company has a long-term contract through August 31,
1998 which provides CITGO the option to purchase domestic crude oil at contract
reference prices from an independent supplier. Purchases under this contract
totaled $261 million, $239 million and $214 million in 1995, 1994 and 1993,
respectively.
The Company has various other crude oil, refined product and feedstock purchase
agreements with unaffiliated entities with terms ranging from monthly to annual
renewal. The Company believes numerous sources of supply are readily available
on comparable terms.
F-19
<PAGE> 81
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Throughput Agreements -- The Company has throughput agreements with certain
pipeline affiliates (Note 8). These throughput agreements may be used to secure
obligations of the pipeline affiliates. Under these agreements, the Company may
be required to provide its pipeline affiliates with additional funds through
advances against future charges for the shipping of petroleum products. The
Company currently ships on these pipelines and has not been required to advance
funds in the past. At December 31, 1995, the Company has no fixed and
determinable, unconditional purchase obligations under these agreements.
Marine Spill Response Arrangements -- During the third quarter of 1995, the
Company entered into a contract with National Response Corporation for marine
oil removal services capability and terminated its relationship with the
previous provider of that service. The Company paid a cancellation fee of
approximately $16 million, which is included in cost of sales and operating
expenses in 1995.
Futures Contracts and Commodity Option Agreements -- The Company enters into
petroleum futures contracts primarily to reduce the Company's inventory exposure
to market risk. Such contracts are entered into through major brokerage houses
and traded on national exchanges and can be settled in cash or through delivery
of the commodity. Since the contracts described above generally qualify as
hedges and correlate to price movements of crude oil and refined products, gains
or losses resulting from market changes in these contracts will be offset by
losses or gains on the Company's hedged inventory or future purchases and sales.
Unrealized and deferred gains and losses on these contracts at December 31,
1995, 1994 and 1993 and the effects on cost of sales and pretax earnings for
1995, 1994 and 1993 were not material. At times, the Company enters into
commodity futures and option agreements that are not related to the hedging
program discussed above. This activity and its results were not material in 1995
or 1994; 1993 cost of sales includes an approximate $20 million loss from this
activity.
Refined Product Price Collars and Crackspread Hydrocarbon Swaps -- From time to
time, the Company uses these agreements to hedge exposure to changes in prices
of refined products. At December 31, 1995 and 1994, the Company had no such
agreements in place. At December 31, 1993, the Company had one turbine fuel
price collar in effect which effectively established a ceiling and floor price
for 52 thousand barrels of turbine fuel sales per month. The agreement expired
in August 1994.
Other Credit and Off-Balance Sheet Risk Information as of December 31,
1995 -- The Company has guaranteed approximately $12 million of debt of certain
CITGO distributors and an affiliate. Such debt is substantially collateralized
by assets of these entities. The Company has outstanding letters of credit
totaling approximately $198 million, which includes $193 million related to the
Company's tax-exempt bonds. The Company has also acquired surety bonds totaling
$30 million primarily due to requirements of various government entities. The
Company does not expect liabilities to be incurred related to such guarantees,
letters of credit or surety bonds.
Neither the Company nor the counterparties are required to collateralize their
obligations under interest rate swaps or caps, refined product price collar or
crackspread hydrocarbon swap agreements. The Company is exposed to credit loss
in the event of nonperformance by the counterparties to these agreements, but
has no off-balance sheet risk of accounting loss for the notional amounts. The
Company does not anticipate nonperformance by the counterparties, which consist
primarily of major financial institutions as of December 31, 1995.
F-20
<PAGE> 82
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. LEASES
The Company leases certain of its Corpus Christi refinery facilities under a
long-term lease. The basic term of the lease expires on January 1, 2004;
however, the Company may renew the lease until January 31, 2011, the date of its
purchase option. Capitalized costs included in property, plant and equipment
related to the leased assets were approximately $209 million at December 31,
1995 and 1994. Accumulated amortization related to the leased assets was
approximately $78 million and $70 million at December 31, 1995 and 1994,
respectively. Amortization is included in depreciation expense.
The Company also has various noncancelable operating leases, primarily for
office space, computer equipment and vehicles. Rent expense on all operating
leases totaled $33 million in 1995 and $34 million in 1994 and 1993. Future
minimum lease payments for the capital lease and noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASE LEASES TOTAL
------------------------------------------------ --------- --------- --------
(000'S OMITTED)
<S> <C> <C> <C>
1996............................................ $ 27,375 $11,828 $ 39,203
1997............................................ 27,375 9,665 37,040
1998............................................ 27,375 8,023 35,398
1999............................................ 27,375 6,950 34,325
2000............................................ 27,375 6,559 33,934
Thereafter...................................... 118,125 23,701 141,826
--------- ------- --------
Total minimum lease payments.................... 255,000 $66,726 $321,726
======= ========
Amount representing interest.................... (102,939)
---------
Present value of minimum lease payments......... 152,061
Current portion................................. 10,557
---------
$ 141,504
=========
</TABLE>
15. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
F-21
<PAGE> 83
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts of cash and cash equivalents and restricted cash
approximate fair values because of the short maturity of these instruments. The
carrying amounts and estimated fair values of the Company's other financial
instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(000'S OMITTED)
<S> <C> <C> <C> <C>
LIABILITIES:
Short-term bank loans........ $ 25,000 $ 25,000 $ 53,500 $ 53,500
Long-Term debt............... 1,254,503 1,327,684 1,068,060 1,076,112
DERIVATIVE AND OFF-BALANCE
SHEET FINANCIAL
INSTRUMENTS -- UNREALIZED
GAINS (LOSSES):
Interest rate swap
agreements................ -- (3,030) -- 7,598
Interest rate cap
agreements................ -- -- -- --
Guarantees of debt........... -- (48) -- (105)
Letters of credit............ -- (842) -- (626)
Surety bonds................. -- (90) -- (93)
</TABLE>
Short-term bank loans and long-term debt -- The fair value of short-term bank
loans and long-term debt is based on interest rates that are currently available
to the Company for issuance of debt with similar terms and remaining maturities.
Interest rate swap and cap agreements -- The fair value of these agreements is
based on the estimated amount that the Company would receive or pay to terminate
the agreements at the reporting dates, taking into account current interest
rates and the current creditworthiness of the counterparties.
Guarantees, letters of credit and surety bonds -- The estimated fair value of
contingent guarantees of third-party debt, letters of credit and surety bonds is
based on fees currently charged for similar one-year agreements or on the
estimated cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting dates.
The fair value estimates presented herein are based on pertinent information
available to management as of the reporting dates. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
F-22
<PAGE> 84
CITGO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY RESULTS OF OPERATIONS -- UNAUDITED
The following is a summary of the quarterly results of operations for the years
ended December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ---------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................... $ 2,357,482 $ 2,952,144 $ 2,707,483 $ 2,505,051
Cost of sales and operating expenses.... 2,237,897 2,850,103 2,596,968 2,381,044
Income before extraordinary gain........ 47,161 25,743 31,087 32,353
Extraordinary gain...................... 3,380 -- -- --
----------- ----------- ----------- -----------
Net income.................... $ 50,541 $ 25,743 $ 31,087 $ 32,353
=========== =========== =========== ===========
1994
Sales................................... $ 2,035,550 $ 2,313,359 $ 2,519,267 $ 2,378,529
Cost of sales and operating expenses.... 1,913,004 2,211,222 2,381,518 2,225,227
Income before extraordinary charge and
cumulative effect of a change in
accounting principle.................. 44,092 37,189 54,512 54,996
Extraordinary charge.................... -- -- (1,627) --
Cumulative effect of a change in
accounting principle -- SFAS 112(1)... (4,477) -- -- --
----------- ----------- ----------- -----------
Net income.................... $ 39,615 $ 37,189 $ 52,885 $ 54,996
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) The Company's original estimate of the cumulative effect of accounting
change for the adoption of SFAS No. 112 has been revised to the amount
reflected.
17. SUBSEQUENT EVENTS -- UNAUDITED
During March, 1996, the Company's Board of Directors approved a resolution to
proceed with a public offering of up to $600 million of senior unsecured notes.
* * * * * *
F-23
<PAGE> 85
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
CITGO Petroleum Corporation
By: /s/ Eddie R. Humphrey
----------------------------------
Name: Eddie R. Humphrey
Title: Treasurer
Date: May 7, 1996
<PAGE> 86
INDEX TO EXHIBITS
<TABLE>
<C> <C>
10.22 -- Agreement for the Purchase and Sale of Domestic Crude Oil dated as of
August 31, 1983, among Occidental Petroleum Corporation, OXY
Petroleum, Inc., Cities Service Oil and Gas Corporation, CITGO
Petroleum Corporation and The Southland Corporation.
10.23 -- CITGO Petroleum Corporation Executive Protection Plan, amended and
restated effective November 21, 1994.
10.24 -- CITGO Petroleum Corporation Long Term Incentive Plan -- 1994.
10.25 -- Employment letter agreement dated March 27, 1995 between CITGO
Petroleum Corporation and Ralph S. Cunningham.
10.26 -- Employment letter agreement dated August 30, 1995 between CITGO
Petroleum Corporation and Steven R. Berlin.
12 -- Statement of computation of ratio of earnings to fixed charges
23.1 -- Consent of Deloitte & Touche LLP.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.22
AGREEMENT FOR THE PURCHASE AND SALE OF DOMESTIC
CRUDE OIL
THIS AGREEMENT FOR THE PURCHASE AND SALE OF DOMESTIC CRUDE OIL (the
"Agreement"), executed as of this 31st day of August, 1983, is among OCCIDENTAL
PETROLEUM CORPORATION, a California corporation ("OPC"), OXY PETROLEUM, INC., a
California corporation ("OPI"), CITIES SERVICE OIL AND GAS CORPORATION, a
Delaware corporation ("CSOG"), CITGO PETROLEUM CORPORATION, a Delaware
corporation ("CITGO"), and THE SOUTHLAND CORPORATION, a Texas corporation
("SLC").
W I T N E S S E T H:
ARTICLE I
Certain Definitions
Capitalized terms used in this Agreement are used as defined in this
Article I or elsewhere in this Agreement.
1.1 Affected Properties: The term "Affected Properties" shall mean
any and all Current Properties and any and all Subsequent Properties but
specifically shall not include (i) the Properties set forth on Exhibit A
attached hereto and (ii) Properties owned by OPI in California.
1.2 Current Properties: The term "Current Properties" shall mean
any and all Properties which were owned by Cities Service Company ("Cities") or
any of its Subsidiaries on March 23, 1983
<PAGE> 2
and which on March 23, 1983 were producing Crude Oil (and those Properties
which were shut-in for operational or regulatory reasons) together with any and
all renewals and extensions thereof.
1.3 Crude Oil: The term "Crude Oil" shall mean all hydrocarbons,
regardless of gravity, recovered in liquid form on the lease by conventional
wellhead production and lease separation methods.
1.4 Designated Areas: The term "Designated Areas" shall mean any
and all of the following geographical areas:
(i) Any county or parish of any State of the United
States or with respect to the offshore state and federal waters
adjacent to the United States, any Offshore Block, in each case in
which as of March 23, 1983, any Current Property was located.
(ii) Any county or parish of any State of the United
States in which on March 23, 1983 were located any Domestic Crude Oil
gathering or transportation pipeline facilities, an interest in which
was on such date owned by Cities or any of its Subsidiaries, and those
counties and parishes set forth on Schedule A.
(iii) Schedule B attached hereto sets forth a list of the
counties, parishes and Offshore Blocks described in (i) and (ii)
above, which shall be definitive until such time as the parties
mutually agree to amend Schedule B to include any counties, parishes
or Offshore Blocks inadvertently omitted or erroneously included.
<PAGE> 3
1.5 Domestic Crude Oil: The term "Domestic Crude Oil" shall mean Crude
Oil produced and recovered from Properties located in the United States or in
the state or federal waters adjacent to any state of the United States.
1.6 Effective Date: September 1, 1983.
1.7 Major Purchasers: The term "Major Purchaser" shall mean any
and all of the following: Amoco Oil Company, Conoco, Inc., Exxon Company,
U.S.A., Marathon Oil Company, Mobil Oil Corporation, Phillips Petroleum
Company, Shell Oil Company, Texaco, Inc. and their respective Subsidiaries;
provided that in the event the controlling ownership of any of these companies
changes through merger, stock acquisition, or other corporate reorganization,
such company so changed shall not be a Major Purchaser unless both CITGO and
Seller agree to the continued designation of such company as a Major Purchaser
after such change.
1.8 Major Purchaser Posted Price: The term "Major Purchaser Posted
Price" shall mean the stated price contained in a written document which is
publicly circulated from time to time, which a Major Purchaser offers to pay
for Domestic Crude Oil of the type, grade and gravity as the applicable
Seller's Domestic Crude Oil delivered to CITGO and which is applicable on the
date of delivery of the applicable Seller's Domestic Crude Oil hereunder.
1.9 Offshore Block: The term "Offshore Block" shall mean a
numbered block containing one or more State or federal leases situated in the
offshore federal or State waters adjacent to any State of the United States as
the boundaries of such Offshore
<PAGE> 4
Block are established by the federal or State governmental entity having
responsibility therefor.
1.10 Property: The term "Property" or "Properties" shall mean any
and all oil and gas or other leases, mineral fees, royalties, overriding
royalties, oil payments, production payments or other interest in a mineral
estate pursuant to which the holder thereof has the right to take in kind or
market the Domestic Crude Oil attributable thereto.
