<PAGE> 1
As filed with the Securities and Exchange Commission on November 19, 1996
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
---------------------
GETTY PETROLEUM MARKETING INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 11-3339235
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
125 Jericho Turnpike
Jericho, New York 11753
(Address of principal executive office) (Zip Code)
</TABLE>
---------------------
Registrant's telephone number, including area code:
(516) 338-6000
---------------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF CLASS NAME OF EACH EXCHANGE ON
TO BE SO REGISTERED WHICH CLASS IS TO BE REGISTERED
- - -------------------------------------------- --------------------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
GETTY PETROLEUM MARKETING INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT AND
INCORPORATED IN FORM 10 BY REFERENCE.
CROSS-REFERENCE SHEET BETWEEN INFORMATION SHEET AND
ITEMS ON FORM 10.
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
------------------------------------- ------------------------------------------------
<C> <S>
1. Business............................. "SUMMARY OF CERTAIN INFORMATION,"
"INTRODUCTION," "THE DISTRIBUTION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
and "BUSINESS."
2. Financial Information................ "SUMMARY OF CERTAIN INFORMATION," "SELECTED
CONSOLIDATED FINANCIAL INFORMATION," and
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
3. Properties........................... "RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER
THE DISTRIBUTION -- Master Lease Agreement" and
"BUSINESS."
4. Security Ownership of Certain
Beneficial Owners and Management... "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS" and "MANAGEMENT -- Security Ownership of
Directors, Executive Officers and 5% Owners."
5. Directors and Executive Officers..... "MANAGEMENT," and "LIABILITY AND IN-
DEMNIFICATION OF OFFICERS AND DIRECTORS."
6. Executive Compensation............... "MANAGEMENT -- Director Compensation" and
"EXECUTIVE COMPENSATION."
7. Certain Relationships and Related
Transactions....................... "SUMMARY OF CERTAIN INFORMATION,"
"INTRODUCTION," "THE DISTRIBUTION," "RISK
FACTORS," "RELATIONSHIP BETWEEN GETTY AND
MARKETING AFTER THE DISTRIBUTION" and "CERTAIN
TRANSACTIONS."
8. Legal Proceedings.................... "BUSINESS -- Legal Proceedings" and "INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS."
9. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters........ "SUMMARY OF CERTAIN INFORMATION,"
"INTRODUCTION," "THE DISTRIBUTION -- Listing and
Trading of Marketing Common Stock," "RISK
FACTORS -- No Prior Market for Marketing Common
Stock," "RISK FACTORS -- Dividend Policy,"
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS," "DIVIDEND POLICY," and "MANAGEMENT --
Security Ownership of Directors, Executive
Officers and 5% Owners."
10. Recent Sales of Unregistered
Securities......................... Not applicable.
11. Description of Registrant's
Securities to be Registered........ "DESCRIPTION OF CAPITAL STOCK."
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
------------------------------------- ------------------------------------------------
<S> <C> <C>
12. Indemnification of Directors
and Officers....................... "LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS."
13. Financial Statements and
Supplementary Data................. "SUMMARY OF CERTAIN INFORMATION," "RISK
FACTORS," "SELECTED CONSOLIDATED FINANCIAL
INFORMATION," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS."
14. Changes in and Disagreements with Ac-
countants on Accounting and
Financial Disclosure............... Not Applicable.
15. Financial Statements and Exhibits
(a) Financial Statements......... "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS."
(b) Exhibits
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM
---------------------------------------------------------------------
<S> <C>
2.1 Form of Reorganization and Distribution Agreement between the
Registrant and Getty Petroleum Corp.
3.1 Articles of Incorporation of the Registrant as currently in effect.
3.2 Form of Articles of Incorporation of the Registrant, as amended, to
be in effect as of the Record Date.*
3.4 By-Laws of the Registrant.*
10.1 Form of Reorganization and Distribution Agreement between the
Registrant and Getty Petroleum Corp. (filed as Exhibit 2.1).
10.2 Form of Master Lease Agreement between the Registrant and Getty
Petroleum Corp.
10.3 Form of Tax Sharing Agreement between the Registrant and Getty
Petroleum Corp.
10.4 Form of Services Agreement between the Registrant and Getty Petroleum
Corp.
10.5 Form of Trademark License Agreement between Registrant and Getty
Petroleum Corp.
10.6 Form of Registrant's 1996 Stock Option and Award Plan.*
10.7 Form of Registrant's Employee Stock Ownership Plan.
22 List of Subsidiaries of the Registrant.*
99.1 Consents of Prospective Directors of Getty Petroleum Marketing Inc.
</TABLE>
- - ---------------
* To be filed by amendment.
<PAGE> 4
GETTY PETROLEUM CORP.
125 JERICHO TURNPIKE
JERICHO, NEW YORK 11753
January 31, 1997
To the Stockholders of Getty Petroleum Corp:
Getty Petroleum Corp. ("Getty") currently owns all of the outstanding
shares of common stock of Getty Petroleum Marketing Inc. ("Marketing"), which
Getty has formed to hold and operate its petroleum marketing and related
businesses. The enclosed Information Statement contains information regarding
the distribution of the common stock of Marketing to the stockholders of Getty
(the "Distribution"). If you are a holder of Getty common stock on January 31,
1997, the record date for the Distribution, you will receive [one (1)] share of
Marketing common stock for each share of Getty common stock you own on that
date. Holders of Getty shares on the record date will not be required to make
any payment or take any other action in order to receive Marketing shares in the
Distribution. We expect that Marketing stock certificates will be mailed
beginning on or about February 11, 1997.
The principal effect of the Distribution will be to separate Getty's real
estate business from its petroleum marketing business. After the Distribution,
each business will be conducted by a separate, publicly held corporation, and
Getty will change its name to "Getty Realty Corp."
The Board of Directors of Getty, which approved the Distribution on
December 12, 1996, believes that the Distribution will enhance stockholder
values over the long term by allowing Getty and Marketing to concentrate on
their respective businesses, allowing Marketing to establish more meaningful and
effective equity-based employee compensation packages, and providing each
company with greater flexibility in pursuing its independent business
objectives. The petroleum marketing business of Marketing and the real estate
business of Getty have distinct investment, operating and financial
characteristics. The Getty Board of Directors believes that the Distribution
will enable the investment community to analyze more effectively the investment
characteristics, performance and future prospects of each business, enhancing
the likelihood that each will achieve appropriate market recognition of its
value. The Board of Directors of Getty has unanimously approved the
Distribution.
Details of the Distribution and other important information, including a
description of the business and management of Marketing after the Distribution,
are set forth in the accompanying Information Statement, which should be
reviewed carefully by stockholders. Stockholder approval of the Distribution is
not required, and we are not soliciting your proxy.
Stockholders of Getty with inquiries related to the Distribution should
contact John J. Fitteron, Senior Vice President, Treasurer and Chief Financial
Officer of Getty, at (516) 338-6000.
Sincerely yours,
Leo Liebowitz
Chairman and Chief Executive Officer
<PAGE> 5
A REGISTRATION STATEMENT ON FORM 10 RELATING TO COMMON STOCK OF GETTY
PETROLEUM MARKETING INC. HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN
IS SUBJECT TO COMPLETION AND AMENDMENT.
PRELIMINARY INFORMATION STATEMENT DATED NOVEMBER 19, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND AMENDMENT
------------------------------
INFORMATION STATEMENT
------------------------------
GETTY PETROLEUM MARKETING INC.
COMMON STOCK
($.01 PAR VALUE)
This Information Statement is being furnished in connection with a special
distribution (the "Distribution") by Getty Petroleum Corp. ("Getty") of [one
(1)] share of common stock, $.01 par value ("Marketing Common Stock"), of Getty
Petroleum Marketing Inc. ("Marketing") for each share of Getty common stock,
$.10 par value (the "Getty Common Stock"), held of record as of the close of
business on January 31, 1997 (the "Record Date"). The Distribution will result
in 100% of the outstanding shares of Marketing Common Stock being distributed to
the holders of Getty Common Stock. On January 31, 1997 (the "Distribution
Date"), Getty will deliver all of the issued and outstanding shares of Marketing
Common Stock to American Stock Transfer and Trust Company, as distribution agent
(the "Distribution Agent"), which in turn will distribute such shares to the
holders of Getty Common Stock as of the Record Date. It is expected that
certificates representing shares of Marketing Common Stock will be mailed by the
Distribution Agent on or about February 11, 1997. See "INTRODUCTION" and "THE
DISTRIBUTION -- Manner of Effecting the Distribution." Holders of Getty Common
Stock on the Record Date will not be required to make any payment or take any
other action to receive Marketing Common Stock in the Distribution. On the
Distribution Date, Getty will change its name to Getty Realty Corp.
Marketing is a newly formed company that, at the time of the Distribution,
will own the businesses and assets of, and will be responsible for the
obligations and liabilities associated with, the petroleum marketing business
and the New York Mid-Hudson Valley home heating oil business, both of which are
currently conducted by Getty and its subsidiaries. There is no established
public trading market for Marketing Common Stock, although it is expected that a
"when-issued" trading market will develop on or about the Record Date.
Application will be made to list the Marketing Common Stock on the New York
Stock Exchange under the symbol "GPM." See "THE DISTRIBUTION -- Listing and
Trading of the Common Stock."
------------------------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
NO PROXIES ARE BEING SOLICITED, AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AUTHORITY, NOR HAS
SUCH COMMISSION OR OTHER AUTHORITY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------------
The date of this Information Statement is January 31, 1997
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY OF CERTAIN INFORMATION......................................................... 1
SUMMARY CONSOLIDATED FINANCIAL INFORMATION............................................. 4
INTRODUCTION........................................................................... 5
RISK FACTORS........................................................................... 6
THE DISTRIBUTION....................................................................... 9
General.............................................................................. 9
Background and Reasons for the Distribution.......................................... 9
Future Management of Marketing....................................................... 10
Manner of Effecting the Distribution................................................. 10
Listing and Trading of Marketing Common Stock........................................ 10
Federal Income Tax Aspects of the Distribution....................................... 11
Regulatory Approvals................................................................. 11
Reasons For Furnishing the Information Statement..................................... 11
RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE DISTRIBUTION........................ 12
Reorganization and Distribution Agreement............................................ 12
Master Lease Agreement............................................................... 13
Tax Sharing Agreement................................................................ 15
Services Agreement................................................................... 15
Trademark License Agreement.......................................................... 16
Board of Directors and Management.................................................... 16
Financing -- Credit Lines............................................................ 16
SELECTED CONSOLIDATED FINANCIAL INFORMATION............................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 18
DIVIDEND POLICY........................................................................ 21
BUSINESS............................................................................... 22
General.............................................................................. 22
Operating Strategy................................................................... 22
Distribution......................................................................... 23
Product Supply....................................................................... 24
Marketing............................................................................ 24
Competition.......................................................................... 24
Regulation........................................................................... 24
Personnel............................................................................ 25
Legal Proceedings.................................................................... 25
MANAGEMENT............................................................................. 26
EXECUTIVE COMPENSATION................................................................. 29
Stock Option Plans................................................................... 30
Employee Stock Ownership Plan........................................................ 30
CERTAIN TRANSACTIONS................................................................... 31
DESCRIPTION OF CAPITAL STOCK........................................................... 31
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS................................ 33
ADDITIONAL INFORMATION................................................................. 34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................. F-1
</TABLE>
<PAGE> 7
SUMMARY OF CERTAIN INFORMATION
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, which should be read in its entirety.
Unless the context otherwise requires, (i) references in the Information
Statement to Getty and Marketing shall include Getty's and Marketing's
respective subsidiaries, (ii) references in this Information Statement to
Marketing prior to the Distribution Date shall refer to the petroleum marketing
business as operated by Getty, (iii) references in this Information Statement to
Getty refer to Getty Petroleum Corp. prior to the Distribution Date and to Getty
Realty Corp. on and after such date, and (iv) references to a fiscal year are to
the twelve-month period ended January 31 of such year. Certain capitalized terms
used in this summary are defined elsewhere in this Information Statement.
<TABLE>
<S> <C>
Distributing Company............. Getty Petroleum Corp., a Delaware corporation ("Getty").
On the Distribution Date, Getty will change its name to
Getty Realty Corp. ("Realty").
Distributed Company.............. Getty Petroleum Marketing Inc., a Maryland corporation
("Marketing"), which on the Distribution Date will own the
petroleum marketing business and the New York Mid-Hudson
Valley home heating oil business, both previously
conducted by Getty.
The Distribution................. On the Distribution Date, all of the outstanding shares of
Marketing Common Stock will be delivered to the
Distribution Agent. On or about February 11, 1997, the
Distribution Agent will mail stock certificates
representing shares of Marketing Common Stock to holders
of record of Getty Common Stock as of the Record Date. See
"THE DISTRIBUTION -- Manner of Effecting the
Distribution."
Record Date...................... Close of business on January 31, 1997 (the "Record Date").
Distribution Date................ Close of business on January 31, 1997 (the "Distribution
Date").
Distribution Ratio............... Each Getty stockholder will receive [one] share of common
stock, $.01 par value, of Marketing (the "Marketing Common
Stock") for each share of common stock, $.10 par value, of
Getty (the "Getty Common Stock") owned on the Record Date.
Shares to be Distributed......... Based on the number of shares of Getty Common Stock
outstanding on October 1, 1996, approximately 12,675,000
shares of Marketing Common Stock will be issued to Getty
stockholders in the Distribution. The shares to be
distributed to Getty stockholders, together with
approximately 667,000 shares to be issued to the Getty
Petroleum Marketing Employee Stock Ownership Plan (the
"Marketing ESOP"), will constitute all of the shares of
Marketing Common Stock outstanding immediately after the
Distribution.
Distribution Agent............... American Stock Transfer and Trust Company (the
"Distribution Agent").
Fractional Share Interests....... Fractional shares will not be distributed. Any fractional
shares will be aggregated and sold in the public market by
the Distribution Agent and the aggregate cash proceeds
will be distributed ratably to those shareowners entitled
to fractional interests. See "THE DISTRIBUTION -- Manner
of Effecting the Distribution."
No Payment Required.............. Getty stockholders will not be required to make any
payment or to take any other action to receive their
portion of the Distribution. See "THE DISTRIBUTION --
Manner of Effecting the Distribution."
</TABLE>
1
<PAGE> 8
<TABLE>
<S> <C>
Conditions to the Distribution... The Distribution is conditioned upon, among other things,
declaration of the special dividend by the Board of
Directors of Getty (the "Getty Board") and a private
letter ruling from the Internal Revenue Service (the
"IRS") in form and substance satisfactory to the Board of
Directors of Getty (the "Getty Board"). See "-- Tax
Consequences." The private letter ruling was issued by the
IRS on September 11, 1996. The Getty Board has reserved
the right to waive any conditions to the Distribution or,
even if the conditions to the Distribution are satisfied,
to abandon, defer or modify the Distribution at any time
prior to the Distribution Date. See "INTRODUCTION" and
"THE DISTRIBUTION -- Manner of Effecting the
Distribution."
Reasons for the Distribution..... The Distribution will formally separate Getty's petroleum
marketing business from its real estate business. After
the Distribution, each business will be conducted by a
separate, publicly held corporation. The Getty Board
believes that the Distribution will (i) enable the
management of each company to concentrate its attention
and financial resources on the core businesses of such
company, (ii) facilitate the adoption of a broad-based
equity compensation plan for Marketing whereby Marketing
can more efficiently and meaningfully incentivize its
employees and (iii) enhance stockholder value over the
long term by allowing the investment community to analyze
more effectively the investment characteristics,
performance and future prospects of the two distinct
business groups. The Getty Board also believes that the
Distribution will provide each company with greater
flexibility in pursuing its independent business
objectives. See "THE DISTRIBUTION -- Background and
Reasons for the Distribution."
Tax Consequences................. The Getty Board has conditioned the Distribution on
receipt of a private letter ruling from the IRS to the
effect, among other things, that receipt of shares of
Marketing Common Stock by holders of Getty Common Stock
will be tax free. On September 11, 1996, the IRS issued a
private letter ruling (the "Tax Ruling") confirming the
foregoing, as well as to confirm the treatment, for
Federal income tax purposes, of certain other matters
pertaining to the Distribution.
Trading Market................... There is currently no public market for Marketing's Common
Stock. Application will be made to list the Marketing
Common Stock on the New York Stock Exchange. See "THE
DISTRIBUTION -- Listing and Trading of Marketing Common
Stock" and "RISK FACTORS -- No Prior Market for Marketing
Common Stock."
Marketing........................ Marketing was incorporated under the laws of Maryland on
October 1, 1996. Following the Distribution Date,
Marketing will own and operate the petroleum marketing
business and the New York Mid-Hudson Valley home heating
oil business, both currently owned and operated by Getty.
See "BUSINESS."
Principal Office of Marketing.... The principal executive offices of Marketing are located
at 125 Jericho Turnpike, Jericho, New York 11753.
Board of Directors............... Getty, as the sole stockholder of Marketing, has elected
the following persons to constitute the Board of Directors
of Marketing as of the Distribution Date: Messrs. Leo
Liebowitz, Milton Safenowitz, Ronald E. Hall, Richard E.
Montag and [ ]. See "MANAGEMENT."
</TABLE>
2
<PAGE> 9
<TABLE>
<S> <C>
Risk Factors..................... See "RISK FACTORS" for a discussion of factors that should
be considered in connection with the Marketing Common
Stock received in the Distribution.
Preliminary Transactions......... Prior to the Distribution, Getty intends to transfer to
Marketing the stock of certain subsidiaries engaged in the
petroleum marketing and New York Mid-Hudson Valley home
heating oil businesses (collectively, the "Transferred
Subsidiaries"), as well as certain other assets associated
with petroleum marketing operations.
Financing........................ Prior to the Distribution, Marketing will establish
facilities for letters of credit and lines of credit. See
"RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE
DISTRIBUTION -- Financing -- Credit Lines."
</TABLE>
3
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information of Marketing
should be read in conjunction with Marketing's consolidated financial statements
and the notes thereto included elsewhere in this Information Statement. The
following consolidated financial information relates to the business of
Marketing as it was operated as part of Getty and is derived from the
consolidated historical financial statements of Getty. The consolidated
financial statements of Marketing may not reflect the financial position or
results of operations that would have been obtained had Marketing been a
separate, publicly held company during such periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY
FISCAL YEARS ENDED JANUARY 31, 31,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Revenues............................. $1,121,176 $906,656 $776,285 $751,889 $791,194 $382,763 $425,202
Earnings (loss) before interest,
taxes, depreciation and
amortization (EBITDA)(a)........... (12,820) 470 14,762 7,947 19,812 6,080 9,183
Net earnings (loss)(a)............... (16,658) (7,303) 1,818 (2,434) 3,664(c) (499)(c) 1,287
Pro forma net earnings per
share(a)(b)........................ $ 0.29(c) $ 0.10
BALANCE SHEET DATA AT END OF PERIOD:
Total assets......................... $135,114 $132,929 $130,465 $136,285
Working capital (deficit)............ (5,204) (292) (5,805) (211)
Stockholders' equity................. $ 55,078 $ 58,742 $ 54,579 $ 60,029
</TABLE>
(a) Commencing February 1, 1997, Marketing will recognize a charge to operating
results over a five-year period relating to the Marketing ESOP. Such charge
will be based on the value of the Marketing Common Stock in the future and,
as such, is not currently determinable. See Note 9 to the consolidated
financial statements.