1.11 Purchase Rights: The term "Purchase Rights" shall mean any and
all contractual rights to purchase Domestic Crude Oil at the lease, or which
grant options or preferential rights to purchase Domestic Crude Oil at the
lease, and which were retained or acquired by Seller in connection with the
acquisition, transfer, farmout, sale, exploration, development or the financing
of the acquisition, exploration or development of the Properties covered by
such right or option; provided, however, that the term Purchase Rights shall
not include division orders or other contracts to purchase production entered
into, other than with Seller, by The Permian Corporation in the ordinary and
usual course of its business of buying and selling Domestic crude oil.
1.12 Seller's Domestic Crude Oil: The term "Seller's Domestic Crude
Oil" shall mean any and all Domestic Crude oil produced and recovered on and
after the Effective Date which is attributable to Seller's Interest.
1.13 Seller's Interest: The term "Seller's Interest" shall mean any
and all of Seller's ownership rights in Affected
<PAGE> 5
Properties, and any and all contractual rights to sell Domestic Crude Oil from
Affected Properties on behalf of the owners thereof, including, but not limited
to, rights relating to the Affected Properties to market the royalty owner's
allocable share of production and rights as operator of Affected Properties to
sell non-operator's allocable share of production.
1.14 Seller: The term "Seller" shall mean any and all of OPC, OPI,
CSOG and their respective Subsidiaries; provided that Seller shall not include
(i) Canadian Occidental Petroleum, Ltd. and its Subsidiaries for so long as
such company is not 100% owned, directly or indirectly, by OPC or (ii) The
Permian Corporation for so long as OPC, directly or indirectly, wholly owns The
Permian Corporation and the Permian Corporation does not directly or indirectly
acquire or own any working interest in any Property or Properties capable of
producing in the aggregate more than 1,000 barrels of Crude Oil per day or
(iii) Cities Service Company.
1.15 Subsequent Properties: The term "Subsequent Properties" shall
exclude "Current Properties" and shall mean any and all Properties located in
the Designated Areas which at any time after March 23, 1983 produce Domestic
Crude Oil and which (i) are owned as of the date of this Agreement by Seller,
or (ii) which are developed, farmed in, purchased, or otherwise acquired
directly or indirectly at any time, and from time to time, during the term of
this Agreement by Seller, together in each case, with any and all renewals and
extensions thereof.
1.16 Subsidiary: The term "Subsidiary" or "Subsidiaries",
<PAGE> 6
with respect to any entity, shall mean any entity wholly owned, directly or
indirectly, by such entity.
ARTICLE II
Grant
For Ten Dollars and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Seller hereby grants to CITGO
an option (the "Purchase Option") to purchase Seller's Domestic Crude Oil in
accordance with the terms and conditions of this Agreement.
ARTICLE III
Exercise of Purchase Option.
3.1 Upon the Effective Date of this Agreement, CITGO or its
designee shall commence purchasing in accordance with the terms hereof all of
Seller's Domestic Crude Oil. As to each additional Affected Property which
becomes productive during the term hereof, Seller shall promptly notify CITGO
in writing, stating the location of such Affected Property, the estimated daily
production of Domestic Crude Oil attributable to Seller's Interest in such
Affected Property and the estimated quality and gravity of the Domestic Crude
Oil to be produced from such Affected Property, if known. Within 10 days after
such notification, CITGO shall elect in writing whether it will exercise its
Purchase Option to purchase Seller's Domestic Crude Oil from such Affected
Property. If CITGO elects to so purchase, it shall commence such purchases as
soon as practicable but in no event later than 30 days following receipt of the
written notice from Seller referenced above. If CITGO makes no timely election
<PAGE> 7
or elects not to purchase Seller's Domestic Crude Oil from any such Affected
Property, Seller may sell such Domestic Crude Oil to other purchasers in
accordance with the terms hereof.
3.2 CITGO shall have the option, at any time and from time to
time, to suspend its purchases of all or any portion of Seller's Domestic Crude
Oil by giving Seller ninety (90) days' prior written notice of its election to
so suspend purchasing hereunder on a lease by lease basis. Each such notice
shall state the location of the lease or leases as to which CITGO will suspend
its purchases of Seller's Domestic Crude Oil and the date on which CITGO will
suspend such purchases which shall be the first day of a month following the
expiration of ninety (90) days after such written notice (unless Seller agrees
to a lesser period in writing).
3.3 Subject to Section 3.6, and except as to CITGO's initial
election under Section 3.1 as to each newly productive Affected Property after
the Effective Date hereof, CITGO shall have the right at any time and from time
to time to exercise the Purchase Option with respect to all or any portion of
Seller's Domestic Crude Oil on a lease by lease basis, upon giving at least
ninety (90) days' prior written notice to Seller of CITGO's election to
commence purchasing such Seller's Domestic Crude Oil; provided that with
respect to any lease as to which CITGO exercises its Purchase Option, CITGO
shall purchase all of Seller's Domestic Crude oil produced from such lease.
Each such notice shall state the location of the lease or leases from which
CITGO elects to commence purchasing Seller's Domestic Crude Oil
<PAGE> 8
and the date on which CITGO will commence such purchases, which date shall be
the first day of a month following the expiration of ninety (90) days after
such written notice (unless Seller agrees to a lesser period in writing) and
the expected duration of such purchases which may be stated as indefinitely.
3.4 Subject to Section 3.6 below, the failure of CITGO to exercise
the Purchase Option in whole or in part or any election by CITGO to suspend
from time to time its purchase of all or any portion of Seller's Domestic Crude
Oil pursuant to Section 3.2 hereof, shall not be deemed a waiver of (or have
any adverse effect on) CITGO's right to exercise such Purchase Option at any
later date and from time to time by giving Seller ninety (90) days' written
notice in accordance with Section 3.3 hereof with respect to any or all of
Seller's Domestic Crude Oil covered hereby including, but not limited to,
Seller's Domestic Crude Oil with respect to which CITGO had theretofore elected
to suspend its purchases hereunder.
3.5 Except as specifically provided in Section 3.6 below, Seller
hereby agrees that Seller shall not enter into any agreement for the sale of
any or all of Seller's Domestic Crude Oil for a term in excess of 90 days; nor
will Seller make any of Seller's Domestic Crude Oil owned by Seller (but
excluding therefrom Domestic Crude Oil owned by others but marketed by Seller)
subject to any option or other preferential right relating to the purchase of
all or any of such Seller's Domestic Crude Oil unless such option or right is
made subject in all respects to the rights of CITGO hereunder.
<PAGE> 9
3.6 In the event, from time to time during the term hereof, Seller
receives a bona fide offer from an unaffiliated third party to purchase any
portion of Seller's Domestic Crude Oil on a lease by lease basis, on more
favorable terms than would have been applicable if CITGO had purchased such
Domestic Crude Oil hereunder ("Bona Fide Offer") with respect to which (i)
CITGO is not then purchasing pursuant to this Agreement and with respect to
which CITGO has not theretofore notified Seller pursuant to Section 3.3 or 3.1
that it will commence purchasing such Seller's Crude Oil, or (ii) CITGO is then
purchasing directly or indirectly pursuant to this Agreement but has given
notice pursuant to Section 3.2 hereof that it will suspend such purchases,
Seller shall promptly deliver to CITGO written notice of the location of the
lease or leases covered by such Bona Fide Offer, and the terms and conditions
of such Bona Fide Offer, including, but not limited to, the price and the term
(which shall not in any event exceed nine (9) months). CITGO shall have a
period of ten (10) days after receipt of such notice to notify Seller as to
whether it elects to purchase Seller's Domestic Crude Oil covered by such Bona
Fide Offer on the same terms and conditions as the Bona Fide Offer. If CITGO
fails to so notify Seller within such ten (10) day period, Seller shall have
the right to dispose of Seller's Domestic Crude Oil covered by the Bona Fide
Offer pursuant to such Bona Fide Offer for the term, not to exceed nine months,
set forth in such Bona Fide Offer; provided that any failure by CITGO to
purchase such Seller's Domestic Crude Oil pursuant to the terms and conditions
of the
<PAGE> 10
Bona Fide Offer shall not be deemed a waiver of (or have any adverse effect on)
CITGO's option to purchase Seller's Domestic Crude Oil, or any lease by lease
portion thereof, subject to such Bona Fide Offer, in accordance with the terms
and conditions of this Agreement upon the termination of the agreement with a
third party resulting from such Bona Fide Offer by delivery to Seller of
written notice pursuant to Section 3.3 hereof 90 days prior to the expiration
of such agreement. If CITGO elects to purchase such Seller's Domestic Crude
Oil pursuant to the terms and conditions of the Bona Fide Offer, then on the
effective date of the agreement resulting from the Bona Fide Offer, CITGO shall
purchase such Seller's Domestic Crude Oil under the same terms and conditions
stated in the Bona Fide Offer and upon expiration of the term (not to exceed
nine months) of the agreement resulting from any Bona Fide Offer, CITGO shall
have the option to continue to purchase such Seller's Domestic Crude Oil on the
terms and conditions set forth in this Agreement.
3.7 Seller shall furnish CITGO any information, in Seller's
possession or to which Seller has reasonable access, concerning the Seller's
Interest in Affected Properties, including, but not limited to, production rate
information and quality analysis of the Domestic Crude Oil produced therefrom,
as CITGO may from time to time reasonably request in connection with the
Purchase Option granted hereunder.
ARTICLE IV
Division Orders
4.1 All direct purchases made by CITGO of Seller's Domestic
<PAGE> 11
Crude Oil pursuant to this Agreement shall be evidenced by one or more
appropriate division orders with CITGO named as the purchaser.
ARTICLE V
Pricing
5.1 Except for Seller's Domestic Crude Oil purchased by CITGO
under the terms and conditions of a Bona Fide Offer pursuant to Section 3.5
above, and except as specifically provided in Sections 5.2 and 5.3 below, for
all of Seller's Domestic Crude Oil purchased directly by CITGO pursuant to this
Agreement, CITGO shall pay Seller the following price (subject to any
applicable governmental price regulations then in effect):
(a) the arithmetic average of all Major Purchaser Posted
Prices (less any adjustments for transportation, gathering or similar
services actually being imposed) for the field or area from which the
applicable Seller's Domestic Crude Oil was produced; provided that in
the event there are five (5) or more applicable Major Purchaser Posted
Prices in effect, in determining such average, the one highest (or in
the event there are more than one highest, one of the highest) and the
one lowest (or in the event there are more than one lowest, one of the
lowest) Major Purchaser Posted Prices shall be disregarded.
(b) in the event there are no Major Purchaser Posted
Prices for the Field or area from which the applicable Seller's
Domestic Crude Oil was produced for similar qualities and quantities
of Domestic Crude Oil as the
<PAGE> 12
applicable Seller's Domestic Crude Oil purchased hereunder in effect
at the time such Crude Oil was produced, the Price shall be the value
of Seller's Domestic Crude Oil (subject to any applicable governmental
price regulations then in effect and taking into account any
adjustments for transportation, gathering or similar services actually
being imposed) based upon agreements between producers in the area and
purchasers in bona fide arms-length transactions of comparable
quantities and qualities of Domestic Crude Oil; provided that to the
extent purchases in bona fide arms- length transactions of comparable
quantities and qualities of Domestic Crude Oil are being made in the
field or area by integrated oil companies, purchases by entities which
are not integrated oil companies shall not be considered.
5.2 With respect to Affected Properties which are operated by
third parties and from which Domestic Crude Oil other than Seller's Domestic
Crude Oil is purchased directly by CITGO in bona fide arms-length transactions,
notwithstanding the provisions of Section 5.1 above, the price Seller will be
paid for Seller's Domestic Crude Oil produced from such Property shall be the
same price paid by CITGO for Domestic Crude Oil purchased from other interest
owners in the Property.
5.3 With respect to any Purchase Rights held by Seller covering
Properties in the Designated Areas, CITGO shall have the right to exercise its
Purchase Option with respect to the Domestic Crude Oil subject to such Purchase
Rights; provided that such Purchase Option shall be in all respects subject to
the
<PAGE> 13
terms and conditions of such Purchase Right, including, but not limited to, the
notice periods and pricing provisions contained therein. Seller shall
cooperate with CITGO in exercising to the fullest extent possible CITGO's
Purchase Option with respect to such Purchase Rights; provided that nothing
herein shall require Seller to become a purchaser of Domestic Crude Oil covered
by such Purchase Rights.
ARTICLE VI
Purpose of Agreement and
Limitation on Seller's Domestic Crude Oil
Subject to Purchase Option
6.1 The purpose of this Agreement is to provide CITGO with a
supply of Domestic Crude Oil for use, or to use the proceeds therefrom, either
directly or indirectly, to provide feedstock requirements of its refinery at
Lake Charles, Louisiana. Notwithstanding any provision of this Agreement to
the contrary, the maximum daily quantity of Oil which CITGO may purchase
pursuant to the terms and conditions of this Agreement shall not exceed 200,000
barrels per day. Nothing herein shall be construed to constitute any
representation or warranty by Seller as to the daily quantity of Crude Oil that
can or will be produced from the Seller's Interest in the Affected Properties.
ARTICLE VII
Assignments of Affected Properties
7.1 The Purchase Option shall be binding on Sellers and their
successors and assigns as to Seller's Interests in Affected Properties (but
excluding therefrom Seller's Interests owned by
<PAGE> 14
others). Sellers agree that any assignment, pledge, mortgage or other transfer
or encumbrance it may make of any of the Affected Properties or any part
thereof after the date hereof shall be expressly made subject to this Agreement
and the Purchase Option granted herein and that this Agreement shall be prior
in interest to the rights of others under any such assignment, pledge, mortgage
or other encumbrance. Sellers hereby represent and warrant that since June 30,
1983 no assignment, pledge, mortgage or other transfer or encumbrance of any of
Seller's Interests has been made which is prior to the rights of CITGO
hereunder, and that none of Seller's Interests, with the exception of Ship
Shoal Area Blocks 222 and 225, are subject to any contract or obligation for
the sale of Seller's Domestic Crude Oil not cancellable upon 90 days or less
notice to the purchaser of such Domestic Crude Oil. Seller shall give CITGO
prompt written notice of any assignment of any of Seller's Interests.
7.2 Notwithstanding the provisions of Section 7.1 above to the
contrary, Seller shall have the right from time to time during the term hereof
to assign, pledge, mortgage or otherwise transfer or encumber any of Seller's
Interests free and clear of the provisions of this Agreement and the Purchase
Option to the extent and only to the extent that such assignment, pledge,
mortgage, transfer or encumbrance:
(i) is pursuant to any joint venture, joint operating,
common enterprise or pooling or unitization agreement with other
holders of interests in the Affected Properties for the purpose of
unit development, production or operation of
<PAGE> 15
Affected Properties, in exchange for interests in the Affected
Properties or other Properties owned by such other holders or as a
result of Seller electing not to participate in any proposed drilling
activity; provided that the daily quantity of Seller's Domestic Crude
Oil subject to the Purchase Option will not thereby be significantly
impaired and provided further that this Agreement and the Purchase
Option shall apply and be binding upon any Properties received by
Seller in exchange and upon any reversionary interest retained by
Seller in connection therewith; or
(ii) is pursuant to farmouts or other assignments of
Seller's Interest transferred in the ordinary and usual course of
Seller's business, provided that no proven reserves of Domestic Crude
Oil are attributable to the Seller's Interest so transferred and
provided further that any overriding royalty, reversionary interest or
other Property or Purchase Right retained by Seller in connection with
such transfer shall remain subject to this Agreement and the Purchase
Option; or
(iii) is a transfer or abandonment in the ordinary and usual
course of Seller's business of any Seller's Interest which has ceased
to produce Domestic Crude Oil in commercial quantities, has terminated
in accordance with its terms or which in the ordinary and usual course
of Seller's exploration and production activities has been in good
faith determined by Seller to be no longer economical for Seller to
own due to declining production, increased operating
<PAGE> 16
costs, or both; or
(iv) will not reduce the daily production of Seller's
Domestic Crude Oil remaining subject to the Purchase Option below
200,000 barrels per day.
7.3 Upon Seller's request, CITGO shall execute, acknowledge and
deliver to Seller releases in satisfactory form evidencing the release from
this Agreement and the Purchase Option of any Seller's Interest assigned,
pledged, mortgaged or otherwise transferred or encumbered pursuant to Section
7.2 above.
ARTICLE VIII
Purchase Terms
The following general terms and conditions wall apply to all purchases
of Seller's Domestic Crude Oil hereunder.
8.1 Measurement and Tests: Measurements of delivered quantities of
Crude Oil hereunder shall be made by static gauging of calibrated tanks, or by
calibrated lease automatic custody transfer (LACT) systems, or by calibrated
positive displacement meter, and shall be corrected for API gravity,
temperature, and the percentage of free water and sediment in order to compute
the net volume of Crude oil at standard conditions. All measurements, tests and
corrections shall be made in accordance with the most current revisions to the
API Manual of Petroleum Measurement Standards, and either party shall have the
right to witness any or all measurements and/or calibration tests.
8.2 Warranty: Seller warrants that all Domestic Crude Oil owned by
Seller and delivered hereunder shall be free from all liens, and other
encumbrances; and that Seller has the right to
<PAGE> 17
sell to CITGO all Domestic Crude Oil delivered hereunder.
Seller further warrants that the Domestic Crude Oil delivered
hereunder shall be good and merchantable for the grade delivered, meet the
quality requirements for such grade of any carriers involved in the
transportation thereof and shall not be contaminated. CITGO shall have the
right, without prejudice to any other remedy available to CITGO, to reject any
quantities of Domestic Crude Oil which fail to meet such warranty.
8.3 Rules and Regulations: The terms, provisions and activities
undertaken pursuant to this Agreement shall be subject to all applicable laws,
orders and regulations of all governmental authorities. If and to the extent
applicable, the parties hereto agree to comply with all provisions (as amended)
of Executive Orders 11246, 11598, 11625, 11701, and 11758.
8.4 Force Majeure: Either party hereto shall be relieved from
liability for failure to perform hereunder for the duration and to the extent
such failure is occasioned by war, riots, insurrections, fire, explosions,
sabotage, strikes, and other labor or industrial disturbances, acts of God or
the elements, governmental laws, orders and regulations, acts in furtherance of
the International Energy Program, disruption, or breakdown or production or
transportation facilities, delays of pipeline carrier in receiving and
delivering Domestic Crude Oil tendered, or by any other cause, whether similar
or not, reasonably beyond the control of such party. Notice of any such
failure to perform shall promptly be given to the other party and confirmed in
writing, which notice shall include the non-performing party's
<PAGE> 18
best estimate of the time needed to remedy the non-performance.
8.5 Necessary Documents: CITGO and Seller shall furnish to each
other, as appropriate, all customary or necessary documents incident to the
purchase transaction.
ARTICLE IX
Term
9.1 This Agreement and the Purchase option granted hereunder,
shall be effective as of the Effective Date andSeller shall furnish to each
other, as appropriate, all customary or necessary documents incident to the
purchase transaction.
ARTICLE IX
Term
9.1 This Agreement and the Purchase option granted hereunder,
shall be effective as of the Effective Date and unless sooner terminated in
accordance with this Article 9 shall continue for the greater of (x) fifteen
(15) years from the date hereof or (y) eight (8) years after the date on which
OPC, Cities, and any of their Affiliates no longer beneficially own in the
aggregate, directly or indirectly, ten percent (10%) of the then issued and
outstanding common stock of SLC; provided that notwithstanding the above, to
the extent that this Agreement may be subject to the rule against perpetuities,
this Agreement shall terminate, with respect to any Affected Property subject
to such rule, when 21 years less one day shall have elapsed after the death of
the last to die of all descendants of Theodore Roosevelt, late President of the
United States of America, who are living at the date of this Agreement; and
provided further
<PAGE> 19
that in the event (a) that SLC or any person designated by SLC shall purchase
all shares of SLC stock beneficially owned directly or indirectly by OPC,
Cities and their Affiliates pursuant to Section 8 of that certain Standstill
Agreement of even date herewith by and between OPC, Cities, SLC, Dr. Armand
Hammer and David H. Murdock, this Agreement and the Purchase Option granted
herein shall terminate on the date when such purchase occurs or (b) CITGO shall
transfer substantially all of its interest in the Refinery in Lake Charles, to
a person or entity other than SLC or any of its Affiliates, without assigning
this Agreement in accordance with Section 17.1 hereof to such person or entity,
this Agreement shall terminate on the date of such transfer.
ARTICLE X
Payment
10.1 The purchase price for all Seller's Domestic Crude Oil
purchased directly by CITGO hereunder shall be paid by bank wire transfer to
Manufacturer's Hanover Trust Bank, New York, New York for the account of CSOG
or to such other bank in the United States as may be reasonably designated by
Seller in writing to CITGO in accordance with Article 16 hereof. Each such
wire transfer shall be made by the twenty-fifth (25th) day of the first
calendar month following the month in which the applicable Seller's Domestic
Crude Oil was delivered to CITGO. Any amount not paid when due shall bear
interest at the lesser of (i) the prime rate quoted from time to time by
Interfirst Bank Dallas, N.A., for its most credit worthy corporate borrowers
(the "Prime
<PAGE> 20
Rate"), or (ii) the maximum rate of interest allowed by applicable law;
provided that CITGO shall not be liable for interest on (a) late payments to
Seller that are the result of routine accounting adjustments by CITGO, (b) late
payments due to failure to receive appropriate and usable information in a
timely manner, (c) failure of Seller's bank to properly post the transfer, or
(d) acts or omissions by Seller or Seller's agents.
10.2 Except for (i) routine accounting adjustments, (ii) late
payments due to failure to receive appropriate and usable information in a
timely manner and (iii) late payments due to acts or omissions by Seller or
Seller's agents, any failure of CITGO for a period of 7 business days after the
receipt of written notice from Seller, together with appropriate backup
information, of CITGO's failure to make any payment (other than any incremental
amount in bona fide dispute) in excess of $1,000,000 shall authorize Seller to
suspend all deliveries of Seller's Domestic Crude Oil hereunder as if CITGO had
elected to suspend all purchases of Seller's Domestic Crude Oil under Section
3.2 hereof. CITGO shall not have the right to exercise its Purchase Option
under Section 3.1 or 3.3 or the right to match Bona Fide Offers under Section
3.6 hereof, until CITGO shall have paid all amounts (other than any incremental
amount in dispute) plus interest as provided above, then due hereunder.
ARTICLE XI
Delivery
11.1 The point of delivery for any Seller's Domestic Crude Oil
purchased hereunder shall be determined separately for each
<PAGE> 21
lease. The point of delivery shall be at the discharge point at the lease's
tank batteries or LACT Unit, or at such other place as may be mutually agreed
to by the parties. Title to and risk of loss of the Seller's Domestic Crude
Oil purchased directly by CITGO hereunder shall pass to CITGO at the point of
delivery.
ARTICLE XII
Exchange Rights
12.1 CITGO shall have the right to receive the benefits of the
Purchase Option granted hereunder through establishing satisfactory exchange
arrangements with third- party purchasers of Domestic Crude Oil. Seller agrees
it will cooperate with CITGO's arranging and maintaining exchange arrangements
between CITGO and third-party purchasers of Seller's Domestic Crude Oil in the
following respects:
(i) Where CITGO as of the Effective Date has exchange
arrangements with a third party purchaser of Domestic Crude Oil
produced from an Affected Property, at CITGO's request, Seller shall
continue selling Seller's Domestic Crude Oil from such Property to
such third party for so long as CITGO maintains exchange arrangements
for such Domestic Crude Oil with such third party and such third party
continues to purchase such Domestic Crude oil on terms and conditions
reasonably satisfactory to Seller.
(ii) With respect to Affected Properties from which the
Domestic Crude Oil is sold to a third party with which CITGO does not
maintain an exchange arrangement or with which CITGO has terminated
such exchange arrangement, Seller
<PAGE> 22
agrees to notify such third party purchaser of CITGO's purchase option
hereunder. Upon written request from CITGO, Seller agrees to lawfully
terminate its sale to such third party purchaser and to
contemporaneously commence selling Seller's Domestic Crude Oil
produced from such Affected Property to a third party designated by
CITGO with which CITGO has established a satisfactory exchange
arrangement provided that such designee purchases such Seller's
Domestic Crude Oil on terms and conditions no less favorable than the
previous third party purchaser.
(iii) Upon request by CITGO, Seller shall inform the
operator of Affected Properties and the purchaser of production
therefrom of CITGO's Purchase Option under this Agreement. Seller
shall take such other actions as may be reasonably requested by CITGO
to protect CITGO's direct or indirect access to the Seller's Domestic
Crude Oil, including, but not limited to, providing to CITGO as
promptly as practical information as to quantity and value of Domestic
Crude Oil delivered to third party purchasers hereunder with whom
CITGO has satisfactory exchange arrangements.
12.2 All sales to third party purchasers of Seller's Domestic Crude
Oil made pursuant to Section 12.1 above shall be made on terms and conditions
satisfactory to Seller and such third party and CITGO shall not be responsible
for the performance by the third party. All exchange arrangements entered
between CITGO and such third party purchaser shall be
<PAGE> 23
made on terms and conditions satisfactory to CITGO and such third party and
Seller shall not be responsible for performance thereof by the third party.
12.3 CITGO shall promptly notify Seller of the termination of any
exchange arrangement between CITGO and any third party purchaser of Seller's
Domestic Crude Oil and to the extent CITGO notifies Seller in such notice that
it will commence direct purchases of Seller's Domestic Crude Oil
contemporaneously with the lawful termination of Seller's arrangements with
such third party purchaser, CITGO shall have the right to so commence direct
purchases notwithstanding the provisions of Article 3. To the extent CITGO
fails to so commence direct purchases pursuant to this Section 12.3 or fails to
designate a new third party purchaser with whom CITGO has an exchange
arrangement pursuant to Section 12.1(ii) above, CITGO shall be deemed have
suspended, effective on the date such third party ceases purchases of such
Domestic Crude Oil, CITGO's purchase option pursuant to Section 3.2 hereof with
respect to such Domestic Crude Oil.
ARTICLE XIII
Service of Process and Consent to Jurisdiction
13.1 Each Seller irrevocably agrees that any legal action or
proceeding against it or its Affiliates with respect to this Agreement, or any
of the transactions provided for herein, may be brought in the courts of the
State of Texas, or the United States of America for the Northern District of
Texas, and do hereby irrevocably designate, appoint and empower the Secretary
of State of the State of Texas to receive for and on its and its
<PAGE> 24
Affiliates' behalf, service of process in the State of Texas and irrevocably
consent to service of process outside the territorial jurisdiction of said
court by mailing copies thereof by registered United States mail, postage
prepaid, at its address set forth in Article 16 hereof.