(b) Pro forma net earnings per share is computed by dividing net earnings by the
weighted average number of shares of Marketing Common Stock that would have
been outstanding during the period had the Distribution taken place as of
the beginning of such period.
(c) Includes charge of $282, or $.02 per share, from the cumulative effect of
adopting Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
4
<PAGE> 11
INTRODUCTION
The Board of Directors of Getty Petroleum Corp., a Delaware corporation
("Getty"), has declared a special distribution (the "Distribution") of [one]
share of common stock, $.01 par value ("Marketing Common Stock"), of Getty
Petroleum Marketing Inc., a Maryland corporation ("Marketing"), for each share
of Getty common stock, $.10 par value ("Getty Common Stock"), held of record as
of the close of business on January 31, 1997 (the "Record Date"). Getty will
effect the Distribution on January 31, 1997 (the "Distribution Date") by
delivering all of the issued and outstanding shares of Marketing Common Stock to
American Stock Transfer and Trust Company, as the distribution agent (the
"Distribution Agent"), for transfer and distribution to the holders of record of
Getty Common Stock as of the Record Date. It is expected that certificates
representing shares of Marketing Common Stock will be mailed to Getty
stockholders beginning on or about February 11, 1997.
The principal effect of the Distribution will be to separate Getty's
petroleum marketing business from its real estate business. After the
Distribution, each business will be conducted by a separate, publicly held
corporation. Marketing will own and operate the petroleum marketing business and
own the New York Mid-Hudson Valley home heating oil business operated by its
subsidiary, Kingston Oil Supply Corp. ("KOSCO"), and Getty will retain and
continue to own and operate the real estate business and the Pennsylvania and
Maryland home heating oil business. See "BUSINESS." The Distribution is intended
to enhance stockholder value over the long term by allowing Getty and Marketing
to concentrate on their respective businesses, by facilitating the adoption of a
broad-based equity compensation plan for Marketing through which Marketing can
more efficiently and meaningfully incentivize its employees and by enabling the
investment community to analyze more effectively the investment characteristics,
performance and future prospects of the two distinct business groups. The
Distribution is also intended to provide each company with greater flexibility
in pursuing its independent business objectives.
For a description of risk factors in connection with the Distribution and
the related transactions described in this Information Statement, see "RISK
FACTORS."
Marketing was formed as a subsidiary of Getty on October 1, 1996. There has
been no trading market in Marketing Common Stock. However, application will be
made to list the Marketing Common Stock on the New York Stock Exchange (the
"NYSE") under the symbol "GPM," and a "when-issued" trading market is expected
to develop on or about the Record Date. See "THE DISTRIBUTION -- Listing and
Trading of Marketing Common Stock" and "RISK FACTORS -- No Prior Market for
Marketing Common Stock."
In consideration for Getty's transfer to Marketing of the petroleum
marketing business and the New York Mid-Hudson Valley home heating oil business,
Marketing issued to Getty all of the outstanding shares of Marketing Common
Stock and assumed certain obligations and liabilities relating to the
transferred businesses. See "THE DISTRIBUTION."
The Distribution does not require stockholder approval and the Getty Board
may abandon, defer or modify the Distribution prior to the Distribution Date.
Marketing stockholders will not be entitled to appraisal rights in connection
with the Distribution.
The principal executive offices of Marketing are located at 125 Jericho
Turnpike, Jericho, New York 11753; telephone number (516) 338-6000.
5
<PAGE> 12
RISK FACTORS
Stockholders should note the following risk factors, as well as the other
information contained in this Information Statement.
VOLATILITY OF MARKETING MARGINS
Marketing's earnings and cash flow from operations depend upon rental
income from dealers and the sale of refined petroleum products at marketing
margins sufficient to cover fixed and variable expenses. Marketing has no crude
oil reserves or refining capacity. Marketing has entered into agreements with
Northeast and Mid-Atlantic suppliers for the purchase of refined petroleum
products. Substantially all of Marketing's supply contracts are for a term of
one year.
Historically, petroleum prices have been subject to extreme volatility and
there have been periodic shortages followed by periods of oversupply. A large,
rapid increase in petroleum prices would adversely affect Marketing's
profitability if Marketing's sales prices were not similarly increased or if
automobile consumption of gasoline were to significantly decline. No assurance
can be given that petroleum prices will not fluctuate greatly or that petroleum
products will continue to be available from multiple sources or available at all
in times of shortage. Management believes, however, that Marketing will continue
to have the ability to acquire petroleum products on competitive terms for the
foreseeable future due in part to the large volume of its purchases and its
storage capacity at its distribution terminals.
Petroleum products are commodities whose prices depend on numerous factors
beyond Marketing's control that affect the supply of and demand for petroleum
products, such as changes in domestic and foreign economies, political affairs
and production levels, the availability of imported oil, the marketing of
competitive fuels, the extent of government regulation and expected and actual
weather conditions. The prices paid by Marketing for its products are affected
by national and regional factors, such as petroleum pipeline capacity, local
market conditions and competition and the level of operations of refineries. A
large, rapid increase in refined petroleum prices would adversely affect
Marketing's operating margins if the increased cost of petroleum products could
not be passed on to Marketing's customers. Although Management believes that
Marketing will continue to have the ability to acquire petroleum products on
competitive terms for the foreseeable future due in part to the large volume of
its purchases and its substantial storage capacity at its distribution
terminals, no assurance can be given that Marketing will be able to negotiate
favorable prices for petroleum products or that adequate supplies will be
available to it during times of shortages. In recent years, prices of refined
products have fluctuated substantially. Accordingly, Marketing's earnings are
subject to substantial fluctuations, as reflected in Marketing's financial
statements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS."
PETROLEUM MARKETING IS A MATURE INDUSTRY
The petroleum marketing industry is a mature one, with only limited growth
in total demand for the product foreseen. Marketing expects the overall demand
for petroleum products to grow about 2% annually over the next several years,
with year to year industry volumes being impacted primarily by travel patterns.
Therefore, Marketing's ability to grow within the industry depends on its
ability to acquire new distributors, open new retail outlets, refurbish and
expand existing outlets and acquire new customers through effective marketing.
There can be no assurance that in the future Marketing will be able to (i) find
attractive acquisition candidates and acquire such candidates on economically
acceptable terms, or (ii) increase same service station sales through
refurbished or expanded service stations or through improved marketing.
ENERGY EFFICIENCY AND TECHNOLOGY TRENDS MAY AFFECT DEMAND FOR PETROLEUM PRODUCTS
Retail customers use petroleum primarily as a motor fuel, and Marketing's
sales therefore depend in part on the level of motor fuel consumption. Marketing
is not able to predict the effect that future conservation measures,
technological advances in transportation or the use of alternative fuels might
have on Marketing's operations.
6
<PAGE> 13
COMPETITION
Marketing believes that, based on the number of locations served, it is
currently one of the largest independent marketers of petroleum products in the
United States. Petroleum marketing is highly competitive, and Marketing competes
with a substantial number of integrated oil companies and other companies who
may have greater assets, financial resources and sales. Accordingly, Marketing's
earnings may be adversely affected by the marketing policies of such companies,
which may have greater flexibility to withstand price changes than Marketing.
COMPETITION AND VOLATILITY IN THE HOME HEATING OIL BUSINESS
The business of marketing and selling home heating oil has historically
been an intensely competitive one, due not only to the presence of other home
heating oil retailers and suppliers in the New York Mid-Hudson Valley area, but
also to the availability of other types of home heating fuels, such as natural
gas. The profitability of the home heating oil business is also subject to
fluctuations in the regional climate, as the demand for home heating oil is
generally linked to the severity of any particular winter. Furthermore, a large,
rapid increase in the cost of home heating oil prices would adversely affect
Marketing's profitability if Marketing's sales prices were not similarly
increased or if consumption of home heating oil were to significantly decline as
a result of such price increases. The price of home heating oil fluctuates
widely, and no assurances can be given with respect to consumers' continued use
of home heating oil in the New York Mid-Hudson Valley, the level of consumption
of home heating oil in this region during any given winter season, or the
ability of Marketing to negotiate favorable prices for home heating oil from its
suppliers.
REGULATION
The petroleum products industry is subject to numerous federal, state and
local laws and regulations. Compliance with those laws and regulations has not
had and is not expected to have a material effect on the competitive position of
Marketing.
Marketing is not a refiner and, therefore, is not subject to the Petroleum
Marketing Practices Act ("PMPA"), a federal law, with respect to its Getty(R)
branded stations. However, pursuant to Marketing's agreements with certain of
its Getty dealers and distributors, Marketing has voluntarily extended to them
coverage under PMPA. Under PMPA, Marketing complies with certain notice
requirements and extends nondiscriminatory contracts to certain of its Getty
licensed dealers and distributors, whose franchises cannot be terminated or not
renewed unless certain PMPA imposed prerequisites are met as provided in
Marketing's agreements. Although a licensed dealer or distributor who is covered
by PMPA is not required to renew his or her franchise, because Marketing has
agreed to comply with PMPA with respect to such dealers and distributors,
Marketing is required to renew the franchises of such dealers and distributors
who elect to renew. However, franchisees may be terminated or not renewed for
violating certain provisions of Marketing's agreements as permitted under PMPA.
In addition, if Marketing elects to sell any service station subject to PMPA,
Marketing must, in accordance with PMPA, offer the franchisee the right of first
refusal to purchase such service station at the price and upon terms at which
Marketing elects to sell.
In addition, Marketing's operations are governed by numerous federal, state
and local environmental laws and regulations affecting all aspects of its
operations. Among these laws are (i) requirements to dispense reformulated
gasoline in accordance with the Clean Air Act, (ii) restrictions imposed on the
amount of hydrocarbon vapors which may enter the air at Marketing's terminals
and service stations, (iii) OSHA and other laws regulating terminal employee
exposure to benzene and other hazardous materials, (iv) requirements to report
to governmental authorities discharges of petroleum products into the
environment and, under certain circumstances, to remediate the soil and/or
groundwater contamination pursuant to governmental order and directive, (v)
requirements to remove and replace underground storage tanks which have exceeded
governmental-mandated age limitations and (vi) the requirement to provide a
certificate of financial responsibility with respect to claims relating to
underground storage tank failures.
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
Marketing does not have an operating history as an independent public
company, and there is no assurance that it will be profitable as a stand-alone
company. The Marketing Business has historically relied
7
<PAGE> 14
on Getty for various financial and administrative services. After the
Distribution, Marketing will maintain its own lines of credit, banking
relationships and administrative functions.
DIVIDEND POLICY
Marketing's dividend policy will be established by the Board of Directors
of Marketing (the "Marketing Board") from time to time based on the results of
operations and financial condition of Marketing and such other business
considerations as the Marketing Board considers relevant. Subject to the
foregoing, Marketing presently intends to pay cash dividends. However, there can
be no assurance that any dividends will be paid in the future.
POTENTIAL CONFLICTS
The post-closing relationships between Getty and Marketing may cause the
interests of such companies to conflict. Potential sources of such conflict
include (i) Marketing's leasing of substantially all of its service station and
terminal properties from Getty pursuant to an agreement that allows Getty to
terminate Marketing's rights with respect to such properties upon the occurrence
of certain events of default, (ii) Marketing's licensing of the Getty trademark
from Getty under an agreement that terminates upon the occurrence of certain
events of default and that allows Getty to license the Getty trademark for use
by third parties on a non-exclusive basis in states in which Marketing is not
then doing business and (iii) Getty's retention of and agreement to indemnify
Marketing with respect to all scheduled pre-closing environmental liabilities
and obligations, all scheduled future upgrades (the "Upgrades") necessary to
cause underground storage tanks (such tanks, including related piping,
underground pumps, wiring and monitoring devices, the "USTs") to conform to the
1998 federal standards for USTs (the "1998 Standards"), and all environmental
liabilities and obligations arising out of discharges with respect to Properties
(as defined below) containing USTs that have not been upgraded to meet the 1998
Standards ("Nonupgraded USTs") that are discovered prior to the date such USTs
are upgraded to meet the 1998 Standards, with Marketing being responsible for
and indemnifying Getty with respect to all other environmental obligations and
liabilities. See "RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE
DISTRIBUTION -- Master Lease Agreement" and "-- Trademark License Agreement." In
addition, Mr. Leo Liebowitz will serve as a director, chief executive officer
and Chairman of Marketing and as director, chief executive officer and president
of Getty, and Mr. Milton Safenowitz will also serve as a director of Marketing
and of Getty. Messrs. Liebowitz and Safenowitz will own shares in both companies
following the Distribution. In addition, all other present directors and
officers of Getty will own shares and have options to purchase shares of both
companies following the Distribution.
NO PRIOR MARKET FOR MARKETING COMMON STOCK
There has been no prior trading market for Marketing Common Stock and there
can be no assurance as to the prices at which Marketing Common Stock will trade
before or after the Distribution Date. Until Marketing Common stock is fully
distributed and an orderly market develops, the prices at which Marketing Common
Stock trades may fluctuate significantly. Prices for Marketing Common Stock will
be determined in the trading markets and may be influenced by many factors,
including the depth and liquidity of the market for Marketing Common Stock,
investor perceptions of Marketing and its business, Marketing's dividend policy,
and general economic and market conditions. See "THE DISTRIBUTION -- Listing and
Trading of Marketing Common Stock."
EFFECTS ON GETTY COMMON STOCK
After the Distribution, Getty Common Stock will continue to be listed on
the NYSE, and traded on certain other exchanges. As a result of the
Distribution, the trading prices of Getty Common Stock are likely to be lower
than the trading prices of Getty Common Stock immediately prior to the
Distribution. The aggregate trading prices of Getty Common Stock and Marketing
Common Stock after the Distribution may be less than, equal to or greater than
the trading prices of Getty Common Stock prior to the Distribution. In addition,
until the market has fully analyzed the operations of Getty without the
Marketing Business, the prices at which the Getty Common Stock trades may
fluctuate significantly.
8
<PAGE> 15
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Getty has received a Tax Ruling from the IRS to the effect that, among
other things, for United States federal income tax purposes the Distribution
will be tax-free under Section 355 of the Code. See "THE DISTRIBUTION -- Federal
Income Tax Aspects of the Distribution." The continuing validity of the Tax
Ruling is subject to certain factual representations and assumptions. Marketing
is not aware of any facts or circumstances which should cause such
representations and assumptions to be untrue. The Tax Sharing Agreement (as
defined below) provides that neither Getty nor Marketing is to take any action
inconsistent with, nor fail to take any action required by, the request for the
Tax Ruling or the Tax Ruling unless required to do so by law or permitted to do
so by the prior written consent of the other party or, in certain circumstances,
a supplemental ruling. Getty and Marketing have agreed to indemnify each other
with respect to any tax liability resulting from their respective failures to
comply with such provisions. See "RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER
THE DISTRIBUTION -- Tax Sharing Agreement."
THE DISTRIBUTION
GENERAL
On the Distribution Date, Getty intends to distribute all of the
outstanding shares of Marketing Common Stock to holders of record on the Record
Date of Getty Common Stock. Each holder of Getty Common Stock will receive [one]
share of Marketing Common Stock for each share of Getty Common Stock held on the
Record Date. Holders of Getty Common Stock on the Record Date will not be
required to make any payment or to take any other action to receive their
portion of the Distribution.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
The Board of Directors of Getty has determined, for the reasons set forth
below, to separate Getty into two publicly held companies: Marketing, a newly
formed corporation which will own and operate the petroleum marketing business
and the New York Mid-Hudson Valley home heating oil business, and Getty, which
will continue to own and operate the real estate business and the home heating
oil business in Pennsylvania and Maryland.
The Distribution is intended to enhance stockholder values over the long
term and to facilitate the adoption of a broad-based equity compensation plan
for Marketing whereby Marketing can more efficiently and meaningfully
incentivize its employees. The petroleum marketing business of Marketing and the
real estate business of Getty have distinct investment, operating and financial
characteristics. The Getty Board of Directors believes that the Distribution
will enable the investment community to analyze more effectively the investment
characteristics, performance and future prospects of each business, enhancing
the likelihood that each will achieve appropriate market recognition of its
value. The Getty Board of Directors also believes that the Distribution will
allow Getty and Marketing to concentrate on their respective businesses, allow
Marketing to establish more meaningful and effective equity-based employee
compensation packages, and provide each company with greater flexibility in
pursuing its independent business objectives.
A stockholder will have the same ownership interest in both Getty and
Marketing (except for dilution caused by the issuance of Marketing Common Stock
to the Marketing ESOP) after the Distribution as he or she had in Getty before
the Distribution. However, as a result of the Distribution, current stockholders
and prospective investors will have the ability to make separate investment
decisions regarding each business.
The Distribution will be reflected in Getty's financial statements as a
charge against stockholders' equity. The pro forma consolidated effect on Getty
of the Distribution, if it had occurred on July 31, 1996, would have been to
reduce Getty's assets by approximately $136.3 million and stockholders' equity
by approximately $60.0 million.
9
<PAGE> 16
FUTURE MANAGEMENT OF MARKETING
Following the Distribution, it is presently intended that Marketing's
petroleum marketing business will continue to be operated with substantially the
same operating management and personnel as at present. See "MANAGEMENT."
MANNER OF EFFECTING THE DISTRIBUTION
On the Distribution Date, all of the outstanding shares of Marketing Common
Stock will be delivered to the Distribution Agent for transfer and distribution
to the holders of record of Getty Common Stock as of the Record Date. It is
expected that certificates representing shares of Marketing Common Stock will be
mailed by the Distribution Agent to Getty stockholders beginning on or about
February 11, 1997.
The Board of Directors of Getty has reserved the right to abandon, defer or
modify the Distribution and the related transactions described in this
Information Statement at any time prior to 11:59 p.m., New York time, on the day
immediately preceding the Distribution Date.
No holder of Getty Common Stock will be required to pay any cash or other
consideration for the shares of Marketing Common Stock received in the
Distribution or surrender or exchange shares of Getty Common Stock in order to
receive Marketing Common Stock. The Distribution will not affect the number of,
or the rights attaching to, outstanding shares of Getty Common Stock. All shares
of Marketing Common Stock will be fully paid and non-assessable and the holders
of those shares will not be entitled to preemptive rights. See "DESCRIPTION OF
CAPITAL STOCK -- Common Stock."