ARTICLE XIV
Purchase Price Pending Decision
14.1 CITGO shall have the right to purchase Seller's Domestic
Crude Oil during any time when the parties are in bona fide dispute with
respect to any of the terms of this Agreement and, with respect to any dispute
as to the price, payable under Article V hereof ("Price"), at the price in
effect for such Seller's Domestic Crude Oil immediately prior to the dispute
("Previous Price"), until such time as such dispute is resolved. If it is
determined that the Previous Price is lower than the Price to which Seller was
entitled, CITGO shall pay to Seller the difference between the consideration
that Seller actually received and that which Seller should have received until
the date of such determination, or in the event it is determined that the
Previous Price is higher than the Price which Seller was entitled, Seller shall
pay to CITGO the difference between the consideration actually received and
that which Seller should have received until the date of such determination, in
each case plus interest on such difference at the lesser of (i) the Prime Rate,
or (ii) the highest rate allowed under applicable law. Sale and purchase of
the Seller's Domestic Crude Oil in accordance with this Article 14 shall not
constitute a waiver or admission by
<PAGE> 25
Seller or CITGO.
ARTICLE XV
Costs and Expenses
15.1 Each of the parties to this Agreement shall bear their own
expenses incurred in connection with the negotiation, preparation, execution
and closing of this Agreement and the transactions provided for hereby.
ARTICLE XVI
Notices
16.1 All notices or other communications required or permitted by
this Agreement shall be sufficiently given if in writing and personally
delivered or mailed by registered or certified mail, return receipt requested,
as follows:
If to CITGO, as follows:
Citgo Petroleum Corporation
P.O. Box 3758
Tulsa, Oklahoma 74102
Attn: Manager, Crude Supply Operations
with a copy to:
The Southland Corporation
2828 North Haskell Avenue
Dallas, Texas 75221
Attn: Legal Department
If to Seller, as follows:
Cities Service Oil and Gas Corporation
P. 0. Box 300
Tulsa, Oklahoma 74102
Attn: Manager, Crude Oil Sales
with a copy to:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attn: Legal Department
<PAGE> 26
or to such other address as hereafter shall be furnished as provided in this
Article 16 by any of the parties hereto to the other parties hereto. Any
notice with respect to any change in address or account shall not be effective
until 30 days after the mailing or personal delivery of such notice.
ARTICLE XVII
Assignment and Amendment
17.1 CITGO may assign its rights (in whole or in part from time to
time) under this Agreement without the consent of Seller if such assignment is
made to (i) Southland or any direct or indirect wholly owned subsidiary of
Southland or of CITGO, or (ii) in connection with the sale, transfer or other
disposition by CITGO of its refinery located in Lake Charles, Louisiana or an
interest therein, to the purchaser of such refinery or interest therein;
provided that the percentage interest in this Agreement so assigned to such
purchaser shall be the same as the percentage interest in the Lake Charles
Refinery so purchased and provided further that Occidental shall be reasonably
satisfied that such purchaser, at the time of such sale, transfer or other
disposition has the financial capability to fulfill its obligations to pay for
Seller's Domestic Crude Oil purchased hereunder in accordance with the terms
and conditions hereof or such purchaser shall have agreed to provide standby
letters of credit or other satisfactory assurances of payment for Seller's
Domestic Crude Oil purchased hereunder. Either party
<PAGE> 27
may assign this Agreement by operation of law. This Agreement shall not be
amended, except by a written instrument executed by all of the parties hereto.
ARTICLE XVIII
Severability
18.1 If any provision of this Agreement, or the application of any
such provision to any person or circumstance, shall be held invalid by a court
of competent jurisdiction, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those as to which it
is held invalid, shall not be affected thereby.
ARTICLE XIX
Counterparts
19.1 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute a single instrument.
ARTICLE XX
Entire Agreement
20.1 This Agreement and the Exhibits thereto sets forth the entire
understanding and agreement between the parties as to the matters covered
herein and supersedes and replaces any prior understanding, agreement or
statement (written or oral) of intent. No provision of this Agreement shall be
construed to confer any rights or remedies on any person other than Seller and
CITGO.
ARTICLE XXI
Further Assurances
<PAGE> 28
21.1 Seller and CITGO shall execute and deliver such documents, and
take such other action, as shall be reasonably requested by the other party
hereto to carry out transactions provided for by this Agreement.
ARTICLE XXII
Headings
22.1 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
ARTICLE XXIII
Governing Law
23.1 This Agreement shall be construed in accordance with, and
governed by, the laws of the State of Texas, except to the extent otherwise
required by law.
ARTICLE XXIV
Parties to Agreement
24.1 OPC hereby guarantees that (with the exception of (i) Canadian Occidental
Petroleum, Ltd. and its Subsidiaries and then only for so long as Canadian
Occidental Ltd. is not wholly owned directly or indirectly by OPC, and (ii) The
Permian Corporation and then only for so long as The Permian Corporation is
wholly owned directly or indirectly by OPC, and does not own directly or
indirectly, working interests in any Property or any Properties producing in
the aggregate, 1000 barrels or more of Domestic Crude Oil per day) any direct
or indirect subsidiary of OPC (other than Cities, for so long as Cities does
not own any Affected Property) which produces Domestic Crude Oil in the
<PAGE> 29
Designated Areas shall execute, as a Seller, and deliver to CITGO a copy of
this Agreement and shall be bound by all the terms and provisions hereof. OPC
hereby represents and warrants that Cities does not own, directly or indirectly
(through Subsidiaries other than CSOG and its Subsidiaries) any of the Affected
Properties. SLC guarantees performance of this Agreement by CITGO.
"SELLERS"
ATTEST: OCCIDENTAL PETROLEUM CORPORATION
By: /s/ John W. Alden By: /s/ Gerald Stern
----------------------------- -----------------------------
John W. Alden Gerald Stern
Assistant Secretary Executive Vice President
(SEAL)
OXY PETROLEUM, INC.
By: /s/ John W. Alden By: /s/ C. H. Adams
----------------------------- -----------------------------
John W. Alden C. H. Adams
Assistant Secretary Executive Vice President
(SEAL)
CITIES SERVICE OIL AND GAS
CORPORATION
By: /s/ Linda Frick By: /s/ C. H. Adams
----------------------------- -----------------------------
Linda Frick C. H. Adams
Assistant Secretary Executive Vice President
(SEAL)
CITGO PETROLEUM CORPORATION
By: /s/ Rodney G. Buckles By: /s/ J. D. Harlan, Jr.
----------------------------- -----------------------------
Rodney G. Buckles J. D. Harlan, Jr.
Assistant Secretary Senior Vice President
(SEAL)
<PAGE> 30
THE SOUTHLAND CORPORATION
By: /s/ John H. Rodgers By: /s/ Sam J. Susser
----------------------------- -----------------------------
Assistant Secretary Vice President
(SEAL)
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Gerald Stern, Executive Vice President of OCCIDENTAL PETROLEUM CORPORATION, a
California corporation, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
therein set forth, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the 29th day of
August, 1983.
My Commission Expires: Yvonne A. Onak
-------------------------------------
2/19/84 Notary Public in and for
- ---------------------- Harris County
[NOTARY SEAL] State of Texas
<PAGE> 31
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
C. H. Adams, Executive Vice President of OXY PETROLEUM, INC., a California
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
set forth, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the 29th day of August, 1983.
My Commission Expires: /s/ Carole A. LaSalle
-------------------------------------
11-30-86 Notary Public in and for
- ---------------------- Harris County
[Notary Seal] State of Texas
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
C. H. Adams, Executive Vice President of CITIES SERVICE OIL AND GAS
CORPORATION, a Delaware corporation, known to me to be the person and officer
whose name is subscribed to the foregoing instrument, and acknowledged to me
that he executed the same for the purposes and consideration therein expressed,
in the capacity therein set forth, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the 29th day of August, 1983.
My Commission Expires: /s/ Carole A. LaSalle
-------------------------------------
11-30-86 Notary Public in and for
- ---------------------- Harris County
[Notary Seal] State of Texas
<PAGE> 32
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
J. D. Harlan, Jr. Senior Vice President of CITGO PETROLEUM CORPORATION, a
Delaware corporation, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
therein set forth, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the 29th day of August, 1983.
My Commission Expires: /s/ Sharon K. Hester
-------------------------------------
Notary Public in and for
May 30, 1984 Harris County
State of Texas
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Sam J. Susser, Vice President of THE SOUTHLAND CORPORATION, a Texas corporation,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein set forth,
and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the 29th day of August, 1983.
My Commission Expires: /s/ Sharon K. Hester
-------------------------------------
Notary Public in and for
May 30, 1984 Harris County
State of Texas
<PAGE> 33
STATE OF TEXAS
COUNTY OF HARRIS
On this 29th day of August, 1983, before me the undersigned Notary
Public in and for the above said County and State, personally appeared Gerald
Stern and John W. Alden, to me personally known, who, being by me duly sworn,
did say that they are the Executive Vice President and Assistant Secretary,
respectively, of OCCIDENTAL PETROLEUM CORPORATION, a Delaware corporation, and
that the seal affixed to said instrument is the corporate seal of said
corporation and that the instrument was signed and sealed in behalf of the
corporation by authority of its Board of Directors and that Gerald Stern and
John W. Alden acknowledged the instrument to be the free act and deed of the
corporation.
/s/ Yvonne A. Onak
- -------------------------------
Notary Public in and for
Harris County, Texas
My term of office expires on:
2/19/84
- -------------------------------
[Notary Seal]
<PAGE> 34
STATE OF TEXAS
COUNTY OF HARRIS
On this 29th day of August, 1983, before me the undersigned Notary
Public in and for the above said County and State, personally appeared C. H.
Adams and John W. Alden, to me personally known, who, being by me duly sworn,
did say that they are the Executive Vice President and Assistant Secretary,
respectively, of OXY PETROLEUM, INC., a Delaware corporation, and that the seal
affixed to said instrument is the corporate seal of said corporation and that
the instrument was signed and sealed in behalf of the corporation by authority
of its Board of Directors and that C. H. Adams and John W. Alden acknowledged
the instrument to be the free act and deed of the corporation.
/s/ Yvonne A. Onak
- -------------------------------
Notary Public in and for
Harris County, Texas
My term of office expires on:
2/19/84
- -------------------------------
[Notary Seal]
<PAGE> 35
STATE OF TEXAS
COUNTY OF HARRIS
On this 29th day of August, 1983, before me the undersigned Notary
Public in and for the above said County and State, personally appeared C. H.
Adams and Linda Frick, to me personally known, who, being by me duly sworn, did
say that they are the Executive Vice President and Assistant Secretary,
respectively, of CITIES SERVICE OIL AND GAS CORPORATION, a California
corporation, and that the seal affixed to said instrument is the corporate seal
of said corporation and that the instrument was signed and sealed in behalf of
the corporation by authority of its Board of Directors and that C. H. Adams and
Linda Frick acknowledged the instrument to be the free act and deed of the
corporation.
/s/ Yvonne A. Onak
- -------------------------------
Notary Public in and for
Harris County, Texas
My term of office expires on:
2/19/84
- -------------------------------
[Notary Seal]
<PAGE> 36
STATE OF TEXAS
COUNTY OF HARRIS
On this 29th day of August, 1983, before me the undersigned Notary
Public in and for the above said County and State, personally appeared J. D.
Harlan, Jr. and Rodney G. Buckles, to me personally known, who, being by me
duly sworn, did say that they are the Senior Vice President and Assistant
Secretary, respectively, of CITGO PETROLEUM CORPORATION, a Delaware
corporation, and that the seal affixed to said instrument is the corporate seal
of said corporation and that the instrument was signed and sealed in behalf of
the corporation by authority of its Board of Directors and that J. D. Harlan,
Jr. and Rodney G. Buckles acknowledged the instrument to be the free act and
deed of the corporation.
/s/ Sharon K. Hester
- -------------------------------
Notary Public in and for
Harris County, Texas
My term of office expires on:
May 30, 1984
- -------------------------------
<PAGE> 37
STATE OF TEXAS
COUNTY OF HARRIS
On this 29th day of August, 1983, before me the undersigned Notary Public
in and for the above said County and State, personally appeared Sam J. Susser
and John H. Rodgers, to me personally known, who, being by me duly sworn, did
say that they are the Vice President and Assistant Secretary, respectively, of
THE SOUTHLAND CORPORATION, a Delaware corporation, and that the seal affixed to
said instrument is the corporate seal of said corporation and that the
instrument was signed and sealed in behalf of the corporation by authority of
its Board of Directors and that Sam J. Susser and John H. Rodgers acknowledged
the instrument to be the free act and deed of the corporation.
/s/ Sharon K. Hester
Notary Public in and for
Harris County, Texas
My term of office expires on:
May 30, 1984
<PAGE> 38
Schedule A
to the Agreement For The
Purchase and Sale of Domestic Crude Oil
<TABLE>
<CAPTION>
State County/Parish
- ----- -------------
<S> <C>
Texas Comanche
Edwards
Jones
Rains
Louisiana Vernon
Lincoln
Kansas Lincoln
Illinois La Salle
Washington
</TABLE>
<PAGE> 39
SCHEDULE B to
Agreement for the Purchase and
Sale of Domestic Crude Oil
<TABLE>
<S> <C> <C> <C> <C>
Alabama Indiana Rooks *Lincoln New Mexico
Rush Ouachita
Cherokee Clay Russell Plaquemines Bernalillo
Choctaw Lake Scott Pointe Coupee Chaves
Mobile Sedgwick Sabine De Baca
Kansas Seward St. Martin Eddy
Arkansas Stafford St Mary Guadalupe
Barber Stevens Terrebonne Lea
Columbia Barton Sumner Union Lincoln
Lafayette Butler Thomas Vermilion McKinley
Nevada Cheyenne Trego *Vernon Roosevelt
Ouachita Clark Webster Sandoval
Union Comanche Kentucky San Juan
Cowley Michigan Santa Fe
Colorado Crawford Daviess Torrance
Decatur Estill Allegan
Baca Edwards Floyd Calhoun North Dakota
Cheyenne Ellis Henderson Clare
La Plata Ellsworth Knott Eaton Billings
Montezuma Finney Lawrence Isabella Bottineau
Rio Blanco Ford Bowman
Weld Graham Ohio Mississippi Burke
Grant Pike Dunn
Illinois Greenwood Adams McKenzie
Harper Louisiana Amite Stark
Champaign Harvey Clarke Williams
Christian Haskell Acadia Copiah
Cook Hodgeman Allen Greene
DeWitt Kingman Assumption Simpson Ohio
Fayette Kiowa Beauregard Walthall
Ford *Lincoln Bienville Wayne Washington
Grundy Logan Bossier Wilkinson
Jefferson McPherson Caddo Oklahoma
Kankakee Marion Calcasieu Montana
*La Salle Meade Cameron Alfalfa
Livingston Morris Claiborne Dawson Atoka
Macon Morton De Soto McCone Beaver
Marion Nemaha E.Baton Rouge Pondera Beckham
McLean Ness Iberia Richland Blaine
Moultrie Norton Iberville Roosevelt Caddo
Piatt Pawnee Jefferson Sheridan Canadian
Shelby Phillips Jefferson - Carter
Wabash Pratt Davis Nebraska Cimarron
*Washington Rawlins Lafayette Cleveland
Wayne Reno Lafourche Cheyenne Coal
White Rice La Salle Red Willow Cotton
Will Riley Custer
</TABLE>
*included on Schedule A
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
Dewey Cochran Kaufman Upton
Ellis Colorado Kenedy Victoria
Garfield *Comanche Kent Waller
Garvin Cooke Kimble Ward
Grady Cottle Kleberg Webb
Grant Crane Knox Wharton
harper Crockett Leon Wichita
Hughes Dawson Liberty Wilbarger
Jefferson De Witt Limestone Winkler
Kingfisher Duval Loving Wise
Logan Eastland Lubbock Wood
McClain Ector Lynn Yoakum
Major *Edwards Marion Young
Marshall Erath Martin Zapata
Oklahoma Fayette Maverick
Osage Fisher Midland Utah
Pawnee Fort Bend Mitchell
Payne Franklin Montgomery San Juan
Pittsburg Freestone Moore
Pontotoc Gaines Nacogdoches West Virginia
Pottawatomie Garza Navarro
Roger Mills Gillespie Newton Doddridge
Seminole Glasscock Nolan Jackson
Stephens Gray Nueces Kanawha
Texas Gregg Oldham Logan
Tillman Grimes Orange Nicholas
Washita Guadalupe Panola Wirt
Woods Hansford Pecos
Woodward Hardeman Polk
Hardin *Rains Wyoming
Texas Harris Reagan
Harrison Reeves Big Horn
Anderson Haskell Roberts Campbell
Andrews Hays Rusk Carbon
Angelina Hemphill San Patricio Converse
Aransas Henderson Schleicher Crook
Archer Hidalgo Scurry Hot Springs
Austin Hill Smith Johnson
Bastrop Hockley Somervell Niobrara
Bee Hood Starr Park
Blanco Hopkins Stephens Sweetwater
Borden Houston Stonewall Uinta
Bowie Howard Sutton Washakie
Brazoria Hutchinson Taylor Weston
Brazos Irion Terrell
Caldwell Jack Terry
Callahan Jackson Titus
Calhoun Jefferson Tom Green
Camp Jim Hogg Trinity
Carson Johnson Tyler
Cass *Jones Upshur
Karnes
</TABLE>
*included on Schedule A
<PAGE> 41
Schedule B
California Offshore
Channel Islands Area, California Map No. 6B portion
Blocks 51N-63W and 52N-63W
Louisiana Offshore
West Cameron Area
Blocks 69, 135, 177, 193, 201 and 222
West Cameron South Addition Area
Blocks 459, 586 and 587
East Cameron Area
Blocks 33, 42, 47, 48, 63, 67, 71, 72, 83, 88, 96 and 97
South Marsh Island North Addition Area
Block 261
South Marsh Island South Addition Area
Blocks 108, 112, 113, 146, 155 and 156
Eugene Island Area
Blocks 242, 243 and 266
Eugene Island South Addition Area
Blocks 267, 307, 327
Ship Shoal Area
Blocks 15, 144, 145, 158, 198, 206, 222 and 225
South Pelto Area
Blocks 8, 12, 13 and 18
South Timbalier Area
Blocks 22, 23, 27, 31, 86 and 148
Grand Isle Area
Blocks 32, 40, 41, 42, 43, 45, 47 and 48
West Delta Area
Blocks 40, 52, 53, 54, 55, 58, 68, 69, 70, 71, 94, 95
and 96
South Pass Area
Blocks 24 and 25
*included on Schedule A
<PAGE> 42
Main Pass Area
Blocks 18, 92 and 103
Main Pass South and East Addition
Blocks 296 and 311
*included on Schedule A
<PAGE> 43
Texas Offshore
High Island Area
Blocks 110 and 111
High Island South Addition Area
Blocks A-474, A-489, A-499, A-555 and A-563
High Island East Addition South Extension Area
Blocks A-273, A-323, A-327, A-332, A-339, A-340 and A-355
Galveston Area
Block 144
Brazos South Addition Area
Blocks A-70, A-76 and A-133
Matagorda Island Area
Blocks 526, 526-L and 686
*included on Schedule A
<PAGE> 1
EXHIBIT 10.23
PLAN TEXT
EPP AND SEPP BENEFITS
CITGO PETROLEUM CORPORATION
EXECUTIVE PROTECTION PLAN
AMENDED AND RESTATED
EFFECTIVE NOVEMBER 21, 1994
I. INTRODUCTION
The Executive Protection Plan (the "Plan") of CITGO Petroleum
Corporation (the "Company") has been established primarily to provide
supplementary benefits to selected key executives of the Company.
II. PARTICIPATION
Eligibility to participate in the Plan is limited to the senior
executive staff and a select group of key management in salary grades
75 and above and any former Plan Participant selected by the President
and Chief Executive Officer irrespective of such individual's salary
grade. Each year, the President and Chief Executive Officer will
review and select Plan Participants for the next Plan Year. Each
Participant will be advised of his/her selection in writing by the
President and Chief Executive Officer. After the end of a Plan Year,
a Participant will continue to participate from month to month unless
notified to the contrary. Selection for participation in the Plan
shall not be considered as a promise of continued participation in the
Plan or continued employment with the Company, its subsidiaries, or
its affiliates. Participants will be provided an Acknowledgment of
Plan Benefits and will be given the opportunity to designate or change
beneficiary(ies).
III. DEFINITIONS
Cause - Means 1) after having received a written demand for
satisfactory performance of his/her job duties that specifically
identified the manner in which the Company believes that such job
duties have not been satisfactorily performed, the Participant fails
to perform such job duties in a satisfactory manner; or 2) a
Participant's engaging in conduct that is demonstrably and materially
injurious to the Company, monetarily or otherwise.
Compensation - For all purposes of Plan benefits, Compensation means
the aggregate of 1) the Participant's base salary plus 2) the greater
of a) the most recently awarded bonus or b) the average of the last
three awarded bonuses.
1
<PAGE> 2
Compensation will be determined at the earliest of the Participant's
1) ceasing to be a Participant in the Plan, 2) termination of
employment, 3) Disability, 4) death, or 5) Retirement. Compensation
is the amount paid before any payroll deductions for income tax,
social security tax, or contributions under employee benefit plans
either on a post-tax basis or by salary reduction. Compensation does
not include automobile or living allowances, moving expenses,
severance or termination pay, long-term incentive pay, Company
contributions under employee benefit plans, or any other special
awards or items of compensation as determined by the President and
Chief Executive Officer.
Disability - Means a disability for which the Participant is entitled
to receive benefits under the Company's Long-Term Disability Program.
Participant- Means any eligible employee of the Company who is
selected for participation in the Plan by the President and Chief
Executive Officer.
Plan Year - Means the twelve (12) month period from July 1 through
June 30.
Retirement - Means cessation of a Vested Participant's employment with
the Company at age 55 or later for other than termination for Cause,
death or Disability.
Vested - Means an employee has been a Participant in the Plan for
sixty (60) consecutive months which entitles the Participant to
receive a retirement benefit as early as age 55. Once Vested, a
Participant is entitled to receive the retirement benefit provided
herein unless terminated for Cause. The vesting requirement may be
waived with approval by the President and Chief Executive Officer.
IV. BENEFITS PROVIDED
The Plan provides the following benefits:
A. Disability Income
Disability income of eighty percent (80%) of Compensation is
provided for Participants to age 65 as long as they are
eligible to receive benefits under the Long-Term Disability
Program and have not elected to receive retirement benefits
under the Plan. However, these benefits shall be offset by
the benefits received from the Long-Term Disability Program,
Social Security, and other Company-sponsored disability pay
plans, if any. The Participant will receive disability income
on a monthly basis.
2
<PAGE> 3
B. Pre-retirement Death Benefit
In the event of a Participant's death while employed by the
Company or while receiving disability income under IV. A.
above, his/her beneficiary(ies) will receive ten (10) annual
payments each equal to 20 percent (20%) of Compensation. If
the beneficiary dies prior to receiving all payments, the then
present value of the remaining payments will be paid to the
beneficiary's estate in a single sum. If prior to death a
Participant has received payments under the Company's
Long-Term Disability Program and disability income under IV.
A. above, death benefits payable to a beneficiary under this
provision will be reduced by 10 percent (10%), in the
aggregate, of such payments.
Pre-retirement death benefits are payable in addition to any
amounts due under any other of the Company's programs.
Example:
<TABLE>
<S> <C>
Participant's Compensation $120,000 yr.
Pre-retirement Death Benefit (20%) $ 24,000 yr.
</TABLE>
The first payment will be made as soon as practicable
following death of the Participant. Remaining payments will
be paid each year, at the beginning of each subsequent year
until the beneficiary receives a total of ten (10) payments.
The pre-retirement death benefit will not be payable if the
Participant commits suicide during the two-year period after
initial selection for participation in the Plan.
C. Retirement Benefits
1. Retirement Benefit
Following cessation of employment from the Company
for other than termination for Cause, death, or
Disability, a Vested Participant who is not a Vice
President or above will be entitled to receive annual
retirement benefits from the Plan at age 62 or later
equal to fifteen percent (15%) of Compensation
payable for the rest of the Participant's life.
2. Supplemental Retirement Benefit
Following cessation of employment from the Company
for other than termination for Cause, death, or
Disability, a Vested Participant who is a Vice
President or above will be entitled to receive annual
3
<PAGE> 4
retirement benefits from the Plan at age 62 or later
payable for the rest of the Participant's life based
on the greater of the Regular Formula or Minimum
Formula as follows:
a. Regular Formula
Supplemental Benefit Minus Pension Plan
Benefits
Supplemental Benefit:
2.5% x years of Plan participation
x Compensation
Years of Plan participation will begin from
date of entry into the Plan. Partial years
will be prorated on a monthly basis.
Pension Plan Benefits means retirement
benefits provided under (i) the Company's
qualified defined benefit pension plans based
on a single life annuity payable at the time a
Participant begins receiving a benefit under
the Plan and, (ii) any other pension benefit
program sponsored by the Company, its
subsidiaries, or its affiliates, or other
arrangements as determined by the President
and Chief Executive Officer.
b. Minimum Formula
The minimum retirement benefit for Vice
Presidents and above is 20% of Compensation
which is payable in addition to benefits under
other Company pension plans.
c. Example
Following is an example of the calculation for
the Supplemental Retirement Benefit:
<TABLE>
<S> <C>
Participant's Compensation $200,000 yr.
Years of Plan Participation 20.5
Participant's Age 62
Regular Formula:
Supplemental Benefit
(2.5% x 20.5 x $200,000 yr.) = $102,500 yr.
Minus Pension Plan Benefit - 35,000 yr.
------------
$ 67,500 yr.
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
Minimum Formula:
20% x $200,000 yr.= $40,000 yr.
Retirement benefit $67,500 yr.
</TABLE>
3. Retirement from Disability Status and Adjustment for
Disability Benefits
A Vested Participant whose cessation of employment
from the Company is the result of Disability and who
elects to receive retirement benefits under the Plan
will be entitled to receive retirement benefits from
the Plan as follows:
a. If the Participant is not a Vice President or
above at the time of cessation of employment
with the Company, the Participant will be
entitled to receive annual retirement
benefits from the Plan at age 62 or later
equal to fifteen percent (15%) of
Compensation payable for the rest of the
Participant's life. If the Participant
elects to receive retirement benefits before
age 62, the benefits will be reduced in
accordance with IV. C.4. below.
b. If the Participant is a Vice President or
above at the time of cessation of employment
with the Company, the Participant will be
entitled to receive annual retirement
benefits from the Plan at age 62 or later
payable for the rest of the Participant's
life based on the greater of the Regular
Formula or Minimum Formula described in IV.