No certificates or scrip representing fractional shares of Marketing Common
Stock will be issued to Getty stockholders as part of the Distribution. If, as a
result of the Distribution, any Getty stockholder would own fractional shares of
Marketing Common Stock, the Distribution Agent will aggregate such fractional
shares into whole shares and sell them in the open market at then prevailing
prices on behalf of such stockholders, and such stockholders will receive
instead a cash payment in the amount of their pro rata share of the sale
proceeds. Such sales are expected to be made on, or as soon as practicable
after, the Distribution Date.
LISTING AND TRADING OF MARKETING COMMON STOCK
There is not currently a public market for Marketing Common Stock. Prices
at which Marketing Common Stock may trade prior to the Distribution on a
"when-issued" basis or after the Distribution cannot be predicted. Until the
Marketing Common Stock is fully distributed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which Marketing Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
depth and liquidity of the market for Marketing Common Stock, investor
perception of Marketing and the industries in which Marketing participates,
Marketing's dividend policy and general economic and market conditions. See
"RISK FACTORS -- No Prior Market for Marketing Common Stock."
Marketing will apply to list the Marketing Common Stock on the New York
Stock Exchange. Marketing initially will have approximately 3,100 stockholders
of record based upon the number of stockholders of record of Getty as of October
1, 1996. For certain information regarding options to purchase Marketing Common
Stock that will be outstanding after the Distribution, see "RELATIONSHIP BETWEEN
MARKETING AND GETTY AFTER THE DISTRIBUTION -- Reorganization and Distribution
Agreement."
Getty filed a request for a no-action letter with the Staff of the
Securities and Exchange Commission (the "Commission Staff") on May 22, 1996,
setting forth, among other things, Getty's view that the Distribution of
Marketing Common Stock does not require registration under the Securities Act of
1933, as amended (the "Securities Act"). Assuming receipt of a favorable
decision from the Commission Staff, it is Marketing's belief that Marketing
Common Stock distributed to Getty's stockholders in the Distribution will be
freely transferable, except for securities received by persons who may be deemed
to be "affiliates" of Getty within the meaning of Rule 144 of the Securities
Act, which persons may not publicly offer or sell Marketing Common Stock
received in connection with the Distribution except pursuant to a registration
statement under the Securities Act or pursuant to Rule 144 (without regard to
holding period requirements thereunder).
10
<PAGE> 17
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
On September 11, 1996, the IRS issued a ruling to Getty providing, among
other things, that the Distribution will qualify as a tax free spin-off under
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), and
that, for Federal income tax purposes:
(1) No gain or loss will be recognized by (and no amount will be
included in the income of) a holder of Getty Common Stock upon the receipt
of Marketing Common Stock in the Distribution.
(2) The aggregate basis of the Getty Common Stock and the Marketing
Common Stock in the hands of the stockholders of Getty immediately after
the Distribution will be the same as the aggregate basis of the Getty
Common Stock held immediately before the Distribution, allocated in
proportion to the fair market value of each.
(3) Any stockholder of Getty receiving cash in lieu of fractional
Marketing Common Stock will recognize gain or loss equal to the difference
between the amount of cash received and the basis such stockholder would
have had in the fractional Marketing Common Stock.
(4) The holding period of the Marketing Common Stock received by the
stockholders of Getty will include the holding period of Getty Common Stock
with respect to which the Distribution will be made, provided that such
stockholder held the Getty Common Stock as a capital asset on the
Distribution Date.
(5) No gain or loss will be recognized by Getty upon the
Distribution.
The summary of federal income tax consequences set forth above does not
purport to cover all federal income tax consequences that may apply to all
categories of stockholders. All stockholders should consult their own tax
advisors regarding the particular federal, foreign, state and local tax
consequences of the Distribution to such stockholders.
For a description of the Tax Sharing Agreement pursuant to which Getty and
Marketing have provided for various tax matters, see "RELATIONSHIP BETWEEN
MARKETING AND GETTY AFTER THE DISTRIBUTION -- Tax Sharing Agreement."
REGULATORY APPROVALS
Marketing does not believe that any material federal or state regulatory
approvals will be necessary in connection with the Distribution other than motor
fuel and terminal licenses and permits that have been obtained or will have been
obtained prior to the Distribution or that Marketing expects to receive in due
course thereafter (and for which temporary arrangements have been made).
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Getty solely to provide
information to Getty stockholders who will receive Marketing Common Stock in the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of Getty or Marketing. The
information contained in this Information Statement is believed by Getty and
Marketing to be accurate as of the date set forth on its cover. Changes may
occur after that date, and neither Getty nor Marketing will update the
information except in the normal course of their respective public disclosure
practices.
11
<PAGE> 18
RELATIONSHIP BETWEEN GETTY AND MARKETING
AFTER THE DISTRIBUTION
For purposes of governing certain relationships between Getty and Marketing
after the Distribution and providing for an orderly transition, Getty and
Marketing have entered into or will enter into various agreements, including
those described below. Copies of certain of the agreements are included as
exhibits to Marketing's Registration Statement on Form 10 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), relating to the Marketing
Common Stock, and the following discussions with respect to such agreements are
qualified in their entirety by reference to the agreements as filed.
REORGANIZATION AND DISTRIBUTION AGREEMENT
Getty and Marketing have entered into a Reorganization and Distribution
Agreement (the "Distribution Agreement"), which provides for, among other
things, the principal corporate transactions required to effect the
Distribution, the transfer to Marketing of the assets of the petroleum marketing
business and the stock of the Transferred Subsidiaries, the division between
Getty and Marketing of certain liabilities and obligations, the distribution by
Getty of all outstanding shares of Marketing Common Stock to Getty stockholders
and certain other agreements governing the relationship between Getty and
Marketing after the Distribution.
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of obligations and liabilities and
cross-indemnities designed to allocate, effective as of the Distribution Date,
financial responsibility for the obligations and liabilities arising out of or
in connection with the Marketing business to Marketing and its subsidiaries, and
financial responsibility for the obligations and liabilities arising out of or
in connection with the real estate business to Getty and its subsidiaries;
provided, however, that Getty shall retain all liabilities relating to (i)
scheduled pre-closing environmental liabilities and obligations, (ii) scheduled
future Upgrades for Nonupgraded USTs, and (iii) environmental liabilities and
obligations arising out of discharges with respect to Properties containing
Nonupgraded USTs that are discovered prior to the date such USTs are upgraded to
meet the 1998 Standards. Marketing will be responsible for all other
environmental liabilities and obligations relating to USTs or otherwise. The
agreements to be executed in connection with the Distribution Agreement set
forth certain specific allocations of other liabilities between Getty and
Marketing. See -- "Tax Sharing Agreement" below.
Under the Distribution Agreement, Getty will retain all cash and equivalent
balances of Getty and its subsidiaries, as of the close of business on the
Distribution Date, except for an amount sufficient to provide Marketing with net
working capital of approximately $1.1 million, which amount will be transferred
to Marketing.
To avoid adversely affecting the intended tax consequences of the
Distribution and related transactions, the Distribution Agreement provides that,
until the second anniversary of the Distribution Date, Marketing must obtain an
opinion of counsel reasonably satisfactory to Getty or a supplemental tax ruling
before Marketing may make certain material dispositions of its assets, engage in
certain repurchases of Marketing capital stock or cease the active, independent
conduct of its business with its own employees. Marketing does not expect these
limitations to inhibit significantly its operations, growth opportunities or
ability to respond to unanticipated developments. Getty must also obtain an
opinion of counsel reasonably satisfactory to Marketing or a supplemental tax
ruling before Getty may engage in similar transactions during such period. See
"RISK FACTORS -- Certain Federal Income Tax Considerations." Getty does not
expect these limitations to inhibit significantly its operations, growth
opportunities or ability to respond to unanticipated developments.
The Distribution Agreement also provides that each of Marketing and Getty
will be granted access to certain records and information in the possession of
the other, and requires the retention by each of Marketing and Getty for a
period of ten years following the Distribution of all such information in its
possession, and thereafter requires that each party give the other prior notice
of its intention to dispose of such information. In addition, the Distribution
Agreement provides for the allocation of shared privileges with respect to
certain information (including, for example, the attorney-client privilege) and
requires each of Marketing and Getty to obtain the consent of the other prior to
waiving any shared privilege.
12
<PAGE> 19
The Distribution Agreement also provides for the allocation of certain
responsibilities with respect to employee compensation and benefits and labor
matters. The Distribution Agreement provides that, effective as of the
Distribution Date, Marketing will, or will cause one or more of its subsidiaries
to, assume or retain, as the case may be, all obligations and liabilities of
Getty, to the extent unpaid as of the Distribution Date, under employee benefit
plans, policies, arrangements, contracts and agreements, including collective
bargaining agreements, with respect to employees who, on or after the
Distribution Date, will be employees of Marketing or its subsidiaries. The
Distribution Agreement also provides that, effective as of the Distribution
Date, Getty will, or will cause one or more of its subsidiaries to, assume or
retain, as the case may be, all obligations and liabilities of Getty, to the
extent unpaid as of the Distribution Date, under employee benefit plans,
policies, arrangements, contracts and agreements, including collective
bargaining agreements, with respect to employees who on or after the
Distribution Date will be employees of Getty.
In addition, the Distribution Agreement provides that, immediately prior to
the Distribution, each current holder of an option to acquire shares of Getty
pursuant to Getty's 1985, 1988 or 1991 Stock Option Plans will receive, in
exchange therefor, two separately exercisable options: one to purchase shares of
Getty Common Stock (a "Getty Option") and one to purchase Marketing Common Stock
(a "Marketing Option"), each exercisable for the same number of shares and
containing terms substantially equivalent in the aggregate to those of such
holder's pre-Distribution option. The exercise price for each Getty Option and
Marketing Option will be set so as to preserve the Aggregate Spread (as defined
below) in value attributed to the options currently held by holders, such
determination to be based on the average of the closing trading prices over a
designated 10 trading-day period with respect to Getty Common Stock and
Marketing Common Stock. The "Aggregate Spread" of an option is an amount
representing the difference between the exercise price of an option and the
price of a share of Getty Common Stock immediately prior to the Distribution
multiplied by the number of shares underlying such option.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to the party for whose benefit the expenses are
incurred.
MASTER LEASE AGREEMENT
Getty and Marketing have entered into a Master Lease Agreement (the "Master
Lease") under which service station and convenience store properties and
terminal facilities (the "Properties") are leased or subleased by Getty as the
Lessor to Marketing as the Lessee. The Properties will be used for gasoline
sales, convenience stores, and other complementary lawful uses in conjunction
with the sale of petroleum products or convenience store items, except when the
provisions of any underlying lease are more restrictive. Marketing may sublet
any property, provided that Marketing remains fully responsible for a
sublessee's performance and, except in cases of economic abandonment (as
described below), a sublease for uses other than those described above will
require Getty's consent. Except for certain environmental and UST obligations
described below, the Master Lease will be a "triple-net" lease, with Marketing
assuming responsibility for the cost of all taxes, maintenance, repairs,
insurance and other operating expenses.
13
<PAGE> 20
The Properties leased or subleased by Getty to Marketing pursuant to the
Master Lease are as follows:
<TABLE>
<CAPTION>
NUMBER OF
DISTRIBUTION TERMINATION DATE UNDER
NUMBER OF TERMINALS AND THE MASTER LEASE (NOT
SERVICE STATIONS BULK PLANTS INCLUDING RENEWALS)
---------------- --------------- ------------------------
<S> <C> <C> <C>
Owned by Getty and Leased to Marketing........ 358 2 January 31, 2012
Leased by Getty from Power Test Realty Company
Limited Partnership* and
Subleased to Marketing...................... 265 5 January 31, 2012
Leased by Getty from Third Parties and
Subleased to Marketing...................... 414 3 Various dates coincident
with the termination
dates of the applicable
underlying leases, but
not later than January
31, 2012
----- --
1,037 10
</TABLE>
- - ---------------
*See "CERTAIN TRANSACTIONS."
Rent for each of the Properties has been set using the fair market value of
each such Property. In addition, rent for each Property will increase at the end
of each five-year period by the net increase in the Consumer Price Index for all
items in the Northeast Region for such five-year period, such increase not to
exceed fifteen percent (15%). Rents for all Properties are payable in advance on
the first day of the month. The initial term of the Master Lease is (i) fifteen
years with respect to Properties owned in fee by Getty and leased to Marketing
and Properties leased by Getty from Power Test Realty Company Limited
Partnership and subleased to Marketing and (ii) the length of time remaining
under underlying lease terms (which ranges from one to fifteen years under the
Master Lease) with respect to other Properties leased by Getty from other third
parties and subleased to Marketing. See "CERTAIN TRANSACTIONS." The Master Lease
terms for each category of Properties described above also include four ten-year
renewal options (or, with respect to category (ii), such shorter period as the
underlying lease may provide), which may be exercised by Marketing with two
years advance notice on an individual property basis for all Properties then
subject to the Master Lease. For the subleased Properties, Getty has agreed to
use reasonable efforts to extend the underlying lease terms upon conditions
acceptable to Marketing. In the event that Marketing desires not to renew the
sublease upon terms (including any underlying lease term extensions negotiated
by Getty) available to it, Getty may extend or renew the lease and sublease the
property to a third party after the end of Marketing's term. The Bylaws of
Marketing contain a provision requiring that the renewal of leases under the
Master Lease, including the exercise of any renewal options, must be approved by
a majority of Directors, including, for so long as Outside Directors (as defined
below) are required to constitute a majority of the Board of Directors, a
majority of such Outside Directors. See "-- Board of Directors and Management."
The Master Lease provides that if during the lease term, Marketing
determines that any of the leased premises have become uneconomic or unsuitable
for their use as a service station or convenience store and has discontinued use
of the Property or intends to discontinue use of the Property as a service
station or convenience store within one year of the date of said determination,
Marketing shall have the right to sublet the Property for any lawful use without
Getty's consent and, prior to the commencement of any such sublease term,
Marketing shall remove any USTs on the Property and thereafter perform all
requisite environmental investigations and/or remediations. Marketing shall have
the right of economic abandonment with respect to no more than ten Properties
during any fiscal year of the lease term. Marketing shall have no right of
economic abandonment for the terminal premises and the premises subject to third
party leases.
Getty may terminate Marketing's right to possession of the Properties upon
the occurrence of an event of default, including a failure of Marketing to pay
rent due under the Master Lease timely or to comply with its covenants under the
Distribution Agreement.
14
<PAGE> 21
Getty has agreed to deliver all Properties with active gasoline sales
licenses and permits, and to assist Marketing in the re-registration of all
licenses and permits in the name of Marketing as operator of the locations and
as owner of the underground tanks related thereto. The Master Lease provides
that Marketing may make any alterations consistent with the use of the
Properties as gasoline stations/convenience stores. Any other alterations
require Getty's consent, which will not be unreasonably withheld.
Pursuant to the Master Lease, Getty will indemnify Marketing against, and
be responsible for, all pre-closing liabilities, including environmental
remediation and other matters specifically identified on the relevant Master
Lease schedule. Marketing has agreed to indemnify Getty against, and be
responsible for, all post-closing liabilities except all scheduled pre-closing
environmental liabilities and obligations, all scheduled future Upgrades to
Nonupgraded USTs, and all environmental liabilities and obligations arising out
of discharges with respect to Properties containing Nonupgraded USTs that are
discovered prior to the date such USTs are upgraded to meet the 1998 Standards.
Getty has agreed to undertake to have all USTs in compliance with federal
underground storage tank regulations not later than December 22, 1998. In the
event that Getty fails to make the capital improvements required for underground
storage tank compliance, Marketing will have the right to offset the costs of
compliance against its rental obligations under the Master Lease.
TAX SHARING AGREEMENT
Getty and Marketing have entered into a tax sharing agreement (the "Tax
Sharing Agreement") that defines the parties' rights and obligations with
respect to filing of returns, payments, deficiencies and refunds of federal,
state and other income, franchise or motor fuel taxes relating to Getty's
business for tax years prior to and including the Distribution and with respect
to certain tax attributes of Getty after the Distribution. In general, with
respect to periods ending on or before the last day of the taxable year in which
the Distribution occurs, Getty is responsible for (i) filing both consolidated
federal tax returns for the Getty affiliated group and combined or consolidated
state tax returns for any group that includes a member of the Getty affiliated
group, including in each case Marketing and its subsidiaries for the relevant
periods of time that such companies were members of the applicable group, and
(ii) paying the taxes relating to such returns (including any subsequent
adjustments resulting from the redetermination of such tax liabilities by the
applicable taxing authorities). Marketing is responsible for filing returns and
paying taxes relating to any member of the Marketing affiliated group for
periods that begin before and end after the Distribution and for periods that
begin after the Distribution. Getty and Marketing have agreed to cooperate with
each other and to share information in preparing such tax returns and in dealing
with other tax matters.
SERVICES AGREEMENT
Pursuant to the terms of the Distribution Agreement, and as a condition
precedent to the consummation of the transactions contemplated thereby, Getty
and Marketing have entered into a Services Agreement (the "Services Agreement"),
under the terms of which Getty and Marketing will share the services of certain
employees, Marketing will provide certain administrative and technical services
to Getty and Getty will provide certain limited services to Marketing. The term
of the Services Agreement is two years, except that it may be earlier terminated
in whole or in part by either party upon 120 days' notice.
The types of services to be provided pursuant to the Services Agreement by
Marketing, through its employees, include financial reporting, accounting, data
processing, tax, legal, treasury, credit, office services, insurance, human
resources, engineering and environmental. The monthly fees to be paid by Getty
for each type of service are set forth in the Services Agreement and may change
dependent upon the level of activity with respect to any service compared to the
level prior to the execution of the Services Agreement.
Getty will provide certain services on a transition basis to Marketing
pursuant to the Services Agreement, including acting as agent for Marketing with
respect to certain motor fuel licenses or permits pending their transfer to
Marketing and for collection of certain amounts via electronic funds transfer
due from Getty dealers whose distribution contracts will be transferred to
Marketing.
Marketing estimates that the net fees to be paid by Getty to Marketing for
services performed (after deducting the fees paid by Marketing to Getty for
services provided by Getty) will initially be approximately $80,000 per month,
which amount takes into account Marketing's additional costs related to
15
<PAGE> 22
providing such services, and will decline as the services performed decrease.
Getty presently expects that most of such services will be provided by Marketing
for approximately one year.
TRADEMARK LICENSE AGREEMENT
Getty and Marketing have entered into a Trademark License Agreement (the
"Trademark License Agreement") providing for the license to Marketing of certain
Getty trademarks, service marks and trade names, including the name "Getty" (the
"Licensed Marks") used in connection with Marketing's business. Under the
Trademark License Agreement, Getty granted to Marketing an exclusive,
royalty-free license to use the Licensed Marks within the territory specified in
the Trademark License Agreement. Subject to the consent of Getty, which consent
is not to be unreasonably withheld, Marketing may sublicense the Licensed Marks
to retailers or wholesalers of petroleum and other related products within the
territory, including but not limited to service station retailers, jobbers and
distributors, subject to the terms of the Trademark License Agreement. The term
of the Trademark License Agreement will be 55 years. In the event that the
Master Lease terminates prior thereto, then commencing on the termination date,
the license shall become non-exclusive in all areas, including the territory
specified in the Trademark License Agreement, and Marketing shall pay to Getty a
rental fee for the use and maintenance of Getty signage and related items based
on gross revenues generated and/or gallonage sold under the Licensed Marks at a
rate customary and reasonable in the trade. Under the Trademark License
Agreement, Marketing has an option to expand the license on a non-exclusive
basis to additional states within the United States in which Marketing may
expand its marketing business. In the event that Marketing were to exercise any
option to expand the licensed territory, Marketing would be obligated to pay a
signage rental fee determined as described above.