C.2. above. If the Participant elects to
receive retirement benefits before age 62,
the benefits will be reduced in accordance
with IV. C.4. below.
Disability income under IV. A. hereof will cease on
the effective date of the Participant's retirement.
In no event shall a Participant be eligible to
receive disability income and retirement benefits
under the Plan for the same period of time.
Notwithstanding any provision to the contrary, if at
the time a Participant begins receiving retirement
benefits hereunder, a Participant has received
benefits under the Company's Long-Term Disability
Program and disability income described in IV. A.
hereof, ten percent (10%) of the aggregate amount so
received will be deducted from the retirement
benefits (the aggregate amount to be deducted
annually from the retirement benefit will be
determined by dividing the actuarially projected
number of years remaining in a Participant's lifetime
into ten percent (10%) of the aggregate amount of the
disability benefits received).
5
<PAGE> 6
4. Early Retirement
A Vested Participant may elect to receive retirement
benefits hereunder as early as age 55 with reduced
benefits payable for the rest of the Participant's
life. Subject to the provisions of Article IV. C. 5.
hereof, the early retirement reduction factors are:
<TABLE>
<CAPTION>
Age % Benefit
--- ---------
<S> <C>
62 and over 100
61 95
60 90
59 86
58 82
57 78
56 74
55 70
</TABLE>
The above percentages will be prorated on a monthly
basis for partial years of age.
Examples:
a. Participant is not a Vice President or above
<TABLE>
<S> <C>
Compensation $120,000 yr.
Participant's Age 62
Retirement Benefit - 15% $ 18,000 yr.
</TABLE>
Reduced for receipt of retirement benefits
prior to age 62:
<TABLE>
<CAPTION>
Age Benefit
--- -------
<S> <C>
62 $18,000 yr.
61 $17,100 yr.
60 $16,200 yr.
59 $15,480 yr.
58 $14,760 yr.
57 $14,040 yr.
56 $13,320 yr.
55 $12,600 yr.
</TABLE>
b. Participant is a Vice President or above
<TABLE>
<S> <C>
Compensation $200,000 yr.
Participant's Age 62
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C>
Retirement benefit based
on Regular Formula $ 67,500 yr.
</TABLE>
Reduced for receipt of retirement benefits
prior to age 62:
<TABLE>
<CAPTION>
Age Benefit
--- -------
<S> <C>
62 $67,500 yr.
61 $64,125 yr.
60 $60,750 yr.
59 $58,050 yr.
58 $55,350 yr.
57 $52,650 yr.
56 $49,950 yr.
55 $47,250 yr.
</TABLE>
5. Terminated Vested Retirement Benefit
If a Vested Participant leaves employment with the
Company prior to age 55, except for termination for
Cause, death, or Disability, the Participant has a
right to receive a terminated vested retirement
benefit as early as age 55. The terminated vested
retirement benefit will be based on the applicable
retirement benefit calculation under the Plan, except
that for receipt of retirement benefits prior to age
62, in calculating retirement benefits under the
Regular Formula, the Supplemental Benefit will be
reduced by the early retirement reduction factors
before deducting the Pension Plan Benefit.
6. Spouse's Benefit
Upon the Participant's death following Retirement or
after having elected to receive retirement benefits,
the Participant's spouse will receive a spouse's
benefit equal to fifty percent (50%) of the
Participant's benefit payable for life. Payment of a
spouse's benefit will stop upon the death of the
spouse.
7. Payment of Retirement Benefits
Retirement benefits are paid once each year at the
beginning of the year.
A Vested Participant who leaves employment for other
than termination for Cause or death can elect to
begin receiving retirement benefits as early as the
first of the year following the year in which the
Participant reaches age 55, but no later than the
first of the year
7
<PAGE> 8
following the year the Participant reaches age 65.
No election can be made prior to age 55.
The spouse's benefit will be payable beginning at the
first of the year following the Participant's death.
D. Post-retirement Death Benefit
Upon the Participant's Retirement or at the time a Vested
Participant who is receiving disability income under IV. A.
hereof elects to begin receiving retirement benefits
hereunder, the Plan will provide a post-retirement death
benefit equal to the amounts identified in the table on
Attachment I hereto, as amended from time to time in
accordance with the terms of the Plan, based upon the
Participant's position with the Company at the time of
Retirement or cessation of full-time employment with the
Company. The Participant will be provided, at the option of
the Company, a certificate of insurance or other document
verifying this benefit. Following a Participant's death, the
benefit will be paid in a lump sum amount directly to the
Participant's designated beneficiary(ies). The benefit may be
provided directly by the Company from its general assets or,
at the option of the Company, by a third party insurer. If an
insurer is utilized to provide the benefit, following issuance
of the certificate of insurance the Participant will have an
insured benefit which will result in the Participant having
imputed income for tax purposes each year. If the Company
provides the benefit, the proceeds will be taxable to the
Participant's designated beneficiary(ies) upon receipt of
payment.
The amount of the post-retirement death benefit will be
reduced by five percent (5%) for each year a Participant's age
at Retirement precedes age 65.
The post-retirement death benefit is not available if a
Participant leaves employment with the Company for any reason
prior to age 55 other than Disability.
Example:
<TABLE>
<S> <C>
Participant's post-retirement
death benefit $750,000
Post-retirement death benefit
at age 55 (reduced 50% -
5% each year prior to age 65) $375,000
</TABLE>
8
<PAGE> 9
V. AMENDMENT OR TERMINATION OF PLAN
The Plan is an unfunded nonqualified benefit program. Benefits are
generally paid solely from general assets of the Company. The Company
reserves the right to amend, suspend and/or terminate the Plan at any
time for the group of Participants as a whole or for any individual;
provided, however, individuals who are Vested in the retirement
benefit, or entitled to the pre-retirement or post-retirement death
benefit and/or to whom payments have commenced hereunder, will
continue to be eligible to receive benefits subject to the terms of
the Plan.
VI. ADMINISTRATION OF THE PLAN
The responsibility for the administration and operation of the Plan
rests with the President and Chief Executive Officer of the Company.
The President and Chief Executive Officer is empowered by the Board of
Directors to construe and interpret the Plan and to decide all
questions concerning eligibility for participation, benefits, vesting
and other related matters.
VII. MISCELLANEOUS
If a Participant has questions about the Plan he/she should contact
the Vice President, Human Resources. Periodically, a Participant will
be provided an Acknowledgment of Plan Benefits outlining his/her
benefits based on the Participant's then current employment and Plan
participation status.
Receipt of benefits under this Plan will not affect a Participant's
right to receive benefits under any other Company-sponsored plan or
program.
/s/ RONALD E. HALL
------------------------------------
RONALD E. HALL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
9
<PAGE> 10
ATTACHMENT I
<TABLE>
<CAPTION>
POSITION POST-RETIREMENT
-------- ---------------
DEATH BENEFIT
---------------
<S> <C>
Chief Executive Officer $3,000,000
Executive or Senior Vice President $2,000,000
Vice President $1,000,000
All Other Positions $ 750,000
</TABLE>
10
<PAGE> 1
EXHIBIT 10.24
CITGO PETROLEUM CORPORATION
LONG TERM INCENTIVE PLAN - 1994
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. CITGO Petroleum Corporation a Delaware corporation,
hereby establishes a long-term incentive plan for executives, which shall be
known as the CITGO Petroleum Corporation Long Term Incentive Plan - 1994,
(hereinafter referred to as the "Plan").
1.2 PURPOSE. The purpose of the Plan is to enable the Company to attract
and retain key management Employees and to provide them with an opportunity to
receive incentive awards based on their contributions to the long-term
financial success of the Company.
SECTION 2. DEFINITIONS.
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
meaning set forth below:
(a) "ANNUAL PORTION" means an amount equal to fifty percent (50%)
of a Performance Award and shall be divided equally in
proportion to the number of Years in a Performance Period. The
amount earned in each Year shall be calculated based on the
degree of achievement by the Company of Performance Goals
established for such Year.
(b) "BOARD" means the Board of Directors of CITGO Petroleum
Corporation.
(c) "COMPANY" means CITGO Petroleum Corporation, a Delaware
corporation, and its subsidiaries.
(d) "CUMULATIVE PORTION" means an amount equal to fifty percent
(50%) of a Performance Award and shall be calculated based on
the degree of achievement by the Company of a Performance Goal
established for an entire Performance Period.
(e) "DISABILITY" means a Plan Participant becomes disabled as
determined under the Company's Long Term Disability Plan for
Salaried Employees.
(f) "EMPLOYEE" means a regular salaried exempt employee (including
officers who are also employees) of the Company.
<PAGE> 2
(g) "GRANT" means the right to participate in a Performance Period
established under the Plan. Grants are made at the time a new
Performance Period is announced to Participants.
(h) "PARTICIPANT" means a key Employee of the Company selected by
the President and Chief Executive Officer of CITGO Petroleum
Corporation and approved by the Board of Directors to
participate in a Performance Period established under this
Plan.
(i) "PERFORMANCE AWARD" means the aggregate amount of money,
expressed in U.S. currency, earned by a Participant with
respect to a Performance Period established pursuant to the
terms of this Plan and shall consist of the aggregate of the
Annual Portion and the Cumulative Portion.
(j) "PERFORMANCE GOALS" means key performance measures of the
Company's performance during a Performance Period as
established by the Board. Performance Goals shall be
established no later than the date of Grant for the first Year
of the Annual Portion and for the Cumulative Portion.
Performance Goals for subsequent Years of the Annual Portion
shall be established no later than 2-1/2 months after the
beginning of such Year. Once established and subject to the
provisions of Section 4.2, the Performance Goals for the
Annual Portion shall remain the same across all Performance
Periods for any given Year, e.g., the Performance Goal for the
first Year of the third Grant shall be the Performance Goal
for the second Year of the second Grant and shall also be the
goal for the third Year of the first Grant. The level of
achievement of such Performance Goals shall determine the
degree to which Performance Awards are earned by participants.
(k) "PERFORMANCE PERIOD" means the period of time, established by
the Board, over which Performance Awards are earned. A
Performance Period shall be no longer than three Years.
(l) "RETIREMENT" means the cessation of a Participant's employment
with the Company after having attained age 60, or as early as
age 55 with the consent of the President and Chief Executive
Officer and the Board of Directors and, in either case, upon
the Employee's execution of a non-competition agreement for a
period expiring when payments for all Performance Periods
(other than deferred payments) have been made, if so requested
by the Company.
(m) "SUBSIDIARY" means any corporation or other organization, a
majority of the voting control of which is directly or
indirectly owned by the Company.
2
<PAGE> 3
(N) "TARGET AWARD" means an amount equal to the percentage of a
Participant's base salary in effect as of the date of Grant as
determined in accordance with the schedule set forth below and
which shall be earned by a Participant if the Company achieves
100% of Performance Goals established for a Performance
Period:
<TABLE>
<CAPTION>
TARGET AWARD AS
SALARY GRADE PERCENTAGE OF BASE SALARY
<S> <C>
CE0 130%
Grades 80 and 81 120%
Grades 78 and 79 100%
Grades 76 and 77 85%
Grades 74 and 75 70%
</TABLE>
(O) "YEAR" means the twelve month accounting period for the
Company.
2.2 GENDER. Except when otherwise indicated by context, any masculine
terminology when used in this Plan shall also include the feminine gender; and
the definition of any term herein in the singular shall also include the
plural.
SECTION 3. ELIGIBILITY, GRANT FREQUENCY AND NOTIFICATION
3.1 ELIGIBILITY. Eligibility for Grants under this Plan shall be limited
to Employees of the Company who are key to the Company's long-term financial
success and shall be based upon the recommendation by the President and Chief
Executive Officer of the Company and approval of the Board of Directors.
3.2 GRANT FREQUENCY. A Grant shall be made every Year, coincident with
the establishment of a new Performance Period.
3.3 DETERMINATION OF GRANTS. Upon the establishment of a Performance
Period, upon the recommendation of the President and Chief Executive Officer
and the approval of the Board, Grants shall be issued to Participants. In
making such Grants, the President and Chief Executive Officer and the Board
may take into account the nature of services rendered by such Participants,
their present and potential contributions to the Company, and such other
considerations as they deem appropriate.
3.4 PARTIAL GRANTS. Employees who become eligible to participate in the
Plan after the date of a Grant shall not be eligible to participate in the Plan
until the establishment of the next Performance Period. However, the President
and Chief Executive Officer, with the approval of the Board of Directors, may
issue a reduced, prorated Grant to these Employees.
3
<PAGE> 4
3.5 NOTIFICATION AND AGREEMENT. Participants shall be notified of their
award of a Grant as soon as practicable after the date of Grant. Such
notification shall include the amount of the Target Award, the potential
Performance Award, the Annual and Cumulative Portions, the Performance Goals
established, the specified Performance Period, and the relationship between the
degree of attainment of such Performance Goals and the amount of the
Performance Award which may be earned by the Participant. As a condition of
participation, the Participants will be required to execute and return to the
Company within thirty (30) days an agreement in which Participant acknowledges
that Grants are made subject to the provisions of the Plan, and that
Participant has received and read the Plan documents.
SECTION 4. PERFORMANCE GOALS.
4.1 NATURE OF PERFORMANCE GOALS. The Performance Goals established for
the Performance Period shall relate to the performance of the Company during
the Annual Portion and Cumulative Portion of such Performance Period and shall
be determined by the Board based on the recommendation of the President and
Chief Executive Officer. More than one Performance Goal may be established, and
multiple goals may have the same or different weightings. There shall be
established for each Performance Goal target achievement levels which shall be
calculated in a manner consistent with Section 5 hereof.