BOARD OF DIRECTORS AND MANAGEMENT
Initially, the Marketing Board will consist of five directors. Following
the Distribution, Mr. Leo Liebowitz and Mr. Milton Safenowitz will serve as
directors of Marketing and will continue to serve as directors of Getty. The
Bylaws of Marketing (the "Marketing Bylaws") provide that a majority of the
entire Board of Directors may increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by Maryland General Corporation Law (the "MGCL"), nor more than
fifteen. The tenure of office of any director shall not be affected by any
increase or decrease in the number of directors. The Marketing Bylaws also
require that until the earlier of (i) such time as Mr. Leo Liebowitz, Mr. Milton
Safenowitz and Mr. Milton Cooper and their related parties collectively own less
than 15% of the voting stock of Getty or Marketing or (ii) the Master Lease
terminates or expires, a majority of the Marketing Board shall be comprised of
persons (the "Outside Directors") who are neither (x) owners of voting stock in
excess of 5% of the outstanding voting stock of Getty nor (y) directors or
officers of Getty. See "MANAGEMENT -- Security Ownership of Directors, Executive
Officers and 5% Owners." As a result, following the Distribution, three members
of the five person Marketing Board will be Outside Directors.
Although Mr. Liebowitz will serve (or continue to serve, as the case may
be) as Chief Executive Officer of both Marketing and Getty, it is not currently
anticipated that at the time of and subsequent to the Distribution any other
persons will serve as officers of both companies. It is anticipated that the
majority of Getty's officers and employees will become officers and employees of
Marketing, whose services will thereafter become available to Getty pursuant to
the Services Agreement. See "MANAGEMENT."
FINANCING -- CREDIT LINES
Marketing is currently negotiating lines of credit, presently estimated to
be in a range of $40 million to $60 million, to meet its working capital needs.
16
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL INFORMATION
GETTY PETROLEUM MARKETING INC.
The following selected consolidated financial information of Marketing
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Information Statement. Selected
consolidated financial information relates to the business of Marketing as it
was operated by Getty. The following selected consolidated financial data are
derived from the audited consolidated historical financial statements of Getty
for the five fiscal years ended January 31, 1996 and the unaudited consolidated
historical financial statements of Getty for the six months ended July 31, 1996
and July 31, 1995. In the opinion of management, the unaudited consolidated
financial statements at July 31, 1996 and July 31, 1995 reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and results of operations of Marketing for such interim
periods. The consolidated financial statements of Marketing may not reflect the
financial position or results of operations that would have been obtained had
Marketing been a separate, publicly held company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
---------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................... $1,094,316 $878,937 $747,667 $723,875 $758,887 $366,756 $408,494
Rental income........................... 24,819 27,324 28,443 29,860 32,025 15,825 16,601
Other income (expense), net............. 2,041 395 175 (1,846) 282 182 107
---------- -------- -------- -------- -------- -------- --------
1,121,176 906,656 776,285 751,889 791,194 382,763 425,202
---------- -------- -------- -------- -------- -------- --------
Cost of sales........................... 1,100,740 880,606 738,261 721,354 750,680 366,120 405,726
Selling, general and administrative
expenses.............................. 33,256 25,580 23,262 22,588 20,702 10,563 10,293
---------- -------- -------- -------- -------- -------- --------
1,133,996 906,186 761,523 743,942 771,382 376,683 416,019
---------- -------- -------- -------- -------- -------- --------
Earnings (loss) before interest, taxes,
depreciation and amortization
(EBITDA)(a)........................... (12,820) 470 14,762 7,947 19,812 6,080 9,183
Interest expense........................ 212 302 226 285 388 196 259
Depreciation and amortization........... 12,616 11,491 11,718 11,640 13,099 6,241 6,702
---------- -------- -------- -------- -------- -------- --------
Earnings (loss) before provision
(credit) for income and cumulative
effect of accounting change........... (25,648) (11,323) 2,818 (3,978) 6,325 (357) 2,222
Provision (credit) for income taxes..... (8,990) (4,020) 1,000 (1,544) 2,379 (140) 935
---------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative effect
of accounting change.................. (16,658) (7,303) 1,818 (2,434) 3,946 (217) 1,287
Cumulative effect of accounting
change................................ -- -- -- -- (282) (282) --
---------- -------- -------- -------- -------- -------- --------
Net earnings (loss)(a).................. $ (16,658) $ (7,303) $ 1,818 $ (2,434) $ 3,664 $ (499) $ 1,287
========== ======== ======== ======== ======== ======== ========
Pro forma per share data(a)(b):
Earnings before cumulative effect of
accounting change..................... $0.31 $0.10
Cumulative effect of accounting
change................................ (0.02) --
-------- --------
Net earnings per share(a)............... $0.29 $0.10
======== ========
Weighted average shares outstanding..... 12,648 12,672
======== ========
BALANCE SHEET DATA AT END OF PERIOD:
Total assets............................ $135,114 $132,929 $130,465 $136,285
Working capital (deficit)............... (5,204) (292) (5,805) (211)
Stockholders' equity.................... $ 55,078 $ 58,742 $ 54,579 $ 60,029
</TABLE>
- - ---------------
(a) Commencing February 1, 1997, Marketing will recognize a charge to operating
results over a five-year period relating to the Marketing ESOP. Such charge
will be based on the value of the Marketing Common Stock in the future and,
as such, is not currently determinable. See Note 9 to the consolidated
financial statements.
(b) Pro forma per share data is computed by dividing earnings by the weighted
average number of shares of Marketing Common Stock that would have been
outstanding during the period had the Distribution taken place as of the
beginning of such period.
17
<PAGE> 24
GETTY PETROLEUM MARKETING INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
consolidated financial statements of Marketing appearing elsewhere in this
Information Statement. The results set forth in the consolidated financial
statements of Marketing should not be taken as indicative of future operations.
Marketing's results of operations in future periods will reflect certain
expenses not incurred in prior periods associated with operating and reporting
as a separate, publicly held company. Such costs include environmental expenses
which, in the historical periods, have not been allocated to Marketing since
Getty has agreed to indemnify Marketing with respect to all scheduled
pre-closing environmental liabilities and obligations, all scheduled future
Upgrades of Nonupgraded USTs, and all environmental liabilities and obligations
arising out of discharges with respect to Properties containing Nonupgraded USTs
that are discovered prior to the date such USTs are upgraded to meet the 1998
Standards, with Marketing being responsible for and indemnifying Getty with
respect to all other environmental obligations and liabilities. No amounts have
been included for these other environmental liabilities and obligations as they
are not currently ascertainable.
The consolidated financial statements contained in this Information
Statement have been prepared on the basis that the assets and liabilities of the
petroleum marketing business were transferred using historical carrying values
as recorded by Getty and Marketing's results of operations and cash flows were
derived from Getty's historical financial statements. Marketing's results of
operations include allocations of certain corporate expenses of Getty which were
based on a number of factors including, for example, personnel, employee
benefits, office space and data processing. Management believes these
allocations to be reasonable.
OVERVIEW AND OUTLOOK
Marketing's revenues are derived primarily from its operations in the motor
fuel marketing business. Marketing is one of the nation's largest independent
marketers of petroleum products; it distributes, markets and sells gasoline and
diesel fuel to the general public at retail through a network of 1,597 Getty and
other branded retail outlets (also referred to as service stations) located in
12 Northeastern and Mid-Atlantic states. Approximately 30% of the service
stations also have convenience food stores. Marketing purchases its gasoline,
fuel oil and related petroleum products from a number of Northeast and
Mid-Atlantic suppliers. These products are delivered by cargo ship, barge,
pipeline and truck to Marketing's 10 storage and distribution terminals and bulk
plants, all of which are located in Marketing's distribution region. Marketing
distributes and markets its product to retail outlets through its distribution
network and truck transportation fleet of 141 vehicles. Marketing engages in
activities such as negotiating the prices and terms of the purchase of the
gasoline and diesel fuel, developing the prices, terms and methods of selling
the products to consumers and operators of motor fuel service stations,
monitoring compliance by the service station operators with Getty standards and
providing marketing services to the operators.
Marketing also derives revenues from its wholesale petroleum marketing and
distribution business, which involves the sale of gasoline, fuel oil, diesel
fuel and kerosene from distribution terminals and bulk plants in truckload,
barge and pipeline quantities, as well as from its home heating oil business,
which involves the purchase, storage, transportation and sale of fuel oil,
kerosene, propane and oil burner and related services to residential and
commercial customers in the New York Mid-Hudson Valley.
RESULTS OF OPERATIONS
Six months ended July 31, 1996 compared to six months ended July 31, 1995
Marketing's net sales for the six months ended July 31, 1996 were $408.5
million as compared with $366.8 million for the same period last year. The
increase in net sales was principally due to a 9.6% increase in average selling
prices and a 16.4 million gallon or 4.4% increase in retail gallonage sold,
partially offset by an 8.5 million gallon or 6.7% decrease in wholesale
gallonage sold. Gross profit (excluding rental and other income) was $2.8
million for the six months ended July 31, 1996 compared to $0.6 million in the
comparable period last year. The increase in gross profit was principally due to
higher product margins and
18
<PAGE> 25
increased retail sales volumes, offset by a LIFO inventory charge of $2.3
million during the six months ended July 31, 1996.
Marketing's earnings depend largely on retail marketing margins and rental
income from its dealers. The petroleum marketing industry has been and continues
to be volatile and highly competitive. The cost of petroleum products purchased
by Marketing as well as the price of petroleum products sold have fluctuated
widely in the past. As a result of the historic volatility of product margins
and the fact that they are affected by numerous diverse factors, it is
impossible to predict future margin levels. Marketing believes that it has only
been modestly affected by inflation since increased costs are passed along to
its customers to the extent permitted by competition.
Rental income for the six months ended July 31, 1996 amounted to $16.6
million as compared with $15.8 million for the six months ended July 31, 1995.
The increase was due to rent escalations provided under existing lease
agreements, lease renewals and higher rentals as a result of improvements to the
facilities.
Other income was $0.1 million for the six months ended July 31, 1996, which
was comparable to the six months ended July 31, 1995.
Selling, general and administrative expenses for the six months ended July
31, 1996 amounted to $10.3 million, which was comparable to the $10.6 million
for the six months ended July 31, 1995.
Depreciation and amortization was $6.7 million for the six months ended
July 31, 1996 compared to $6.2 million for the six months ended July 31, 1995.
The increase was due to higher depreciation as a result of additions to
machinery and equipment.
The six months ended July 31, 1995 was restated to reflect a charge to
earnings of $0.3 million for the cumulative effect of adopting at the end of
that fiscal year Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of."
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. The Statement, which becomes effective in fiscal 1997, defines a
fair value based method of accounting for employee stock options and allows
companies to continue to measure compensation cost for such options by using the
intrinsic value based method of accounting prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Marketing plans to account for its stock-based employee compensation plans under
APB No. 25 and effective with the fiscal 1998 consolidated financial statements
will present, in the footnotes, as required under SFAS No. 123, pro forma
disclosures of net income and earnings per share as if the fair value method had
been applied.
Fiscal year ended January 31, 1996 compared to fiscal year ended January
31, 1995
Marketing's net sales for the year ended January 31, 1996 ("fiscal 1996")
were $758.9 million as compared with $723.9 million for the year ended January
31, 1995 ("fiscal 1995"). The increase in net sales was principally due to a
9.6% increase in average selling prices and a 1.9% or 13.9 million gallon
increase in retail gallonage sold through 6.1% fewer outlets, partially offset
by an 18.8% or 58.9 million gallon decrease in wholesale gallonage sold,
primarily bulk sales. The average gasoline volume per retail outlet increased by
9%. Gross profit was $8.2 million in fiscal 1996 compared to $2.5 million in the
prior fiscal year. The increase in gross profit was principally due to higher
product margins.
Rental income of $32.0 million in fiscal 1996 increased 7.3% over fiscal
1995 rental income of $29.9 million. The increase was due to rent escalations
provided under existing lease agreements, lease renewals and higher rentals as a
result of improvements to the facilities.
Other income was $0.3 million in fiscal 1996 as compared with other expense
of $1.8 million in the prior year. The change was principally due to a
restructuring charge of $1.8 million in October 1994.
Selling, general and administrative expenses in fiscal 1996 amounted
to $20.7 million, a decrease of $1.9 million from the prior year. The decrease
was principally due to lower expenses as a result of the October 1994
restructuring.
19
<PAGE> 26
Depreciation and amortization in fiscal 1996 amounted to $13.1 million, an
increase of $1.5 million over the prior year. The increase was due to higher
depreciation as a result of additions to machinery and equipment. The current
fiscal year also included $0.3 million of additional depreciation relating to
operating properties as a result of the adoption of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
In addition to the above-mentioned $0.3 million charge to depreciation
expense for operating properties, Marketing also separately reported the
cumulative effect of the change in accounting principle related to SFAS No. 121
as a charge to earnings of $0.3 million in the consolidated statement of
operations.
Fiscal year ended January 31, 1995 compared to fiscal year ended January
31, 1994
Marketing's net sales for fiscal 1995 were $723.9 million as compared
with $747.7 million in the year ended January 31, 1994 ("fiscal 1994"). The
decrease in net sales was principally due to a 1% decrease in average selling
prices and an 11.9% decrease in wholesale gallonage sold, partially offset by a
2.7% increase in retail gallonage sold through 7.8% fewer outlets. Gross profit
was $2.5 million in fiscal 1995 compared to $9.4 million in the prior fiscal
year. The decrease in gross profit was principally due to the lower retail gross
margins.
Rental income of $29.9 million in fiscal 1995 increased 5.0% over fiscal
1994 rental income of $28.4 million. The increase was due to rent escalations
provided under existing lease agreements, lease renewals and higher rentals as a
result of improvements to the facilities.
Other expense amounted to $1.8 million in fiscal 1995, as compared with
other income of $0.2 million in the prior year. The change principally resulted
from a restructuring charge of $1.8 million in October 1994.
Selling, general and administrative expenses in fiscal 1995 amounted
to $22.6 million, a decrease of $0.7 million from the prior year. The decrease
principally occurred in the fourth quarter of fiscal 1995 as a result of a
restructuring of Marketing's organization and operations in October 1994.
Depreciation and amortization was $11.6 million in fiscal 1995 which was
comparable to the amount in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1996, Marketing's working capital amounted to a deficit
of $0.2 million as compared to a deficit of $0.3 million at January 31, 1996.
Marketing has been able to operate its business with negative working capital,
principally because most sales are for cash and payment terms have been received
from vendors and for gasoline taxes. However, under the Distribution Agreement,
Marketing will receive cash balances from Getty, as of the close of business on
the Distribution Date, in an amount sufficient to provide Marketing with net
working capital of approximately $1.1 million.
Marketing's principal sources of liquidity are cash flows from operations,
which amounted to $10.6 million during the six months ended July 31, 1996.
Management believes that cash requirements for operations can be met by cash
flows from operations, cash and cash equivalents and credit lines. Marketing is
currently negotiating lines of credit, presently estimated to be in a range
of $40 million to $60 million, to meet its working capital needs.
Marketing's capital expenditures for the years ended January 31, 1996, 1995
and 1994 amounted to $15.9 million, $16.8 million and $14.3 million,
respectively, which included $8.6 million, $6.5 million and $7.7 million,
respectively, for the replacement of USTs. Marketing's capital expenditures for
the six months ended July 31, 1996 amounted to $8.6 million, which included $4.4
million for tank replacements. Pursuant to the Distribution Agreement,
commencing February 1, 1997, expenditures with respect to tank replacements
required to meet the 1998 Standards will be the responsibility of and will be
paid by Getty.
ENVIRONMENTAL MATTERS
Getty has agreed, pursuant to the terms of the Distribution Agreement, to
indemnify, defend and hold harmless Marketing and its subsidiaries, as well as
their respective directors, officers, employees, agents and affiliates, from and
against certain liabilities and losses incurred or accrued prior to the date of
the
20
<PAGE> 27
Distribution, including, among other things, all liabilities arising out of or
in connection with the remediation of any environmental obligations to upgrade
or replace certain USTs. Generally, the indemnification extends to all USTs with
respect to which upgrades or further action is known to be required on the date
of the Distribution in order to bring such USTs into compliance by December 22,
1998 with all applicable environmental regulations. Marketing has agreed to
indemnify Getty and its successors from and against all liabilities and losses
with respect to all other USTs which are believed to be in compliance with the
1998 Standards.
Marketing's consolidated financial statements do not include any
environmental expenses, as such charges have been borne by Getty. Such Getty
charges amounted to approximately $14.3 million, $11.8 million and $9.7 million
for the years ended January 31, 1996, 1995 and 1994, respectively. Future
environmental costs to Marketing, though not currently ascertainable, are
expected to be significantly lower as USTs have been or will be upgraded at
Getty's expense by December 22, 1998. Getty has agreed to indemnify Marketing
for all scheduled pre-closing environmental liabilities and obligations, all
scheduled future Upgrades to Nonupgraded USTs, and all environmental liabilities
and obligations arising out of discharges with respect to Properties containing
Nonupgraded USTs that are discovered prior to the date such USTs are upgraded to
meet the 1998 Standards. Therefore, there are no accruals for environmental
matters included in the historical statements of financial position since
Marketing cannot predict the number or the magnitude of newly discovered
discharges or releases from its USTs or the cost of remediation relating
thereto.
Marketing cannot predict what environmental legislation or regulation may
be enacted in the future or how existing laws or regulations will be
administered or interpreted with respect to products or activities to which they
have not previously been applied. Compliance with more stringent laws or
regulations as well as more vigorous enforcement policies of the regulatory
agencies or stricter interpretation of existing laws which may develop in the
future, could have an adverse effect on the financial position or operations of
Marketing and could require substantial additional expenditures for future
remediation or the installation and operation of required environmental or
pollution control systems and equipment.
DIVIDEND POLICY
The payment and amount of cash dividends on Marketing Common Stock after
the Distribution will be subject to the discretion of the Marketing Board.
Marketing's dividend policy will be reviewed by Marketing's Board of Directors
from time to time as may be appropriate and payment of dividends on Marketing
Common Stock will depend upon Marketing's financial position, capital
requirements and other factors as the Marketing Board deems relevant. Subject to
the foregoing, Marketing presently intends to pay cash dividends. However, there
can be no assurance that any dividends will be paid in the future or at what
level.