4.2 ADJUSTMENTS TO PERFORMANCE GOALS. It is the intent of the Plan that
Performance Goals established for any Performance Period will not change under
this Plan. However, certain circumstances at the discretion of the Board of
Directors may either warrant a modification to the Performance Goals or require
maintaining proforma financial data, i.e., as if the event had not occurred.
These circumstances would include major unforeseen events of a technical nature
such as, but not limited to, changes in tax law, regulations, or rulings; or
changes in accounting principles or practices. Other circumstances would be any
changes in the terms and conditions of the contractual agreements between the
Company and its shareholders, and major unplanned and material events
identified by the President and Chief Executive Officer and which the Board of
Directors in its discretion has approved as significantly affecting the
Performance Goals, such as an unplanned merger, acquisition, or divestiture.
Participants shall be notified of any such adjustments as soon as practicable.
SECTION 5. AWARD DETERMINATION.
5.1 MEASUREMENT. Following the end of each Year in a Performance Period
and the end of each Performance Period, the Board shall determine the degree to
which the Performance Goals established for
4
<PAGE> 5
existing Performance Periods have been attained. The Board's determination
shall be based on the Company's audited financial results and other appropriate
performance measures.
5.2 AWARD DETERMINATION. The amount of Performance Award which a
Participant may earn for an Annual Portion and a Cumulative Portion shall be
calculated by determining the degree of the Company's achievement of the
Performance Goal established for such period. The range of maximum and minimum
levels of achievement of Performance Goals and the corresponding percentage of
the Target Award earned in connection therewith are set forth below:
<TABLE>
<CAPTION>
PERCENTAGE OF ACHIEVEMENT PERCENTAGE OF TARGET
OF PERFORMANCE GOAL AWARD EARNED
<S> <C>
120% and above 200%
100% 100%
80% 50%
Below 80% 0%
</TABLE>
Straight line interpolation shall be used for percentages between the maximum
level and 100% and between 100% and the minimum level set forth above.
5.3 If the Company achieves at least one hundred percent (100%) of the
Performance Goal established for a Cumulative Portion, a Participant shall earn
at least one hundred percent (100%) of the total Target Award for such
Performance Period, without regard to the level of achievement of Performance
Goals established for Years within the Annual Portion of such Performance
Period.
SECTION 6. FORM AND TIMING OF PAYMENT.
6.1 TIME OF PAYMENT. Within two and one-half (2-1/2) months following the
end of each Performance Period, payments shall be made with respect to earned
Performance Awards.
6.2 FORM OF PAYMENT. All Performance Awards shall be paid in U.S. dollars.
6.3 DEFERRAL OF AWARDS. Participants may voluntarily elect in writing to
defer all or part of any Performance Awards granted to a date certain. The
election is irrevocable on the part of the Participant and the President and
Chief Executive Officer shall determine the form and timing for the deferral
election. However, if a Participant terminates employment other than by
Retirement, all deferred amounts shall be paid as soon as practicable following
the date of termination. Deferrals of Performance Awards of Participants who
elect Retirement shall be, if applicable, changed to a date which is
5
<PAGE> 6
not more than five (5) years following the date of the Participant's
Retirement. Interest shall be credited on a deferred account at a rate which is
no greater than the lower of the Company's average cost of borrowed funds or
the annual interest rate in effect from time to time on monies invested in the
Income Fund of the Company's Retirement and Savings Plan.
SECTION 7. TERMINATION OF EMPLOYMENT.
7.1 TERMINATION DUE TO DISABILITY, DEATH OR RETIREMENT. If a
Participant's employment is terminated due to Disability, Death or Retirement,
the Performance Award for the Cumulative Portion earned for all ongoing
Performance Periods will be based on the actual performance for the Performance
Period. The amount of the Performance Award earned for the Annual Portion
shall be based on actual performance for Years of participation during the
Performance Period. For this purpose, any partial Year shall be counted as a
full Year. The timing of payments for such Performance Awards shall be governed
by Section 6.1. However, if termination is due to death, the Board in its
discretion and with the agreement of the decedent's estate and/or beneficiary,
may agree to base the amount of any Performance Awards on the actual
performance of the Company to the date of death, in which case payment for
Performance Awards shall be made as soon as possible following the date of
death. In the event of a Participant's death, payment of any amounts due under
this Plan shall be made to the Participant's designated beneficiary, or in the
absence of such designation, to the Participant's estate.
7.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY, OR RETIREMENT.
Except for Performance Awards earned with respect to completed Performance
Periods and subject to the provisions of Section 11 hereof, if a Participant's
employment is terminated during a Performance Period for reasons other than
death, Disability or Retirement, all Performance Awards shall be forfeited.
SECTION 8. RIGHTS OF PARTICIPANTS.
8.1 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of
the Company.
8.2 NONTRANSFERABILITY. No right or interest of any Participant in this
Plan, other than awards which have been deferred, shall be assignable or
transferable, or subject to
6
<PAGE> 7
any lien, directly, by operation of law, or otherwise, including execution,
levy, garnishment, attachment, pledge, and bankruptcy.
SECTION 9. ADMINISTRATION.
9.1 ADMINISTRATION. The Board shall be responsible for the Plan. The
President and Chief Executive Officer is authorized to make all determinations
necessary or advisable for the administration of the Plan, but only to the
extent not contrary to the express provisions of the Plan.
SECTION 10. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN.
10.1 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board, at any
time may terminate, and at any time and from time to time and in any respect,
may amend or modify the Plan. Provided, however, no amendment, modification or
termination of the Plan shall in any manner adversely affect any potential
Performance Awards theretofore granted under the Plan without the consent of
the Participant.
SECTION 11. CHANGE IN CONTROL.
11.1 APPLICATION OF THIS SECTION. Notwithstanding any provisions of this
Plan to the contrary other than Section 5.3, upon the occurrence of an "Event"
as defined herein, to the extent provided herein the provisions of this Section
11 shall control the determination of Performance Awards for Performance
Periods in existence at the time of the Event and the calculation and payment
thereof shall be made in accordance herewith.
11.2 DEFINITIONS. For the purposes of this Section, the following
definitions shall apply:
(a) CHANGE IN CONTROL" shall be deemed to have occurred upon:
(i) (A) A change in the power to elect 50% or more of
the directors of the Company as a result of a
transfer of shares of the capital stock of
the Company, the issuance of additional
voting stock of the Company, the redemption
of shares of voting stock of the Company, the
reclassification of shares of the Company, a
merger or consolidation of the Company or a
combination of the foregoing; or
7
<PAGE> 8
(B) A change in the power to elect 50% or more of
the directors of any shareholder of the
Company that owns 50% or more of the voting
shares of the Company as a result of a
transfer of shares of the capital stock of
such shareholder, the issuance of additional
voting stock of such shareholder, the
redemption of shares of voting stock of such
shareholder, the reclassification of shares
of such shareholder, a merger or
consolidation involving such shareholder or a
combination of the foregoing; and
(ii) As a result of any occurrence described in (i) above,
at least 49% of the directors constituting the Board
immediately prior to such occurrence are not members
of the Board within one year thereafter.
(b) "MATERIAL CHANGE IN FINANCIAL STRUCTURE" shall mean a change
subsequent to a Change in Control resulting from the conduct
of the Company's Board or shareholders which could materially
and adversely affect the achievement of established
Performance Goals unless a change actually is in the
reasonable opinion of the Directors adequately compensated by
an adjustment in the Performance Goals.
(c) "MATERIAL CONTRACTION IN BUSINESS" shall mean a material
diminution of the employment requirements of the Company or
any subdivision or department thereof resulting from an action
by the Board out of the ordinary course of business, such as a
merger or consolidation involving the Company, the sale, lease
or other transfer of Company assets or the discontinuance or
contracting out of functions previously performed by the
Company.
(d) "INVOLUNTARY TERMINATION" shall mean, within any Performance
Period, the termination of a Participant's employment by the
Company following a Change in Control or a Material
Contraction in Business for reasons other than Cause.
(e) "CAUSE" shall mean:
8
<PAGE> 9
(i) after having received a written demand for
satisfactory performance of his job duties that
specifically identifies the manner in which the
Company believes that job duties have not been
satisfactorily performed, the Participant fails to
perform such job duties in a satisfactory manner; or
(ii) a Participant's engaging in conduct that is
demonstrably and materially injurious to the Company,
monetarily or otherwise.
(f) "CONSTRUCTIVE TERMINATION" shall mean a termination of
employment by a Participant within three months of a Good
Reason.
(g) "GOOD REASON" shall mean, without the Participant's written
consent, during a Performance Period and following a Change in
Control or a Material Contraction in Business, the occurrence
of one or more of the following:
(i) assignment of the Participant to duties with
diminished responsibilities and status compared to
those that existed immediately prior to the Change in
Control or Material Contraction in Business or to
duties for which the Participant is not qualified by
experience, education, or training;
(ii) reduction by the Company in a Participant's (x) base
salary, (y) annual bonus opportunity, or (z)
incentive award opportunities pursuant to (i) the
provisions of this Plan, or (ii) any other incentive
plan adopted prior to the Change in Control or
Material Contraction in Business; provided, however,
that the restructuring of the compensation package of
Participants in a good faith attempt to provide
substantially equivalent or greater compensation to
Participants in general on a basis that the Board
determines to be preferable shall not constitute Good
Reason;
(iii) the requirement by the Company that the Participant
be based or perform a substantially increased amount
of services at any office or location more than fifty
(50) miles more distant from the Participant's
residence than the Participant's office at the time
of a Change in Control or Material Contraction in
Business, except for travel
9
<PAGE> 10
reasonable required in performance of the
Participant's responsibilities;
(h) "EVENT", if a Participant is directly affected thereby, shall
mean:
(i) an Involuntary Termination or Constructive
Termination of a Participant, or
(ii) a Material Change in Financial Structure.
For purposes of this Section 11, more than one Event may occur within
any one Performance Period.
11.3 VESTING OF PERFORMANCE AWARDS. In the event of a Participant's
Involuntary Termination or Constructive Termination, such Participant's
Performance Awards shall be calculated pursuant to Section 11.4 hereof and
vested to the extend provided below:
(a) The Cumulative Portion of any Performance Award with respect
to any Performance Period that is in progress at the time of
an Involuntary Termination or Constructive Termination shall
be vested, and
(b) The Annual Portion of any Performance Award for the Year in
which an Involuntary Termination or Constructive Termination
occurs and for completed Years of Performance Periods shall be
vested.
11.4 DETERMINATION OF AMOUNT OF PERFORMANCE AWARDS. Upon the occurrence
of a Material Change in Financial Structure or calculation of Performance
Awards vested under Section 11.3 hereof, the Performance Awards shall be
calculated as set forth below.
(a) For Years within a Performance Period prior to a Year in which
an Event occurs, the Annual Portion shall be calculated as
otherwise provided in the Plan.
(b) For a Year in which an Event occurs, the Annual Portion shall
be based on the (i) actual reported results of the Company for
the Year, or (ii) the Company's performance for months ended
prior to the month in which the Event occurs, annualized, or
(iii) 100% of the Target Award, whichever is greatest.
10
<PAGE> 11
(c) For Years in a Performance Period occurring subsequent to a
Year in which an Event shall have occurred, the Annual Portion
shall be based on the greater of (i) actual performance of the
Company, or (ii) the performance of the Company for the
immediately prior year as determined in (b)(ii) above.
Provided, however, that in the event of an Involuntary
Termination or Constructive Termination, a Participant shall
not be entitled to receive any payment for an Annual Portion
relating to Years commencing after the Year of Termination,
notwithstanding the provisions of Section 5.3 hereof.
(d) For Performance Periods in which an Event shall occur, the
Cumulative Portion shall equal the greater of (A) the total of
(i) the actual performance of the Company for Years within the
Performance Period that are completed before the Event, (ii)
with respect to any Year in the Performance Period in which an
Event occurs, the greater of (a) the actual performance of the
Company for such Year, or (b) the Company's performance for
month ended prior to the month in which the Event occurred
annualized, and (iii) with respect to Years following the Year
in which an Event occurs, the greater of (a) the actual
performance of the Company for such Year, or (b) the amount in
(ii)(b) above, or (B) 100% of the Target Award.
11.5 TWO EVENTS AFFECTING A PARTICIPANT. If a Participant is affected by
both Section 11.3 and 11.4, both shall apply to him.
11.6 FORM AND TIMING OF PAYMENT.
(a) The Company shall pay to Participant affected by an
Involuntary Termination or a Constructive Termination a lump
sum in cash within thirty (30) days after the date of such
Termination, the aggregate of all Performance Awards earned by
the Participant to the extent determinable pursuant to the
terms of this Section 11 as of the time of such Involuntary
Termination or Constructive Termination, and the balance shall
be paid as otherwise provided herein.
(b) A Participant who is terminated other than by Involuntary
Termination, Constructive Termination, death, Disability or
Retirement shall forfeit all rights to receive payments of
Performance Awards
11
<PAGE> 12
with respect to uncompleted Performance Periods, including any
amounts calculated pursuant to Section 11.4, and the Company
shall have no further obligation to the Participant under this
Plan.
(c) A Material Change in Financial Structure shall not affect the
time of payment of an Award.
SECTION 12. MISCELLANEOUS.
12.1 UNSECURED INTEREST. No Participant in the Plan shall have any
interest in any fund or specific asset of the Company by reason of the Plan. No
trust fund shall be created in connection with the Plan or any Performance
Award thereunder, and there shall be no required funding of amounts which may
become payable to any Participant.