21
<PAGE> 28
BUSINESS
Getty Petroleum Marketing Inc. was incorporated in Maryland on October 1,
1996, to be the successor to the petroleum marketing and New York Mid-Hudson
Valley home heating oil businesses of Getty. Its principal executive offices are
located at 125 Jericho Turnpike, Jericho, New York 11753. Unless otherwise
indicated, references in this section to Marketing refer to the petroleum
marketing business of Getty intended to be owned and operated by Marketing after
the Distribution, and references in this section to Getty refer to Getty
Petroleum Corp. prior to the Distribution Date and Getty Realty Corp. on and
subsequent to the Distribution Date.
GENERAL
Marketing, together with its subsidiaries, is one of the nation's largest
independent marketers of petroleum products. Marketing serves retail and
wholesale customers through a distribution and marketing network of 1,597
Getty(R) and other branded retail outlets (also referred to as "service
stations") located in 12 Northeastern and Mid-Atlantic states, of which
approximately 30% have convenience food stores. Marketing stores and distributes
petroleum products from 10 distribution terminals and bulk plants. Marketing
purchases gasoline, fuel oil and related petroleum products from a number of
Northeast and Mid-Atlantic suppliers. These products are delivered by cargo
ship, barge, pipeline and truck to Marketing's distribution terminals and bulk
plants located in Marketing's marketing region. Through its truck transportation
fleet of 141 vehicles and its distribution network, Marketing markets and
distributes such products throughout its 12 state marketing region. Of the 1,597
retail outlets supplied by Marketing at July 31, 1996, approximately 65% are
held by Marketing under long-term leases or subleases with Getty and certain of
its subsidiaries. The remaining retail outlets purchase petroleum products from
Marketing under contract as licensed Getty dealers or from licensed Getty
distributors who purchase Getty products from Marketing. Marketing also sells on
a wholesale basis gasoline, fuel oil, diesel fuel and kerosene from distribution
terminals and bulk plants in truckload, barge and pipeline quantities and sells
fuel oil, kerosene, propane and oil burner and related services to residential,
commercial and governmental customers in New York's Mid-Hudson Valley.
Marketing and its predecessors have been in the petroleum marketing
business for over 40 years. Mr. Leo Liebowitz, Chairman and Chief Executive
Officer and a director of Marketing, and Mr. Milton Safenowitz, a director and
former executive vice president of Marketing's predecessors, entered the
petroleum marketing business in 1955 with one service station and have pursued a
strategy of expanding the business principally through acquisitions. Prior to
1985, Marketing's predecessors had expanded into five states under various brand
names, principally Power Test. On February 1, 1985, Marketing's predecessors
acquired the marketing and distribution assets of Getty Oil Company in the
Northeastern and Mid-Atlantic states from a subsidiary of Texaco Inc. The Getty
acquisition included the Getty(R) trademark and trade name and added service
stations, distribution terminals and a wholesale heating oil and middle
distillate marketing network in six states.
During the period from 1985 to 1991, Marketing's predecessors continued to
expand by acquiring numerous small regional distributors, service stations and
convenience food stores. In addition to adding locations through fee ownership
and leasing, Marketing's predecessors continued to implement its program of
adding non-petroleum products and revenue enhancing services at retail outlets
in its marketing network, particularly convenience food stores, automotive
repairs and car washes. Marketing's predecessors have also implemented a
comprehensive program of evaluating retail outlets to determine the long-term
viability of certain locations as gasoline stations. Over the years, this
process has resulted in the divestment of non-strategic and uneconomic retail
outlets. Pursuant to the terms of the Master Lease between Getty and Marketing,
executed as part of the Distribution, Marketing will, except for certain
locations presently leased to third parties for non-Getty brand uses, lease from
Getty those retail outlets which are owned by Getty and certain of its
subsidiaries at the time of the Distribution and sublease from Getty those
retail outlets which are leased by Getty and certain of its subsidiaries at the
time of the Distribution.
OPERATING STRATEGY
Marketing's operating strategy is to market motor fuels through service
stations operated by independent Getty-licensed dealers, many of whom sublease
Marketing's service stations and convenience stores.
22
<PAGE> 29
Marketing's dealers either buy their petroleum products from Marketing or from
licensed Getty distributors who purchase Getty products from Marketing, or sell
Marketing's petroleum products and receive a commission. Marketing views each of
its retail outlets as a "profit center" and believes that independent operators,
with greater financial incentive than salaried employees, generally operate
retail outlets more economically. Moreover, the leasing and subleasing of retail
outlets to independent operators has provided Marketing with a steady and
increasing source of rental income and has enabled Marketing to reduce its
direct operating costs.
Marketing directly operated two retail outlets at July 31, 1996 utilizing
salaried employees. While Marketing seeks to sublease retail outlets to
independent operators, it historically retains a small number of such company
operated outlets. These outlets permit management to keep abreast of changes in
retail marketing, to assist in providing practical guidance to independent
dealers and to test new products and concepts.
Certain of the outlets have convenience food stores, automotive repair
centers and car washes. Marketing receives higher rentals from such Properties
as a result of such additional uses.
Marketing intends to expand its retail operations by purchasing or leasing
new sites, either from Getty or from third parties, and by entering into supply
agreements with third parties. Under the Master Lease and other agreements,
Getty has no obligation to procure and lease new properties to Marketing.
DISTRIBUTION
The retail outlets sell gasoline, diesel fuel and other related petroleum
products (such as motor oil and lubricants) under Marketing's brand name
"Getty(R)" or, to a limited extent, under other brand names, in the states of
Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia.
As of July 31, 1996, Marketing had 1,597 Getty and other branded retail
outlets as follows:
(i) 2 company operated retail outlets which are operated by salaried
employees;
(ii) 272 sublessee dealer operated retail outlets (dealers who sublease
retail outlets and purchase their petroleum products from Marketing);
(iii) 659 commission sublessee dealer operated retail outlets (dealers who
sublease retail outlets and receive a commission for sale of
Marketing's petroleum products);
(iv) 104 retail outlets operated by management contractors (dealers who
operate Marketing's retail outlets pursuant to a management
contract);
(v) 114 contract dealer retail outlets (dealers who purchase their
petroleum products from Marketing or sell Marketing's petroleum
products on a commission basis but do not sublease retail outlets from
Marketing); and
(vi) 44 distributors who purchase their petroleum products from Marketing,
which distributors in turn supply the petroleum product requirements
of 446 retail outlets.
Marketing generally extends three-year lease terms to its dealers, except
for new dealers, who generally receive a one-year trial lease. Such leases
generally provide for fixed rentals at competitive rates. In addition, most
leases provide for an additional rental if the dealer fails to sell certain
minimum quantities of gasoline during a month. The lessee of a retail outlet is
generally responsible for payment of utilities and for all maintenance and
repairs, except for structural and marketing equipment repairs and capital
improvements, which are performed by Marketing.
Marketing distributes its petroleum products from 10 distribution terminals
and bulk plants, two of which are controlled by Getty through fee ownership and
leased to Marketing pursuant to the terms of the Master Lease, and eight of
which are controlled by Getty on long-term net lease basis and are subleased to
Marketing pursuant to the terms of the Master Lease. These distribution
terminals and bulk plants are located in New York, New Jersey, Rhode Island,
Pennsylvania, and Connecticut, and have an aggregate storage capacity of
approximately 57 million gallons. The terminals located in East Providence,
Rhode Island and Rensselaer, New York are deep-water terminals, capable of
handling large vessels. In addition, Marketing utilizes additional terminals
pursuant to thruput and storage agreements with unrelated parties. A substantial
portion
23
<PAGE> 30
of the petroleum products are transported to retail outlets by Marketing's truck
transportation fleet subsidiary, whose drivers are compensated in part on an
incentive-based system.
Marketing also sells, through its KOSCO subsidiary, home heating oil,
propane (LPG) and related services directly to approximately 26,400 retail and
commercial customers in the New York Mid-Hudson Valley. In addition, Marketing
is a wholesale supplier of #2 heating oil (also known as "home heating oil") in
the Northeast, supplying heating oil to dealers who deliver to residences and
commercial accounts. Diesel fuel and kerosene are marketed both to distributors
of such products and directly by Marketing to retail outlets and consumers.
PRODUCT SUPPLY
Marketing, through its predecessors, has entered into agreements with a
number of Northeast and Mid-Atlantic suppliers for the purchase of refined
petroleum products. These agreements typically have one-year terms, and prices
under the agreements are generally based on formulas which are tied to the New
York Harbor price for the petroleum product being purchased. Marketing has no
crude oil reserves or refining capacity.
Historically, petroleum prices have been subject to extreme volatility and
there have been periodic shortages followed by periods of oversupply. No
assurance can be given that petroleum prices will not fluctuate greatly or that
petroleum products will continue to be available from multiple sources or
available at all in times of shortage. Furthermore, a large, rapid increase in
petroleum prices could adversely affect Marketing's margins and/or profitability
if Marketing's sales prices could not be increased or automobile consumption of
gasoline were to significantly decline as a result of such price increases.
Management believes, however, that Marketing will continue to have the ability
to acquire petroleum products on competitive terms for the foreseeable future
due in part to the large volume of its purchases and the storage capacity at its
distribution terminals.
MARKETING
In order to provide efficient service to retail dealers and other
customers, Marketing is divided into four marketing regions. Marketing's
regional marketing personnel provide significant guidance, counseling and
assistance to Marketing's dealers, including advice on retail operations. The
marketing personnel also supervise the company operated retail outlets.
Marketing provides advertising and promotional support to its retail
outlets. Both radio and newspaper media are utilized, and promotional programs
are implemented on an ongoing basis.
Marketing has a co-branded Getty MasterCard, and accepts Visa, MasterCard,
Discover, Diners Club and American Express credit cards and "NYCE" and "MAC"
debit cards. In addition, Marketing has a Getty fleet fueling card and accepts
certain other fleet fueling cards, all of which have tracking programs which
provide cost control data to fleet customers.
COMPETITION
Marketing believes that, based on the number of locations served, it is
currently one of the largest independent marketers of petroleum products in the
United States. Petroleum marketing is highly competitive, and Marketing competes
with a substantial number of integrated oil companies and other companies who
may have greater assets, financial resources and sales. Accordingly, Marketing's
earnings may be adversely affected by the marketing policies of such companies,
which may have greater flexibility to withstand price changes than Marketing.
Marketing competes for new dealers and distributors primarily on the basis of
Getty brand acceptance, location, supply, price and marketing support. The
retail outlets in Marketing's marketing network compete primarily on the basis
of Getty brand acceptance, location, customer service, appearance of the retail
outlet and price.
REGULATION
The petroleum products industry is subject to numerous federal, state and
local laws and regulations. Compliance with those laws and regulations has not
had and is not expected to have a material effect on the competitive position of
Marketing.
24
<PAGE> 31
Marketing is not a refiner and, therefore, is not subject to the PMPA with
respect to its Getty(R) branded stations. However, pursuant to Marketing's
agreements with certain of its Getty dealers and distributors, Marketing has
voluntarily extended to them coverage under PMPA. Under PMPA, Marketing complies
with certain notice requirements and extends nondiscriminatory contracts to
certain of its Getty licensed dealers and distributors, whose franchises cannot
be terminated or not renewed unless certain PMPA imposed prerequisites are met
as provided in Marketing's agreements. Although a licensed dealer or distributor
who is covered by PMPA is not required to renew his or her franchise, because
Marketing has agreed to comply with PMPA with respect to such dealers or
distributors, Marketing is required to renew the franchises of such dealers and
distributors who elect to renew. However, franchisees may be terminated or not
renewed for violating certain provisions of Marketing's agreements as permitted
under PMPA. In addition, if Marketing elects to sell any service station subject
to PMPA, Marketing must, in accordance with PMPA, offer the franchisee the right
of first refusal to purchase such service station at the price and upon terms at
which Marketing elects to sell.
In addition, Marketing's operations are governed by numerous federal, state
and local environmental laws and regulations. Among these laws are (i)
requirements to dispense reformulated gasoline in accordance with the Clean Air
Act, (ii) restrictions imposed on the amount of hydrocarbon vapors which may
enter the air at Marketing's terminals and service stations, (iii) OSHA and
other laws regulating terminal employee exposure to benzene and other hazardous
materials, (iv) requirements to report to governmental authorities discharges of
petroleum products into the environment and, under certain circumstances, to
remediate the soil and/or groundwater contamination pursuant to governmental
order and directive, (v) requirements to remove and replace underground storage
tanks which have exceeded governmental-mandated age limitations and (vi) the
requirement to provide a certificate of financial responsibility with respect to
claims relating to underground storage tank failures.
Marketing believes that it is in substantial compliance with federal, state
and local provisions enacted or adopted pertaining to environmental matters.
Although Marketing is unable to predict what legislation or regulations may be
adopted in the future with respect to environmental protection and waste
disposal, existing legislation and regulations have had no material adverse
effect on its competitive position.
Notwithstanding the foregoing, Getty has agreed, pursuant to the terms of
the Distribution Agreement, to indemnify, defend and hold harmless Marketing and
its subsidiaries, as well as their respective directors, officers, employees,
agents and affiliates, from and against certain liabilities and losses incurred
or accrued prior to the date of the Distribution, including, among other things,
all scheduled pre-closing environmental liabilities and obligations, all
scheduled future Upgrades to Nonupgraded USTs, and all environmental liabilities
and obligations arising out of discharges with respect to Properties containing
Nonupgraded USTs that are discovered prior to the date such USTs are upgraded to
meet the 1998 Standards. Marketing has agreed to indemnify Getty and its
successors from and against, among other things, all other liabilities and
obligations with respect to USTs and environmental matters.
PERSONNEL
As of July 31, 1996, Marketing had 538 employees, of which 213 employees,
consisting of truck drivers and service technicians, are represented by
Amalgamated Local Union 355. Marketing considers its relationships with its
employees and the union to be satisfactory.
LEGAL PROCEEDINGS
Pursuant to the Distribution Agreement, Getty has agreed to defend all
existing proceedings and indemnify Marketing and its subsidiaries with respect
thereto. The only legal proceedings presently pending against Marketing, for
which Getty will indemnify and defend Marketing, are certain personal injury and
property damage proceedings pending against Marketing's trucking subsidiary and
against KOSCO, Marketing's Mid-Hudson Valley heating oil subsidiary. Such
proceedings are not expected, individually or in the aggregate, to have a
material adverse effect on Marketing's financial position or results of
operations.
25
<PAGE> 32
MANAGEMENT
DIRECTORS
Pursuant to the Marketing Bylaws, the Board of Directors has fixed the
number of directors at five persons. Getty, as the sole stockholder of
Marketing, has elected or intends to elect the five persons named in the table
below to constitute the entire Marketing Board. Messrs. Leo Liebowitz and Milton
Safenowitz are also currently directors of Getty. The current term of each
director named below began with his election in 1996 and will expire at the next
annual meeting of the stockholders of Marketing.
Set forth below is a list of the names and ages of, and certain
biographical information concerning, the persons expected to be directors of
Marketing immediately after the Distribution, including information concerning
their principal occupations for the past five years.
<TABLE>
<CAPTION>
NAME AND AGE YEAR ELECTED PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
- - ----------------------- ------------ ------------------------------------------------------
<S> <C> <C>
Leo Liebowitz - 69 1996 President, Chief Executive Officer and Director of
Getty since 1971. Director, President and Treasurer of
CLS General Partnership Corp., the general partner of
Power Test Investors Limited Partnership.
Milton Safenowitz - 69 1996 Director of Getty since 1971 and Executive Vice
President of Getty until February 1990. Director,
Executive Vice President and Assistant Secretary of
CLS General Partnership Corp.
Ronald E. Hall - 64 1996 Chairman of the Board of Howell Corporation since
1995. Formerly President and Chief Executive Officer
of CITGO Petroleum Corporation ("CITGO"), from 1985 to
1995. Director of CITGO from 1990 to 1995.
Richard E. Montag - 64 1996 Vice President - Development of the Richard E. Jacobs
Group since 1982.
[ ] [ ] [ ]
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
There will be three standing committees of the Board of Directors of
Marketing: the Audit Committee, the Nominating Committee and the Compensation
and Benefits Committee, each comprised of one or more directors. The members of
these committees will be appointed shortly after their election to the Marketing
Board.
The primary purpose of the Audit Committee will be to (i) select the firm
of independent accountants that will audit the consolidated financial statements
of Marketing and its subsidiaries, (ii) discuss the scope and the results of the
audit with the accountants and (iii) discuss Marketing's financial accounting
and reporting principles. The Audit Committee will also examine the summary
reports of the internal auditors of Marketing and discuss the adequacy of
Marketing's financial controls with the independent accountants and with
management.
The Nominating Committee will recommend candidates to the Board for
election as officers, recommend nominees for election to the Board and review
the role, composition and structure of the Board and its committees. The
Nominating Committee will consider nominees recommended by stockholders upon
submission in writing to the Secretary of Marketing with the names of such
nominees, together with their qualifications for service as a director of
Marketing.
The Compensation and Benefits Committee (the "Compensation Committee") will
administer the Incentive Compensation Plan, the Supplemental Retirement Plan,
the Marketing ESOP and the Stock Option Plan, and will review the compensation
of the directors and officers of Marketing.
DIRECTOR COMPENSATION
Directors will be compensated for their services according to a standard
arrangement authorized by resolution of the Marketing Board. An annual retainer
fee of $12,000 will be paid to each director, and
26
<PAGE> 33
a committee and board meeting fee of $1,000 will also be paid to each director
for each meeting attended. Directors who are employees of Marketing will not
receive retainers or board meeting fees.
EXECUTIVE OFFICERS
Set forth below is a list of the names and ages of all persons who will be
executive officers of Marketing immediately after the Distribution, indicating
their positions with Marketing and their principal occupations during the past
five years. Except for Mr. Liebowitz, all such persons will resign as officers
of Getty on the Distribution Date.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
- - ------------------------ ----------------------------------------------------------------
<S> <C>
Leo Liebowitz -- 69..... President, Chief Executive Officer, and Director of Marketing.
President, Chief Executive Officer and Director of Getty since
1971.
John J. Fitteron -- Senior Vice President, Treasurer and Chief Financial Officer of
55.................... Marketing. Senior Vice President, Treasurer and Chief Financial
Officer of Getty since 1994. Mr. Fitteron joined Getty in 1986
as Senior Vice President and Chief Financial Officer and assumed
the additional position of Treasurer in 1994. Prior to joining
Getty, he was a Senior Vice President at Beker Industries Corp.,
a chemical and natural resource company.
Alvin A. Smith -- 58.... Senior Vice President and Chief Operating Officer of Marketing.
Senior Vice President and Chief Operating Officer of Getty since
1994. Mr. Smith has been a Senior Vice President of Getty since
1985 and became Chief Operating Officer in 1994. Prior thereto,
he was employed at Getty Oil Company as Wholesale Manager and
Petroleum Manager.
James R. Craig -- 45.... Vice President-Marketing of Marketing. Vice President-Marketing
of Getty since 1987. He joined Getty in 1982 as a District
Manager and became Manager -- Retail Sales in 1984. Prior to
joining Getty, he was a Regional Manager of Amerada Hess Corp.
Michael K. Hantman -- Vice President and Corporate Controller of Marketing. Vice
45.................... President and Corporate Controller of Getty since 1991. He
joined Getty in 1985 as Corporate Controller. Prior to joining
Getty, he was a Principal at Arthur Young & Company, an
international accounting firm.
Samuel M. Jones -- 60... Vice President, Corporate Secretary and General Counsel of
Marketing. Vice President, Corporate Secretary and General
Counsel of Getty since 1994. Mr. Jones joined Getty in 1986 as
Vice President and General Counsel and assumed the additional
position of Corporate Secretary in 1994. Prior to joining Getty,
he was a Senior Attorney with Texaco Inc.
</TABLE>
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND 5% OWNERS
Included in the following table is the number of shares of Marketing Common
Stock to be beneficially owned (or deemed to be beneficially owned) immediately
after the Distribution by each of the persons expected to be a director of
Marketing, by each of the executive officers listed above under "MANAGEMENT --
Executive Compensation," and by all of the persons expected to be directors or
executive officers of Marketing as a group, based on the number of shares of
Getty Common Stock expected to be held on the Distribution Date, and each other
person expected to own of record or beneficially more than 5% of the outstanding
Marketing Common Stock. Such number of shares includes exercisable options or
options to become exercisable within 60 days with respect to Marketing Common
Stock.
27
<PAGE> 34
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNERS, AMOUNT AND NATURE OF PERCENT
DIRECTORS AND OFFICERS BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- - -------------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
Leo Liebowitz................................................. 2,478,290(3) 18.58%
Milton Safenowitz............................................. 2,260,195(4) 16.94%
James R. Craig................................................ 77,958(5) *
John J. Fitteron.............................................. 150,771(5) 1.12%
Michael K. Hantman............................................ 67,955(5) *
Samuel M. Jones............................................... 81,654(5) *
Alvin A. Smith................................................ 181,295(5) 1.34%
Ronald E. Hall................................................ 0 *
Richard E. Montag............................................. 26,762(6) *
[ ]..................................................... [ ] [ ]
Directors and executive officers as a group (10 persons)...... [ ] [ ]
Getty Petroleum Marketing Inc. Employee Stock Ownership
Plan........................................................ 667,000 5.00%
Milton Cooper................................................. 1,059,538(7) 7.94%
</TABLE>
- - ------------------
* Total shares beneficially owned constitute less than one percent of the
outstanding shares.
(1) Unless otherwise indicated, each person has sole voting and dispositive
power with respect to the shares shown.
(2) The percentage is determined by dividing the number of shares shown by the
aggregate number of shares of Marketing Common Stock expected to be
outstanding immediately after the Distribution and the shares of Marketing
Common Stock which may be acquired within 60 days.
(3) Includes 166,410 shares held in trust for children, 230,977 shares held by
his wife for which beneficial ownership is disclaimed and 20,724 shares
held by a charitable foundation.
(4) Includes 2,084,077 shares held by Irrevocable Trust for Milton Safenowitz
and 176,118 shares held by Irrevocable Trust for the benefit of his wife.
(5) Gives effect to the vesting of outstanding Getty stock options held by such
individual pursuant to certain "change of control" agreements. See
"EXECUTIVE COMPENSATION."
(6) Includes 10,190 shares held by his wife for which beneficial ownership is
disclaimed.
(7) Includes 10,311 shares held in a partnership of which he is a partner,
2,013 shares held by his wife for which beneficial ownership is disclaimed
and 100,000 shares held by a charitable foundation.
With the exception of Leo Liebowitz, whose address is care of Getty
Petroleum Corp., 125 Jericho Tpke., Jericho, New York 11753, Milton Safenowitz,
whose address is 7124 Queenferry Cr., Boca Raton, Florida 33496, Milton Cooper,
whose address is care of Kimco Realty Corporation, 3333 New Hyde Park Road,
Suite 100, New Hyde Park, New York 11042-0020, and the Getty Petroleum Marketing
Inc. Employee Stock Ownership Plan, whose address is 125 Jericho Tpke., Jericho,
New York 11753, management knows of no other person owning of record or
beneficially more than 5% of the outstanding Marketing Common Stock.
28
<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth, as to the Chief Executive Officer and the
other four most highly compensated executive officers of Getty that will become
executive officers of Marketing immediately after the Distribution, information
concerning the compensation paid by Getty for services in all capacities to
Getty and its subsidiaries to or for the benefit of such persons during the
periods indicated.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
LONG TERM
FISCAL YEAR ENDED JANUARY 31 COMPENSATION AWARDS
----------------------------------------------------------------------------------
--------------------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
POSITION YEAR $ $ ($)(1) ($) (#) ($)(2)
- - ---------------------- ---- ------- ------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LEO LIEBOWITZ......... 1996 404,103 263,000 59,886
Director, President 1995 387,228 164,500 60,713
and Chief Executive 1994 384,860 193,950 53,564
Officer
ALVIN A. SMITH........ 1996 301,192 190,700 15,000 45,373
Senior Vice President 1995 268,606 99,000 15,000 40,353
and Chief Operating 1994 261,615 107,247 5,000 35,496
Officer
JOHN J. FITTERON...... 1996 198,296 182,200 15,000 32,593
Senior Vice President, 1995 187,849 99,000 15,000 32,043
Treasurer and Chief 1994 182,522 107,247 5,000 25,222
Financial Officer
SAMUEL M. JONES....... 1996 163,307 115,000 15,000 26,629
Vice President, 1995 154,646 79,000 10,000 26,616
General Counsel and 1994 146,808 87,432 5,000 21,532
Corporate Secretary
JAMES R. CRAIG........ 1996 145,537 125,000 15,000 24,419
Vice President 1995 137,843 79,000 10,000 24,260
1994 122,354 87,432 5,000 18,665
</TABLE>
- - ---------------
(1) None of the Executive Officers listed received perquisites or other
personal benefits that exceeded the lesser of $50,000 or 10% of the salary
and bonus for such officer.
(2) All other compensation includes Getty's contributions to the defined
contribution retirement profit sharing plan, matching contributions under
the company's 401(k) savings plan, Getty's contributions to the
Supplemental Retirement Plan for executives and term life insurance
premiums as follows:
<TABLE>
<CAPTION>
FISCAL YEAR DEFINED COMPANY SUPPLEMENTAL
ENDED CONTRIBUTION MATCH RETIREMENT TERM LIFE
JANUARY 31 RETIREMENT PLAN 401(K) PLAN PLAN INSURANCE
----------- --------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Leo Liebowitz......................... 1996 $ 2,388 $ -- $ 55,319 $ 2,179
1995 2,394 -- 56,140 2,179
1994 4,140 -- 47,245 2,179
Alvin A. Smith........................ 1996 2,388 4,620 34,410 3,955
1995 2,394 4,620 29,859 3,480
1994 4,140 4,481 23,395 3,480
John J. Fitteron...................... 1996 2,388 4,620 23,011 2,574
1995 2,394 4,620 22,579 2,450
1994 3,885 4,497 14,390 2,450
Samuel M. Jones....................... 1996 2,388 4,629 17,499 2,113
1995 2,394 4,611 17,507 2,104
1994 3,310 4,367 11,751 2,104
James R. Craig........................ 1996 2,388 3,486 16,668 1,877
1995 2,394 3,478 16,546 1,842
1994 2,898 3,405 10,520 1,842
</TABLE>
29
<PAGE> 36
In December 1994, Getty entered into agreements (collectively, the "Change
of Control Agreements") with its non-director officers and certain key
employees, wherein Getty agreed to make certain payments under certain
circumstances upon a "change of control" of Getty. Under such circumstances,
Getty also agreed that all Getty stock options granted to such officer or key
employee would immediately vest, and made provision to allow such individual to
exercise his or her options within three years of the "change of control" for
the officers, and a shorter period for key employees, and to preserve the
economic value of his or her options. In December 1995, Getty amended the Change
of Control Agreements to treat a spin-off or similar transaction involving a
substantial portion of Getty's marketing or real estate business or assets as a
"change of control." Accordingly, a "change of control" will, for purposes of
the Change of Control Agreements, be deemed to occur on the Distribution Date.
Marketing intends to pay those officers and key employees who become employees
of Marketing compensation at least comparable to the compensation which Getty
paid them prior to the Distribution. In the event that Marketing does not pay
comparable compensation to any such individual or any such individual does not
become an employee of either Getty or Marketing (or ceases to be an employee of
Getty or Marketing for any reason other than for cause) after the Distribution
Date, then for the 36-month period after the Distribution Date for officers, and
a shorter period of time for those certain key employees, Getty will pay to each
such individual over the applicable period an amount not less than the average
annual sum of such individual's (i) base salary, (ii) benefits under any
incentive or bonus plan and (iii) the total amount of employer contributions
(other than elective salary deferrals) made to the individual's account under
401(k) and other deferred compensation plans, based upon the requisite period
prior to the "change of control." The compensation to be paid to an officer or
key employee pursuant to a Change of Control Agreement will be reduced by the
amount of compensation, if any, such officer or key employee receives from
Marketing or from any other employer during the covered period. Marketing
intends to fully perform Getty's obligations under the Change of Control
Agreements with respect to those individuals who will become either an officer
or employee of Marketing.
STOCK OPTION PLANS
As described under "RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE
DISTRIBUTION--Reorganization and Distribution Agreement," immediately prior to
the Distribution, each current holder of an option to acquire shares of Getty
pursuant to Getty's 1985, 1988 and 1991 Stock Option Plans will receive, in
exchange therefor, two separately exercisable options: one to purchase shares of
Getty Common Stock (a "Getty Option") and one to purchase Marketing Common Stock
(a "Marketing Option"), each exercisable for the same number of shares and
containing terms substantially equivalent in the aggregate to those of such
holder's pre-Distribution option. The exercise price for each Getty Option and
Marketing Option will be set so as to preserve the Aggregate Spread in value
attributed to the options currently held by such directors, officers and key
employees. See "RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE DISTRIBUTION
- - -- Reorganization and Distribution Agreement."
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Distribution, Marketing will establish a leveraged
Employee Stock Ownership Plan (the "Marketing ESOP") that will purchase newly
issued shares of Marketing Common Stock from Marketing equal to five percent of
the outstanding shares of Marketing. The Marketing ESOP will purchase such
newly-issued shares from Marketing using the proceeds of a loan to be made by
Marketing to the Marketing ESOP. The Marketing ESOP loan will be repaid over a
five-year period, and Marketing will contribute annually to the Marketing ESOP
the funds required to repay such loan. The principal amount of the Marketing
ESOP loan is expected to be equal to the number of shares purchased by the
Marketing ESOP (approximately 667,000) multiplied by the purchase price per
share (determined on the basis of the value of the Marketing Common Stock). It
is expected that the repayment of the Marketing ESOP loan will result in
projected allocations to participants' accounts of an aggregate of approximately
133,400 shares of Marketing Common Stock per year, allocated in proportion to
compensation. Marketing expects that the five percent of the outstanding stock
of Marketing purchased by the Marketing ESOP will be allocated to covered
employees over a five-year period. Commencing February 1, 1997, Marketing will
recognize a charge to operating results over a five-year period relating to the
Marketing ESOP. Such charge will be based on the value of the
30
<PAGE> 37
Marketing Common Stock in the future and, as such, is not currently
determinable. See Note 9 to the consolidated financial statements.
CERTAIN TRANSACTIONS
THE PARTNERSHIP
In 1985, Power Test Investors Limited Partnership (the "Partnership") was
formed as a public master limited partnership and capitalized by a rights
offering to all Getty stockholders. The Partnership is the limited partner in
Power Test Realty Company Limited Partnership (the "Operating Partnership"),
which was also formed in 1985 and which purchased the Northeast and Mid-Atlantic
petroleum marketing assets of Getty Oil Company from Texaco Inc. The Operating
Partnership leased these assets to Getty on a long-term net basis.
CLS General Partnership Corp., a Delaware corporation ("CLS"), is the sole
general partner of both the Partnership and the Operating Partnership. The three
stockholders of CLS are Messrs. Liebowitz, Safenowitz and Cooper (the "Principal
Holders"), who are also directors and stockholders of Getty and stockholders of
Marketing. Messrs. Liebowitz and Safenowitz are also directors of Marketing and
Mr. Liebowitz serves as Chief Executive Officer of Getty and Marketing. See
"MANAGEMENT." As of July 31, 1996, the Principal Holders beneficially owned an
aggregate of 3,103,131 (48%) of the general and limited partnership interests in
the Partnership.
Marketing does not have (nor did Getty have) any ownership interest in the
Partnership, the Operating Partnership or any of its assets. Neither the
Partnership nor the Operating Partnership conducts any substantial activities
other than those related to the ownership and leasing to Getty of the former
Getty Oil Company assets, substantially all of which Marketing subleases from
Getty.
THE MASTER LEASE AND RELATED AGREEMENTS
Pursuant to the Master Lease, Marketing anticipates that it will make an
annual net lease payment to Getty of approximately $57 million commencing in
fiscal 1998. See "RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE
DISTRIBUTION -- Master Lease Agreement," and Note 4 to the consolidated
financial statements.
In addition to the Master Lease, Getty and Marketing have entered into,
among other things, certain licensing, service and tax sharing agreements. See
"RELATIONSHIP BETWEEN GETTY AND MARKETING AFTER THE DISTRIBUTION."
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the stock of Marketing does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Marketing Charter (as defined herein) and the Marketing Bylaws,
copies of which have been filed as exhibits to this Registration Statement on
Form 10.
GENERAL
Marketing's authorized capital stock presently consists of 1,000 shares of
Marketing Common Stock, of which 1,000 shares are issued and outstanding and are
owned by Getty. Prior to the Distribution, Marketing's Charter will be amended
by the Marketing Board and by Getty, as sole stockholder of Marketing. Under
such amended Charter, which will be substantially in the form set forth in
Exhibit 3.2 to this Form 10 (the "Marketing Charter"), the total number of
shares of all classes of stock that Marketing will have authority to issue will
be 40 million, 30 million of which will be shares of Marketing Common Stock and
10 million of which will be shares of preferred stock, $0.01 par value per share
(the "Marketing Preferred Stock"). Based on the number of shares of Getty Common
Stock outstanding at October 1, 1996, approximately 12,675,000 shares of
Marketing Common Stock, constituting approximately 42% of the then authorized
Marketing Common Stock, will be issued to Getty and distributed by Getty to its
stockholders in the Distribution. In addition, approximately 667,000 shares of
Marketing Common Stock will be issued to the
31
<PAGE> 38
Marketing ESOP at the time of the Distribution. See "EXECUTIVE COMPENSATION --
Employee Stock Ownership Plan." All of the shares of Marketing Common Stock
issued in the Distribution and to the Marketing ESOP will be validly issued,
fully paid and non-assessable and have no preemptive rights.
COMMON STOCK
All shares of Marketing Common Stock will be duly authorized, fully paid
and nonassessable. Subject to the preferential rights of any other shares or
series of stock, holders of shares of Marketing Common Stock are entitled to
receive dividends on such stock if, as and when authorized and declared by the
Marketing Board out of assets legally available therefor and to share ratably in
the assets of Marketing legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding up after payment of or
adequate provision for all known debts and liabilities of Marketing.
Each outstanding share of Marketing Common Stock entitles the holder to one
vote on all matters submitted to a vote of stockholders, including the election
of directors and, except as provided with respect to any other class or series
of stock, the holders of such shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of Marketing Common Stock can
elect all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.
Holders of shares of Marketing Common Stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of Marketing. Shares of Marketing Common
Stock will have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Marketing Charter
provides for approval by a majority of all the votes entitled to be cast in such
situations.
The Marketing Charter authorizes the Marketing Board to reclassify any
unissued shares of Marketing Common Stock into other classes or series of
classes of stock and to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption for each such class or series.
The transfer agent and registrar for the Marketing Common Stock will be
American Stock Transfer and Trust Company.
PREFERRED STOCK
The Marketing Charter will provide that the Marketing Board is authorized
to provide for the issuance of shares of Marketing Preferred Stock, from time to
time, and to fix the designations, preferences, conversion or other rights,
voting powers, restrictions, dividends and other distributions, qualifications
or terms or conditions of redemption of such series.
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
Marketing believes that the power of the Marketing Board to issue
additional authorized but unissued shares of Marketing Common Stock and
Marketing Preferred Stock and to classify or reclassify unissued shares of
Marketing capital stock and thereafter to cause Marketing to issue such
classified or reclassified shares of stock will provide Marketing with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which may arise. The additional classes or series, as well
as the Marketing Common Stock and Marketing Preferred Stock, will be available
for issuance without further action by Marketing's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which Marketing's securities may be listed or
traded. Although
32
<PAGE> 39
the Marketing Board has no intention at the present time of doing so, it could
authorize Marketing to issue a class or series that could, depending upon the
terms of such class or series, delay, defer or prevent a transaction or a change
in control of Marketing that might involve a premium price for holders of
Marketing Common Stock or otherwise be in their best interests.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Marketing Charter
contains such a provision which limits such liability to the maximum extent
permitted by Maryland law.
The Marketing Charter authorizes Marketing, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of Marketing and at the request of Marketing, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status as
a present or former director or officer of Marketing. The Marketing Bylaws
obligate Marketing, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer who
is made a party to the proceeding by reason of his or her service in that
capacity or (b) any individual who, while a director of Marketing and at the
request of Marketing, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his or her service in that capacity. The
Marketing Charter and Marketing Bylaws also permit Marketing to indemnify and
advance expenses to any person who served a predecessor of Marketing in any of
the capacities described above and to any employee or agent of Marketing or a
predecessor of Marketing.
The MGCL requires a corporation (unless its charter provides otherwise,
which Marketing's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made a party by reason of his or her service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, a Maryland corporation may not
indemnify a present or former director or officer for an adverse judgment in a
suit by or in the right of the corporation. In addition, the MGCL requires
Marketing, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his or her good faith belief that he
or she has met the standard of conduct necessary for indemnification by
Marketing as authorized by the Bylaws and (b) a written statement by or on his
or her behalf to repay the amount paid or reimbursed by Marketing if it shall
ultimately be determined that the standard of conduct was not met.
In addition, Marketing has entered or will enter into an indemnification
agreement ("Indemnification Agreement") with each of its directors. The
Indemnification Agreement provides for the prompt indemnification and
advancement of expenses, including attorneys' fees and other costs, to the
fullest extent permitted by
33
<PAGE> 40
law of a director against expenses and obligations paid or incurred in
connection with investigating, defending, being a witness or participating in
(including on appeal) any threatened, pending or completed action, suit or
proceeding related to the fact that such director is or was a director, officer,
partner, employee, agent, or fiduciary of Marketing or is or was serving at the
request of Marketing as a director, officer, partner, employee, trustee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan trust or other enterprise, or by reason of anything done or not
done by a director in any such capacity.