12.2 SPECIAL COMPENSATION. Except as otherwise required by law, no payment
under the Plan shall be included or taken into account in determining any
benefit under any pension, thrift, profit sharing, group insurance, or other
benefit plan maintained by the Company.
12.3 EXPENSES. All expenses of administering the Plan shall be borne by
the Company.
SECTION 13. REQUIREMENT OF LAW.
13.1 GOVERNING LAW, JURISDICTION AND VENUE. The Plan, and all agreements
hereunder, is subject to and shall be construed in accordance with and governed
by the laws of the State of Oklahoma, and the United States District Court for
the Northern District of Oklahoma and the Oklahoma State Court sitting in
Tulsa, Oklahoma shall have jurisdiction and be the exclusive venue for purposes
of all proceedings arising out of or relating to this Plan or the transaction
contemplated hereby.
SECTION 14. WITHHOLDING TAXES.
14.1 WITHHOLDING TAXES. The Company shall deduct from all cash payments
made pursuant to this Plan or from an Employee's salary an amount necessary to
satisfy any federal, state or local withholding tax requirement.
SECTION 15. EFFECTIVE DATE OF THE PLAN.
15.1 EFFECTIVE DATE. The Plan shall become effective as of January 1,
1994.
12
<PAGE> 13
15.2 DURATION OF THE PLAN. The Plan shall remain in effect until all
Performance Awards earned with respect to all outstanding Performance Periods
have been paid or deferred. In no event shall new Performance Periods be
established pursuant to this Plan after December 31, 2006.
Executed as of the 1st day of January, 1994.
[SEAL] CITGO PETROLEUM CORPORATION
ATTEST:
By: /s/ PEER L. ANDERSON By: /s/ RONALD E. HALL
--------------------------- ------------------------------
PEER L. ANDERSON RONALD E. HALL
SECRETARY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
13
<PAGE> 1
EXHIBIT 10.25
[CITGO LOGO]
CITGO PETROLEUM CORPORATION P.O. Box 3758
Tulsa, OK 74102-3758
March 27, 1995
Mr. Ralph S. Cunningham
Houston
Dear Mr. Cunningham:
This letter sets forth the provisions of your employment with CITGO Petroleum
Corporation, beginning May 1, 1995.
You will be employed as President and Chief Executive Officer of CITGO
Petroleum Corporation, reporting to the Chairman of CITGO's Board of Directors,
and will serve as a member of the Board. For planning purposes, your employment
with CITGO is generally intended to be for an indefinite period of time;
however, we will discuss this subject periodically, and we can adjust the
plan, as circumstances warrant.
Your annual base salary will be $550,000. You will be eligible to participate
in CITGO's annual Bonus Program, with a Target Bonus potential of 60% of base
salary. Payout under this annual plan is based on CITGO's overall performance
each year, as well as your individual performance and contribution to the
success of the company. For 1995, your bonus will be prorated, based on eight
months of service (May 1st to December 31st).
You will also participate in CITGO's Long Term Incentive Plan. As a
participant, you will receive an initial three-year Grant, with a target award
of 130% of your base salary at time of grant. The 1995 Grant will be prorated
to reflect time not worked at CITGO.
CITGO has another executive benefit, the Executive Protection Plan. Briefly, it
provides:
In the event you become totally and permanently disabled, you will be
eligible to receive 80% of compensation (salary and bonus), offset by
any benefits payable from other CITGO-sponsored plans and/or Social
Security.
<PAGE> 2
2.
If you should die during in employment, your spouse will receive a
pre-retirement death benefit of 20% of compensation, payable for 10
years.
After 2 years of employment, you will be eligible for a supplemental
retirement benefit of 20% of compensation at age 62. The plan has early
retirement reduction factors for retirement before age 62. The benefit
is payable for life and has a 50% spouse's benefit upon your death.
The plan normally requires 5 years of participation in order to
receive this benefit; however, CITGO will prorate your benefit based
on the length of time you are employed, as follows:
2 years = 24/60
3 years = 36/60
4 years = 48/60
5 years = 60/60
After 2 years of employment, your beneficiary will be eligible for a
post-retirement death benefit. The plan provides $3,000,000 which is
reduced 5% per year for early retirement prior to age 65. This benefit
will be pro-rated in the same manner as the retirement benefit.
CITGO has a competitive group benefits program in which you will be eligible to
participate in accordance with the terms and conditions of the plans. Your
vacation entitlement will be 4 weeks. As President and CEO, you will be
entitled to a country club membership, luncheon club, company car, financial
and tax planning, annual physical, and use of Corporate Aviation Services, all
in accord with our norms.
To assist to relocating to Tulsa, you will be eligible to participate in
CITGO's Relocation Program.
If, during the first twelve months, your employment is terminated by the
company without cause, CITGO will pay to move you back to Houston, Texas in
accordance with the Relocation Program, including purchase of your Tulsa
residence. In this event, your will receive a lump sum payment equal to your
base salary for one year. After the first year, if your employment is
terminated by the Company without cause, in addition to paying for your move
back to Houston, CITGO will provide a lump sum payment equal to six (6)
months of your current base salary.
This job offer is contingent upon your meeting the medical standards of CITGO
Petroleum Corporation, which includes a drug screen as part of the post-offer
physical exam. Also, you must satisfy the requirements of the Immigration
Reform and Control Act of 1986, regarding new employees. This may be
accomplished by your completion of Section 1 of an I-9 form and supplying
sufficient documentation to allow completion of Section 2 by CITGO.
<PAGE> 3
3.
Summaries of CITGO's group benefits and executive compensation plans and the
I-9 form will be provided to you under separate cover in the near future.
We are very pleased that you have decided to join the CITGO team and we are
looking forward to your arrival, as well as a mutually successful association.
Sincerely,
/s/ LUIS URDANETA
Luis Urdaneta V.
Chairman of the Board
I accept employment as President
and Chief Executive Officer of
CITGO Petroleum Corporation under
the terms and conditions as stated
above.
/s/ RALPH S. CUNNINGHAM
----------------------------------
Ralph S. Cunningham
<PAGE> 1
EXHIBIT 10.26
August 30, 1995
PERSONAL AND CONFIDENTIAL
Steven R. Berlin
Senior Vice President and Chief Financial Officer
CITGO Petroleum Corporation
Box 3758
Tulsa, Oklahoma 74102
Dear Steve:
This letter confirms our prior discussions in which you informed me that you
want to work another three years and then retire July 1, 1998.
I concur with your plan. While we may choose to restructure CITGO's
organization from time-to-time, we have no plans at this time to terminate your
services. CITGO will employ you at the level of Senior Vice President and
Chief Financial Officer with primary responsibilities focused on financial
matters and other duties as assigned. If you will provide your services until
July 1, 1998, CITGO will not "constructively terminate" your employment (see
Attachment) and will continue your employment until July 1, 1998, subject to
the company's right to terminate your for cause, as that term is defined in the
Executive Protection Plan.
Moreover, if you remain employed by CITGO to, and voluntarily terminate your
employment on, July 1, 1998, and then execute a release substantially in the
form of CITGO's standard General Release of Liability, a copy of which is
attached to this letter, we will agree to the following:
(1). We will pay you a one-time, lump-sum payment, less withholding to
the extent required by law, in an amount equal to the annual Supplemental
Retirement Benefit under the Executive Protection Plan that you would be
eligible to receive upon reaching age 55 in accordance with the Plan's
terms and conditions based on the benefit accrued as of July 1, 1998 (see
attached Example #1 which shows the calculation methodology to be used).
<PAGE> 2
(2). Any of your outstanding grants under the Long Term Incentive Plan
will be administered according to the Plan's provisions applicable to
retirees, and
(3). As a vested participant, you may elect to receive retirement
benefits from the Executive Protection Plan as early as age 55. When you
elect to receive retirement benefits, the amount of retirement benefit
under the Regular Formula will be calculated by applying the Plan's early
retirement reduction factor applicable to your age at time of election
before subtracting the single life annuity payable under the Salaried
Employees' Pension Plan (see attached Example #2).
The terms and conditions of this letter and any and all matters related hereto
will be regarded as confidential between the parties and in consideration of
the above you agree to keep the terms and conditions of this letter permanently
confidential and you agree that you will not disseminate or release such terms
and conditions in any manner or means to any person except your spouse and
counsel of your choice.
This letter demonstrates my desire that you remain with CITGO and lend your
support to the management team in dealing with the exciting challenges that lay
ahead.
Very truly yours,
CITGO Petroleum Corporation
/s/ RALPH S. CUNNINGHAM
--------------------------------------
Ralph S. Cunningham
President and Chief Executive Officer
CITGO Petroleum Corporation
Agreed to, executed and accepted this 3rd day of September, 1995.
/s/ STEVEN R. BERLIN
--------------------------------------
<PAGE> 3
EXAMPLE #1
Termination: July 1, 1998
Years of Plan participation: 14
Compensation: assume $530,000
EPP Early Retirement Reduction Factor at Age 55: 70%
Lump Sum Payment Calculation:
2.5% x years of Plan participation x Compensation x Early Retirement
Reduction Factor
2.5% x 14 x $530,000 x 70% = $129,850
LUMP SUM PAYMENT = $129,850
EXAMPLE #2
Assumption: Termination of employment July 1, 1998 and elects early
retirement benefits at age 55
Years of Plan Participation: 14
Compensation: assume $530,000
Executive Protection Plan Early Retirement Reduction Factor: 70%
Salaried Employees' Pension Plan Benefit = assume $11,260 (resultant annual
benefit after the Salaried Employees' Pension Plan actuarial reduction factor
is applied)
Calculation under the EPP Regular Formula:
Supplemental Benefit x 70% Minus Salaried Employees' Pension Plan
(2.5% x 14 x $530,000 x 70%) - $11,260
$129,850 - $11,260 = $118,590
EPP ANNUAL RETIREMENT BENEFIT = $118,590
SALARIED EMPLOYEES' ANNUAL PENSION PLAN BENEFIT = $ 11,260
--------
TOTAL ANNUAL RETIREMENT BENEFITS = $129,850
<PAGE> 4
ATTACHMENT
"Constructively Terminate" shall mean, without your consent, the occurence,
except for Cause, of one or more of the following:
A. A material reduction by the Company in your; (x) base salary, (y)
annual bonus opportunity or (z) incentive award opportunities
pursuant to any incentive plan existing on the date hereof; provided,
however, that the restructuring of your compensation package in a
good faith attempt to provide substantially equivalent or greater
compensation to company executives in general shall not constitute
Constructively Terminate.
B. The requirement by the Company that you be based or perform a
substantially increased amount of services at any office or location
more than fifty (50) miles more distant from your residence than the
Tulsa corporate office, except for travel reasonable required in
performance of your responsibilities.
<PAGE> 1
EXHIBIT 12
CITGO PETROLEUM CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Before Provision For Income
Taxes.................................. 215,872 301,233 260,697 189,032 227,900
Distribution in Excess of Equity
Earnings (Losses) of Affiliates..... -- -- -- 962 4,783
Equity Earnings (Losses) of Affiliates
in Excess of Distributions.......... (4,490) (3,930) (3,808) -- --
Equity in Loss of Less than 50%
Owned Subsidiary.................... 5,187 68 183 98 491
Interest Expense....................... 106,568 77,792 79,354 77,252 104,889
Previously Capitalized Interest
Amortized During the Period......... 3,440 3,039 2,833 2,849 2,307
Portion of Rent Representative of
Interest Factor..................... 10,928 11,305 11,173 11,522 8,526
------- ------- ------- ------- -------
Income as Adjusted.................. 337,505 389,507 350,432 281,715 348,896
======= ======= ======= ======= =======
Fixed Charges
Interest Expense....................... 106,568 77,792 79,354 77,252 104,889
Capitalized Interest................... 5,000 12,000 4,000 7,000 6,000
Portion of Rent Representative of
Interest Factor..................... 10,928 11,305 11,173 11,522 8,526
------- ------- ------- ------- -------
Total Fixed Charges................. 122,496 101,097 94,527 95,774 119,415
======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges....... 2.76x 3.85x 3.71x 2.94x 2.92x
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CITGO Petroleum
Corporation on Form 10 of our report dated February 12, 1996 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to a 1994
change in method of accounting for postemployment benefits to conform with
Statement of Financial Accounting Standards No. 112). We also consent to the
reference to us under the heading 'Selected Financial Data' in such Form 10.
Deloitte & Touche LLP
Tulsa, Oklahoma
May 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,863
<SECURITIES> 0
<RECEIVABLES> 865,278
<ALLOWANCES> 18,297
<INVENTORY> 785,275
<CURRENT-ASSETS> 1,682,318
<PP&E> 2,970,722
<DEPRECIATION> 478,873
<TOTAL-ASSETS> 4,923,578
<CURRENT-LIABILITIES> 1,143,761
<BONDS> 1,159,263
<COMMON> 1
0
0
<OTHER-SE> 1,731,506
<TOTAL-LIABILITY-AND-EQUITY> 4,923,578
<SALES> 10,522,160
<TOTAL-REVENUES> 10,552,705
<CGS> 10,066,012
<TOTAL-COSTS> 10,228,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,070
<INTEREST-EXPENSE> 106,568
<INCOME-PRETAX> 215,872
<INCOME-TAX> 79,528
<INCOME-CONTINUING> 136,344
<DISCONTINUED> 0
<EXTRAORDINARY> 3,380
<CHANGES> 0
<NET-INCOME> 139,724
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