The Indemnification Agreement also provides (i) that a director is
automatically entitled to indemnification for expenses to the extent the
director is successful in defending any indemnifiable claim whether on the
merits or otherwise, (ii) that Marketing has the burden of proving that a
director is not entitled to indemnification in any particular case and that
certain presumptions that may otherwise be drawn against a director seeking
indemnification in connection with the termination of actions or proceedings are
negated, except that the termination of an action or proceeding by conviction or
a plea of nolo contendere (or its equivalent) creates a presumption that the
director is not entitled to indemnification, (iii) a mechanism through which a
director may seek court relief in the event that the Marketing Board (or other
person or body appointed by the Marketing Board) determines that the director
would not be permitted to be indemnified under applicable law (and therefore is
not entitled to indemnification under the Indemnification Agreement), (iv) that
a director is entitled to indemnification against all expenses (including
attorneys' fees) incurred in seeking to collect an indemnification claim or
advancement of expenses from Marketing or incurred in seeking to recover under a
directors' and officers' liability insurance policy, (v) that after there has
been a change in control in Marketing, all Marketing determinations regarding a
right to indemnification, and the right to advancement of expenses, shall be
made by independent legal counsel, and (vi) that prior to a change in control of
Marketing, a director shall not be entitled to indemnification pursuant to the
Indemnification Agreement in connection with an action, suit or proceeding
initiated by the director against Marketing, or its directors or officers unless
Marketing joins in or consents to the action, suit or proceeding, except as
provided in Section 3 of the Indemnification Agreement.
Directors' rights under the Indemnification Agreement are not exclusive of
any other rights they may have under Maryland law, directors' or officers'
liability insurance, the Marketing Bylaws or otherwise. However, the
Indemnification Agreement does prevent double payment.
The Indemnification Agreement, although not requiring the maintenance of
directors' and officers' liability insurance, does require that the directors be
provided with maximum coverage reasonably economically available if there is
such a policy. Finally, the Indemnification Agreement provides that, if
Marketing pays a director pursuant to the Indemnification Agreement, Marketing
will be subrogated to the director's rights to recover from third parties.
ADDITIONAL INFORMATION
Marketing has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") with respect to the Marketing
Common Stock described herein. This Information Statement does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. Further information may be obtained from the Registration
Statement and such exhibits and schedules. Copies of these documents may be
inspected at and obtained at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional
Offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Such reports and other documents may be obtained from the web site that the
Commission maintains at http://www.sec.gov. Copies of such information can also
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Application will
be made to list the Marketing Common Stock on the NYSE, subject to official
notice of issuance, under the symbol "GPM." Reports and other information
concerning Marketing Common Stock can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
34
<PAGE> 41
Following the Distribution, Marketing will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. Additionally, Marketing will be subject to
the proxy solicitation requirements of the Exchange Act and will furnish annual
reports containing audited financial statements to its stockholders in
connection with its annual meetings of stockholders.
No person is authorized to give any information or to make any
representations other than those contained in this Information Statement. Any
other information or representations given or made must not be relied upon as
having been authorized. This Information Statement does not constitute an offer
to sell or a solicitation of an offer to buy any securities. The delivery of
this Information Statement must not under any circumstances be construed as an
implication that there has been no change in the affairs of Marketing subsequent
to the date of this Information Statement.
35
<PAGE> 42
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS...................................................... F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the fiscal years ended January 31, 1996,
1995 and 1994..................................................................... F-3
Consolidated Balance Sheets as of January 31, 1996 and 1995.......................... F-4
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1996,
1995 and 1994..................................................................... F-5
Notes to Consolidated Financial Statements........................................... F-6
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Consolidated Statements of Operations for the six months ended July 31, 1996 and
1995.............................................................................. F-14
Consolidated Balance Sheet as of July 31, 1996....................................... F-15
Consolidated Statements of Cash Flows for the six months ended July 31, 1996 and
1995.............................................................................. F-16
Notes to Unaudited Consolidated Interim Financial Statements......................... F-17
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Getty Petroleum Marketing Inc.:
We have audited the accompanying consolidated balance sheets of GETTY
PETROLEUM MARKETING INC. and SUBSIDIARIES as of January 31, 1996 and 1995, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended January 31, 1996. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Getty Petroleum
Marketing Inc. and Subsidiaries as of January 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for the impairment of long-lived assets
in fiscal 1996.
Coopers & Lybrand L.L.P.
New York, New York
November 6, 1996
F-2
<PAGE> 44
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................ $758,887 $723,875 $747,667
Rental income............................................ 32,025 29,860 28,443
Other income (expense), net.............................. 282 (1,846) 175
-------- -------- --------
791,194 751,889 776,285
-------- -------- --------
Cost of sales............................................ 750,680 721,354 738,261
Selling, general and administrative expenses............. 20,702 22,588 23,262
-------- -------- --------
771,382 743,942 761,523
-------- -------- --------
Earnings before interest, taxes, depreciation and
amortization (EBITDA).................................. 19,812 7,947 14,762
Interest expense......................................... 388 285 226
Depreciation and amortization............................ 13,099 11,640 11,718
-------- -------- --------
Earnings (loss) before provision (credit) for income
taxes and cumulative effect of accounting change....... 6,325 (3,978) 2,818
Provision (credit) for income taxes...................... 2,379 (1,544) 1,000
-------- -------- --------
Earnings (loss) before cumulative effect of accounting
change................................................. 3,946 (2,434) 1,818
Cumulative effect of accounting change................... (282) -- --
-------- -------- --------
Net earnings (loss)...................................... $ 3,664 $ (2,434) $ 1,818
======== ======== ========
Pro forma per share data:
Earnings before cumulative effect of accounting change... $0.31
Cumulative effect of accounting change................... (0.02)
--------
Net earnings per share................................... $0.29
========
Weighted average shares outstanding...................... 12,648
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 45
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................... $ 9,107 $ 20,466
Accounts receivable, less allowance
for doubtful accounts of $1,225
in 1996 and $1,336 in 1995...................................... 12,194 14,688
Inventories........................................................ 19,917 9,985
Deferred income taxes.............................................. 2,220 2,188
Prepaid expenses and other
current assets.................................................. 2,827 2,943
-------- --------
Total current assets....................................... 46,265 50,270
Property and equipment, at cost, less
accumulated depreciation and amortization.......................... 84,116 82,227
Other assets......................................................... 2,548 2,617
-------- --------
TOTAL ASSETS............................................... $132,929 $135,114
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 23,378 $ 36,194
Accrued expenses................................................... 9,265 11,023
Gasoline taxes payable............................................. 13,914 8,257
-------- --------
Total current liabilities.................................. 46,557 55,474
Deferred income taxes................................................ 13,789 11,500
Other, principally deposits.......................................... 13,841 13,062
Commitments and contingencies (Notes 4 and 6)
Stockholders' equity............................................... 58,742 55,078
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $132,929 $135,114
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 46
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................... $ 3,664 ($ 2,434) $ 1,818
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change................. 282 -- --
Depreciation and amortization.......................... 13,099 11,640 11,718
Deferred income taxes.................................. 2,257 659 1,804
(Gain) loss on dispositions of property and
equipment........................................... (12) 235 79
Changes in assets and liabilities:
Accounts receivable.................................... 2,494 1,437 2,789
Inventories............................................ (9,932) (1,156) (485)
Prepaid expenses and other current assets.............. 25 (40) 725
Other assets........................................... (46) 278 198
Accounts payable, accrued expenses and
gasoline taxes payable.............................. (8,917) 8,089 (5,722)
Other, principally deposits............................ 779 1,027 866
-------- -------- --------
Net cash provided by operating activities........... 3,693 19,735 13,790
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures................................... (15,858) (16,787) (14,306)
Proceeds from dispositions of property and equipment... 806 500 365
-------- -------- --------
Net cash used in investing activities............... (15,052) (16,287) (13,941)
-------- -------- --------
Net increase (decrease) in cash and equivalents.......... (11,359) 3,448 (151)
Cash and equivalents at beginning of year................ 20,466 17,018 17,169
-------- -------- --------
Cash and equivalents at end of year...................... $ 9,107 $ 20,466 $ 17,018
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for interest................. $ 388 $ 285 $ 226
</TABLE>
See accompanying notes.
F-5
<PAGE> 47
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Getty Petroleum Marketing Inc., a Maryland corporation ("Marketing"), was
formed on October 1, 1996 as a wholly-owned subsidiary of Getty Petroleum Corp.
("Getty"). Getty plans to separate its petroleum marketing business from its
real estate business at the close of business on January 31, 1997 with each
business to be conducted by a separate, publicly held corporation. In order to
effect the separation of these businesses, Getty will transfer to Marketing the
assets and liabilities of the petroleum marketing business and the New York
Mid-Hudson Valley home heating oil business previously conducted by a subsidiary
of Getty, and distribute all of the common shares of Marketing to the
stockholders of Getty (the "Distribution"). The Distribution is expected to be
at the rate of one share of common stock in Marketing for each share of Getty
common stock for stockholders of record on January 31, 1997. Getty will retain
and continue to own and operate the real estate business and the Pennsylvania
and Maryland home heating oil business previously conducted by another
subsidiary. After the Distribution, Getty will change its name to Getty Realty
Corp. ("Realty" or "Getty").
The consolidated financial statements of Marketing contained herein have
been prepared on the basis that the assets and liabilities of the petroleum
marketing business were transferred using historical carrying values as recorded
by Getty and Marketing's results of operations and cash flows were derived from
Getty's historical financial statements. Marketing's results of operations
include allocations of certain corporate expenses of Getty which were based on a
number of factors including, for example, personnel, employee benefits, office
space and data processing. Management believes these allocations to be
reasonable. The financial information is not necessarily indicative of the
financial results that would have occurred had Marketing been operated as a
separate, stand-alone entity during the reporting periods nor is it necessarily
indicative of future results.
Marketing's results of operations in future periods will reflect certain
expenses not incurred in prior periods associated with operating and reporting
as a separate, publicly held company. Such costs include environmental expenses
which, in the historical periods, have not been allocated to Marketing since
Getty has agreed to indemnify Marketing with respect to all scheduled
pre-closing environmental liabilities and obligations, all scheduled future
upgrades (the "Upgrades") necessary to cause underground storage tanks (such
tanks, including related piping, underground pumps, wiring and monitoring
devices, the "USTs") to conform to the 1998 federal standards for USTs (the
"1998 Standards"), and all environmental liabilities and obligations arising out
of discharges with respect to properties containing USTs that have not been
upgraded to meet the 1998 Standards ("Nonupgraded USTs") that are discovered
prior to the date such USTs are upgraded to meet the 1998 Standards, with
Marketing being responsible for and indemnifying Getty with respect to all other
environmental obligations and liabilities. No amounts have been included for
these other environmental liabilities and obligations as they are not currently
ascertainable. However, future environmental expenses of Marketing are expected
to be significantly lower than amounts recorded by Getty ($14.3 million, $11.8
million and $9.7 million for the years ended January 31, 1996, 1995 and 1994,
respectively) since USTs have been or will be upgraded at Getty's expense by
December 22, 1998.
As part of the separation of the petroleum marketing business from the real
estate business, Marketing and Realty have entered into various agreements which
address the allocation of assets and liabilities between them and govern future
relationships, including a Reorganization and Distribution Agreement (the
"Distribution Agreement"), a Master Lease Agreement, a Tax Sharing Agreement, a
Services Agreement and a Trademark License Agreement.
Getty and Marketing have entered into a Services Agreement (the "Services
Agreement"), under the terms of which Getty and Marketing will share the
services of certain employees, Marketing will provide certain administrative and
technical services to Getty and Getty will provide certain limited services to
Marketing. Marketing estimates that the net fees to be paid by Getty to
Marketing for services performed (after deducting the fees paid by Marketing to
Getty for services provided by Getty) will initially be approximately $80,000
per month, which amount takes into account Marketing's additional costs related
to
F-6
<PAGE> 48
providing such services, and will decline as the services performed decrease.
Getty presently expects that most of such services will be provided by Marketing
for approximately one year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of Marketing and its wholly-owned subsidiaries. Marketing is principally engaged
in the marketing and distribution of petroleum products in 12 Northeastern and
Mid-Atlantic states. All significant intercompany accounts and transactions have
been eliminated.
Use of Estimates: The financial statements have been prepared in conformity
with generally accepted accounting principles and include amounts that are based
on management's best estimates and judgments. While all available information
has been considered, actual results could differ from those estimates.
Cash and Equivalents: Cash and equivalents represents cash balances and
allocated cash to be received from Getty in accordance with the Distribution
Agreement to provide Marketing with working capital. Marketing considers highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Inventories: Inventories, primarily finished petroleum products, are
principally accounted for under the lower of last-in, first-out ("LIFO") cost or
market. Net product exchange positions with other companies are reflected in
inventory. Marketing may take positions in the futures market as part of its
overall purchasing strategy in order to reduce the risk associated with price
fluctuations. The gains and losses on futures contracts are included as a part
of product costs.
Property and Equipment: Expenditures for renewals and betterments are
capitalized; maintenance and repairs are charged to income when incurred. When
fixed assets are sold or retired, the cost and related accumulated depreciation
and amortization are eliminated from the respective accounts and any gain or
loss is credited or charged to income.
Depreciation and Amortization: Depreciation of fixed assets is computed on
the straight-line method based upon the estimated useful lives of the assets.
Leasehold improvements are amortized on the straight-line method over the
shorter of the term of the lease or the useful life of the related asset.
Environmental Costs: The estimated future costs for known environmental
remediation requirements are accrued when it is probable that a liability has
been incurred and the amount of remediation costs can be reasonably estimated.
Income Taxes: Deferred income taxes are provided for the effect of items
which are reported for income tax purposes in years different from that in which
they are recorded for financial statement purposes.
Revenue Recognition: Revenue is recognized from sales when product
ownership is transferred to the customer and from rentals as earned.
Pro Forma Earnings Per Share: Pro forma earnings per share (unaudited) is
computed by dividing net earnings by the weighted average number of shares of
Marketing Common Stock that would have been outstanding during the year had the
Distribution taken place as of the beginning of such year. Common stock
equivalents are not included in earnings per share computations since their
effect is immaterial.
Accounting Changes: In fiscal 1996, Marketing adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and has
reported the cumulative effect of the change in accounting principle as an
after-tax charge to earnings of $282,000 in the consolidated statement of
operations.
3. INVENTORIES
As of January 31, 1996, 1995 and 1994, the carrying value of Marketing's
LIFO inventories approximated the first-in, first-out ("FIFO") method or
replacement cost.
F-7
<PAGE> 49
4. LEASES
Marketing and Realty have entered into a Master Lease Agreement (the
"Master Lease") under which 1,037 retail outlets and 10 terminal facilities (the
"Properties") are leased or subleased by Realty as the lessor to Marketing as
the lessee. The Properties will be used for gasoline sales, convenience store
uses and other complementary or related lawful uses in conjunction with the sale
of petroleum products and convenience store items, except when the provisions of
any underlying lease are more restrictive. Marketing may sublet any property,
provided that Marketing remains fully responsible for a sublessee's performance
and, except in cases of economic abandonment (as described below), a sublease
for non-petroleum purposes will require Getty's consent. Except for certain
environmental obligations, and obligations pertaining to USTs, the Master Lease
will be a "triple-net" lease, with Marketing retaining responsibility for all
taxes, maintenance, repairs and insurance. For financial statement purposes,
such Master Lease has been recorded as an operating lease.
Rent for each of the Properties has been set using the fair market value of
each such Property. In addition, rent for each Property will increase at the end
of each five-year period by the net increase in the Consumer Price Index for all
items in the Northeast Region for such five-year period, such increase not to
exceed fifteen percent (15%). Rents for all Properties are payable in advance on
the first day of the month. The initial term of the Master Lease is (i) fifteen
years with respect to Properties owned in fee by Getty and leased to Marketing,
and Properties leased by Getty from Power Test Realty Company Limited
Partnership and subleased to Marketing and (ii) the length of time remaining
under underlying lease terms (which ranges from one to fifteen years under the
Master Lease) with respect to Properties leased by Getty from other third
parties and subleased to Marketing. The Master Lease terms for each category of
Properties described above also include four ten-year renewal options (or, with
respect to category (ii), such shorter period as the underlying lease may
provide), which may be exercised by Marketing with two years advance notice on
an individual property basis for all Properties then subject to the Master
Lease. For the subleased Properties, Getty has agreed to use reasonable efforts
to extend the underlying lease terms upon conditions acceptable to Marketing. In
the event that Marketing desires not to renew the sublease upon terms (including
any underlying lease term extension negotiated by Getty) available to it, Getty
may extend or renew the lease and sublease the property to a third party after
the end of Marketing's term.
The Master Lease provides that if during the lease term, Marketing
determines that any of the leased premises have become uneconomic or unsuitable
for their use as a service station or convenience store and has discontinued use
of the property or intends to discontinue use of the property as a service
station or convenience store within one year of the date of said determination,
Marketing shall have the right to sublet the property for any lawful use without
Getty's consent and, prior to the commencement of any such sublease term,
Marketing shall remove any USTs on the Property and thereafter perform all
requisite environmental investigations and/or remediations. Marketing shall have
the right of economic abandonment with respect to no more than ten properties
during any fiscal year of the lease term. Marketing shall have no right of
economic abandonment for the terminal premises and the premises subject to third
party leases.
Future minimum annual rentals under noncancelable operating leases which
have terms in excess of one year as of January 31, 1996, payable to Realty, are
as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
- - --------------------------------------------------------------------------------
<S> <C>
1997............................................................................ $ 56,070
1998............................................................................ 56,859
1999............................................................................ 56,298
2000............................................................................ 55,651
2001............................................................................ 55,350
Thereafter...................................................................... 561,356
--------
$841,584
========
</TABLE>
Rent expense paid to Realty, which is included in cost of sales, amounted
to $55,130,000, $55,352,000 and $55,900,000 for the years ended January 31,
1996, 1995 and 1994, respectively. Rent income received
F-8
<PAGE> 50
under subleases amounted to $32,025,000, $29,860,000 and $28,443,000 for the
years ended January 31, 1996, 1995 and 1994, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DEPRECIABLE
1996 1995 LIFE (YEARS)
-------- -------- ------------
<S> <C> <C> <C>
Equipment................................................ $153,005 $138,655 10 to 15
Motor vehicles........................................... 3,014 4,495 3 to 10
Furniture and fixtures................................... 1,566 1,537 10
Leasehold improvements................................... 1,197 1,158 See Note 2
-------- --------
158,782 145,845
Less, accumulated depreciation and amortization.......... 74,666 63,618
-------- --------
$ 84,116 $ 82,227
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The petroleum products industry is subject to numerous federal, state and
local laws and regulations. Compliance with those laws and regulations has not
had and is not expected to have a material effect on the competitive position of
Marketing.
On September 16, 1996, Getty entered into an Agreement with the New York
State Department of Taxation and Finance (the "Department"), settling the
license revocation proceedings brought by the Department whereby Getty's
wholly-owned subsidiary Getty Terminals Corp.'s ("Getty Terminals") licenses and
permits for its three New York State terminals and its New York motor fuels and
diesel distributor licenses would be terminated. Under the terms of the
Agreement, Getty's wholly-owned subsidiary, Kingston Oil Supply Corp. ("KOSCO")
will be permitted to assume all of the storage and distribution activities and
operations now performed by Getty Terminals in New York. KOSCO will have six
months in which to obtain new or amended licenses and permits and, upon the
issuance thereof, Getty Terminals will surrender its licenses and permits.
KOSCO's Board of Directors will consist of three persons, one of whom shall be
an independent director, and KOSCO shall provide periodic reports to the
Department relating to New York tax laws. The Agreement shall terminate on
September 15, 1999. Under the terms of the settlement, Getty and its
subsidiaries are not required to pay any penalties or fines. Prior to the
Distribution, Marketing will become a party to the Agreement.
In order to minimize Marketing's exposure to credit risk associated with
financial instruments, Marketing places its temporary cash investments with high
credit quality institutions and, by policy, limits the amount invested with any
one institution other than the U.S. Government. Concentration of credit risk
with respect to trade receivables generally is limited due to the number of
customers comprising Marketing's customer base.
Marketing's financial results depend largely on retail marketing margins
and rental income from its dealers. The petroleum marketing industry has been
and continues to be volatile and highly competitive. The cost of petroleum
products purchased by Marketing as well as the price of petroleum products sold
have fluctuated widely in the past. As a result of the historic volatility of
product margins and the fact that they are affected by numerous diverse factors,
it is impossible to predict future margin levels.
7. INCOME TAXES
Getty and Marketing have entered into a Tax Sharing Agreement that defines
the parties' rights and obligations with respect to filing of returns, payments,
deficiencies and refunds of federal, state and other income, franchise or motor
fuel taxes relating to Getty's business for tax years prior to and including the
Distribution and with respect to certain tax attributes of Getty after the
Distribution. In general, the Tax
F-9
<PAGE> 51
Sharing Agreement provides that Getty will be responsible for all federal, state
and local tax liabilities that relate to periods (or portions thereof) ending on
or prior to the Distribution. For periods subsequent to the Distribution,
Marketing will file its own tax returns. The provision for income taxes is
reflected in the consolidated financial statements as if Marketing had been
operating on a stand-alone basis.
Marketing's provision (credit) for income taxes is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Current...................................................... $ 122 ($2,203) ($ 804)
Deferred..................................................... 2,257 659 1,804
------ ------- -------
Provision (credit) for income taxes.......................... $2,379 ($1,544) $ 1,000
====== ======= =======
</TABLE>
The tax effects of temporary differences which comprise the deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property and equipment............................................... ($13,889) ($11,636)
Accruals............................................................. 1,626 1,736
Inventories.......................................................... 694 588
-------- --------
Net deferred tax liabilities......................................... ($11,569) ($ 9,312)
======== ========
</TABLE>
The following is a reconciliation of the expected statutory federal income
tax provision (credit) and the actual provision (credit) for income taxes (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Expected provision (credit) at statutory federal income tax
rate........................................................ $2,214 ($1,392) $ 986
State and local income taxes, net of federal benefit.......... 183 (182) 138
Other......................................................... (18) 30 (124)
------ ------- ------
Provision (credit) for income taxes........................... $2,379 ($1,544) $1,000
====== ======= ======
</TABLE>
8. STOCKHOLDERS' EQUITY
Authorized capital of Marketing consists of 30,000,000 shares of $.01 par
value common stock and 10,000,000 shares of $.01 par value preferred stock (none
of which is issued). Based on the estimated number of shares of Getty Common
Stock outstanding as of the Distribution, approximately 12,675,000 shares of
Marketing Common Stock will be issued to stockholders of Getty. In addition,
approximately 667,000 shares of Marketing Common Stock will be issued to the
Marketing ESOP at the time of the Distribution (See Note 9).
A summary of the changes in stockholders' equity for the three years ended
January 31, 1996 is as follows (in thousands):
<TABLE>
<S> <C>
Balance, February 1, 1993........................................................ $55,694
Net income....................................................................... 1,818
-------
Balance, January 31, 1994........................................................ 57,512
Net loss......................................................................... (2,434)
-------
Balance, January 31, 1995........................................................ 55,078
Net income....................................................................... 3,664
-------
Balance, January 31, 1996........................................................ $58,742
=======
</TABLE>
F-10
<PAGE> 52
9. EMPLOYEE BENEFIT PLANS
Effective after the Distribution, Marketing will have a retirement and
profit sharing plan with deferred 401(k) savings plan provisions (the
"Retirement Plan") for non-union employees meeting certain service requirements
and a Supplemental Plan for executives. Under the terms of these plans, the
annual discretionary contributions to the plans are determined by the Board of
Directors. Under the Retirement Plan, employees may make voluntary contributions
and Marketing has elected to match an amount equal to 50% of such contributions
but in no event more than 3% of the employee's eligible compensation. Under the
Supplemental Plan, a participating executive may receive an amount equal to 10%
of his compensation, reduced by the amount of any contributions allocated to
such executive under the Retirement Plan. Net contributions made by Getty under
the comparable Getty retirement and profit sharing plans in respect of persons
who will be Marketing employees approximated $569,000, $606,000 and $622,000 for
the years ended January 31, 1996, 1995 and 1994, respectively.
In connection with the Distribution, Marketing will establish a leveraged
Employee Stock Ownership Plan (the "Marketing ESOP") that will purchase newly
issued shares of Marketing Common Stock from Marketing equal to five percent of
the outstanding shares of Marketing. The Marketing ESOP will purchase such
newly-issued shares from Marketing using the proceeds of a loan to be made by
Marketing to the Marketing ESOP. The Marketing ESOP loan will be repaid over a
five-year period, and Marketing will contribute annually to the Marketing ESOP
the funds required to repay such loan. The principal amount of the Marketing
ESOP loan is expected to be equal to the number of shares purchased by the
Marketing ESOP (approximately 667,000) multiplied by the purchase price per
share (determined on the basis of the value of the Marketing Common Stock). It
is expected that the repayment of the Marketing ESOP loan will result in
projected allocations to participants' accounts of an aggregate of approximately
133,400 shares of Marketing Common Stock per year, allocated in proportion to
compensation. Marketing expects that the five percent of the outstanding stock
of Marketing purchased by the Marketing ESOP will be allocated to covered
employees over a five-year period. Commencing February 1, 1997, Marketing will
recognize a charge to operating results over a five-year period relating to the
Marketing ESOP. Such charge will be based on the value of the Marketing Common
Stock in the future and, as such, is not currently determinable.
Immediately prior to the Distribution, each current holder of an option to
acquire shares of Getty Common Stock pursuant to Getty's 1985, 1988 and 1991
Stock Option Plans will receive, in exchange therefor, two separately
exercisable options: one to purchase shares of Getty Common Stock (a "Getty
Option") and one to purchase Marketing Common Stock (a "Marketing Option"), each
exercisable for the same number of shares and containing substantially
equivalent terms as the pre-Distribution option. The exercise price of each
Getty Option and Marketing Option (each a "Replacement Option") will be set so
as to preserve the Aggregate Spread (as defined below) in value attributed to
the options currently held by such directors, officers and key employees. The
"Aggregate Spread" is an amount representing the difference between the exercise
price of an option and the price of a share of Getty Common Stock immediately
prior to the Distribution multiplied by the number of shares underlying such
option. Options granted in connection with the Distribution will be immediately
exercisable for persons covered by certain "change of control" agreements.
The Marketing Stock Option Plan authorizes Marketing to grant options to
purchase shares of Marketing Common Stock. The aggregate number of shares of
Marketing Common Stock which may be made the subject of options under the
Marketing Stock Option Plan will not exceed 1,300,000 shares, subject to further
adjustment for stock dividends and stock splits, of which approximately 930,000
shares will be subject to issuance upon the exercise of Replacement Options (as
described above) and the balance will be available for future option grants.
Except with respect to certain of the Replacement Options, which will be
immediately exercisable, the Marketing Stock Option Plan provides that options
are exercisable starting one year from the date of grant, on a cumulative basis
at the annual rate of 25 percent of the total number of shares covered by the
option.
F-11
<PAGE> 53
The following is a schedule of stock option prices and activity relating to
the Getty Petroleum Corp. Stock Option Plans for the three years ended January
31, 1996. Subsequent to the Distribution, the exercise price of each Getty
option and Marketing option will be set so as to preserve the Aggregate Spread
(as defined above) in value attributed to the options currently held by the
holders:
<TABLE>
<CAPTION>
1985 PLAN 1988 PLAN 1991 PLAN
----------------------- ----------------------- -----------------------
NUMBER GETTY STOCK NUMBER GETTY STOCK NUMBER GETTY STOCK
OF OPTION PRICE OF OPTION PRICE OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at February 1,
1993.................... 207,159 $10.49-14.09 256,523 $11.12-18.62 214,275 $10.88-12.38
Granted................... 80,000 12.25-13.13
Exercised................. (9,833) 10.49 (2,500) 11.12 (1,250) 12.38
Cancelled................. (8,052) 10.49-14.09 (15,014) 11.12-18.62 (12,325) 10.88-12.38
------- ------------- ------- ------------- ------- -------------
Outstanding at January 31,
1994.................... 189,274 10.49-14.09 239,009 11.12-18.62 280,700 10.88-13.13
Granted................... 107,250 10.88
Exercised................. (1,245) 10.49-14.09 (250) 11.12 (125) 10.88
Cancelled................. (1,217) 14.09 (926) 17.12-18.62 (1,250) 10.88
------- ------------- ------- ------------- ------- -------------
Outstanding at January 31,
1995.................... 186,812 10.49-14.09 237,833 11.12-18.62 386,575 10.88-13.13
Granted................... 64,500 13.88 63,500 13.88
Exercised................. (2,500) 11.12 (5,500) 10.88
Cancelled................. (991) 10.49-14.09 (1,551) 11.12-18.62 (1,250) 10.88-12.38
------- ------------- ------- ------------- ------- -------------
Outstanding at January 31,
1996.................... 185,821 $10.49-14.09 298,282 $11.12-18.62 443,325 $10.88-13.88
======= =========== ======= =========== ======= ===========
Exercisable at January 31,
1996.................... 185,821 $10.49-14.09 298,282* $11.12-18.62 390,997* $10.88-13.13
======= =========== ======= =========== ======= ===========
Available for grant at
January 31, 1996........ -- 207 49,800
======= ======= =======
</TABLE>
- - ---------------
* Includes options which become exercisable as of the Distribution Date.
F-12
<PAGE> 54
10. QUARTERLY FINANCIAL DATA
The following is a summary of the quarterly results of operations for the
years ended January 31, 1996 and 1995 (unaudited as to quarterly information):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------- YEAR ENDED
FISCAL 1996: APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 JANUARY 31
- - ------------------------------------ -------- -------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $194,967 $187,796 $215,486 $192,945 $ 791,194
Gross profit (loss)................. (1,789) 2,425 4,031 3,540 8,207
Earnings (loss) before income taxes
and cumulative effect of
accounting change................. (2,113) 1,756 3,535 3,147 6,325
Net earnings (loss)................. (1,600)(a) 1,101 2,200 1,963 3,664(a)
Pro forma net earnings (loss) per
share............................. $ (.13)(a) $ .09 $ .17 $ .16 $ .29(a)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------- YEAR ENDED
FISCAL 1995: APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 JANUARY 31
- - ------------------------------------ -------- -------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $170,136 $182,869 $196,394 $202,490 $ 751,889
Gross profit (loss)................. (1,222) (8,084) 4,626 7,201 2,521
Earnings (loss) before income
taxes............................. (2,127) (8,992) 1,179 5,962 (3,978)
Net earnings (loss)................. (1,301) (5,502) 721 3,648 (2,434)
</TABLE>
- - ---------------
(a) Includes charge to earnings of $282, or $.02 per share, from the cumulative
effect of adopting Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
11. RESTRUCTURING
During fiscal 1995, pre-tax charges of $1,846,000 were recorded to provide
for severance and other costs associated with restructuring Marketing's
organization and its operations. The restructuring charges included $1,171,000
for severance and related benefits resulting from a 6% reduction in the work
force, and $675,000 for other costs. The charges are included in other income
(expense), net in the fiscal 1995 consolidated statement of operations.
Marketing's consolidated balance sheets as of January 31, 1996 and 1995 included
an accrual of $326,000 and $1,048,000, respectively, relating to the
restructuring.
F-13
<PAGE> 55
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JULY 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales............................................................ $408,494 $366,756
Rental income........................................................ 16,601 15,825
Other income, net.................................................... 107 182
-------- --------
425,202 382,763
-------- --------
Cost of sales........................................................ 405,726 366,120
Selling, general and administrative expenses......................... 10,293 10,563
-------- --------
416,019 376,683
-------- --------
Earnings before interest taxes, depreciation and amortization
(EBITDA)........................................................... 9,183 6,080
Interest expense..................................................... 259 196
Depreciation and amortization........................................ 6,702 6,241
-------- --------
Earnings (loss) before provision (credit) for income taxes and
cumulative effect of accounting change............................. 2,222 (357)
Provision (credit) for income taxes.................................. 935 (140)
-------- --------
Earnings (loss) before cumulative effect of accounting change........ 1,287 (217)
Cumulative effect of accounting change............................... -- (282)
-------- --------
Net earnings (loss).................................................. $ 1,287 ($ 499)
======== ========
Pro forma net earnings per share..................................... $ 0.10
========
Weighted average shares outstanding.................................. 12,672
========
</TABLE>
See accompanying notes.
F-14
<PAGE> 56
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
JULY 31,
1996
--------
<S> <C>
ASSETS
Current assets:
Cash and equivalents.......................................................... $ 11,340
Accounts receivable, less allowance
for doubtful accounts of $1,459............................................ 10,653
Inventories................................................................... 23,003
Deferred income taxes......................................................... 1,736
Prepaid expenses and other
current assets............................................................. 1,359
--------
Total current assets.................................................. 48,091
Property and equipment, at cost, less
accumulated depreciation and amortization..................................... 85,935
Other assets.................................................................... 2,259
--------
TOTAL ASSETS.......................................................... $136,285
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 23,386
Accrued expenses.............................................................. 9,138
Gasoline taxes payable........................................................ 15,778
--------
Total current liabilities............................................. 48,302
Deferred income taxes........................................................... 13,695
Other, principally deposits..................................................... 14,259
Stockholders' equity............................................................ 60,029
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $136,285
========
</TABLE>
See accompanying notes.
F-15
<PAGE> 57
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JULY 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................................... $ 1,287 ($ 499)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Cumulative effect of accounting change............................... -- 282
Depreciation and amortization........................................ 6,702 6,241
Deferred income taxes................................................ 390 642
Gain on dispositions of property and equipment....................... (72) (19)
Changes in assets and liabilities:
Accounts receivable.................................................. 1,541 3,087
Inventories.......................................................... (3,086) (2,248)
Prepaid expenses and other current assets............................ 1,414 1,456
Other assets......................................................... 260 (74)
Accounts payable, accrued expenses and gasoline taxes payable........ 1,745 (5,403)
Other, principally deposits.......................................... 418 394
------- -------
Net cash provided by operating activities......................... 10,599 3,859
------- -------
Cash flows used in investing activities:
Capital expenditures................................................. (8,640) (7,998)
Proceeds from dispositions of property and equipment................. 274 235
------- -------
Net cash used in investing activities............................. (8,366) (7,763)
------- -------
Net increase (decrease) in cash and equivalents........................ 2,233 (3,904)
Cash and equivalents at beginning of period............................ 9,107 20,466
------- -------
Cash and equivalents at end of period.................................. $11,340 $16,562
======= =======
Supplemental disclosure of cash flow information
Cash paid during the year for interest............................... $ 259 $ 196
</TABLE>
See accompanying notes.
F-16
<PAGE> 58
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by Getty Petroleum Marketing Inc. ("Marketing") on the same basis as
the audited financial statements, and include all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results of operations for the interim periods
ended July 31, 1996 and 1995, pursuant to the rules and regulations of the
Securities and Exchange Commission.
Marketing, a Maryland corporation, was formed on October 1, 1996 as a
wholly-owned subsidiary of Getty Petroleum Corp. ("Getty"). Getty plans to
separate its petroleum marketing business from its real estate business at the
close of business on January 31, 1997 with each business to be conducted by a
separate, publicly held corporation. In order to effect the separation of these
businesses, Getty will transfer to Marketing the assets and liabilities of the
petroleum marketing business and the New York Mid-Hudson Valley home heating oil
business previously conducted by a subsidiary of Getty, and distribute all of
the common shares of Marketing to the stockholders of Getty (the
"Distribution"). The Distribution is expected to be at the rate of one share of
common stock of Marketing for each share of Getty common stock for stockholders
of record on January 31, 1997. Getty will retain and continue to own and operate
the real estate business and the Pennsylvania and Maryland home heating oil
business previously conducted by another subsidiary. After the Distribution,
Getty will change its name to Getty Realty Corp. ("Realty" or "Getty").
The consolidated financial statements of Marketing contained herein have
been prepared on the basis that the assets and liabilities of the petroleum
marketing business were transferred using historical carrying values as recorded
by Getty and Marketing's results of operations and cash flows were derived from
Getty's historical financial statements. Marketing's results of operations
include allocations of certain corporate expenses of Getty which were based on a
number of factors including, for example, personnel, employee benefits, office
space and data processing. Management believes these allocations to be
reasonable. The financial information is not necessarily indicative of the
financial results that would have occurred had Marketing been operated as a
separate, stand-alone entity during the reporting period nor is it necessarily
indicative of future results.
Marketing's results of operations in future periods will reflect certain
expenses associated with operating and reporting as a separate, publicly held
company which were not incurred in prior periods. Such costs include
environmental expenses which, in the historical periods, have not been allocated
to Marketing since Getty has agreed to indemnify Marketing with respect to all
scheduled pre-closing environmental liabilities and obligations, all scheduled
future upgrades necessary to cause underground storage tanks (such tanks,
including related piping, underground pumps, wiring and monitoring devices, the
"USTs") to conform to the 1998 federal standards for USTs (the "1998
Standards"), and all environmental liabilities and obligations arising out of
discharges with respect to properties containing USTs that have not been
upgraded to meet the 1998 Standards that are discovered prior to the date such
USTs are upgraded to meet the 1998 Standards, with Marketing being responsible
for and indemnifying Getty with respect to all other environmental obligations
and liabilities. No amounts have been included for these other environmental
liabilities and obligations as they are not currently ascertainable. However,
future environmental expenses of Marketing are expected to be significantly
lower than amounts recorded by Getty ($7.3 million and $7.6 million for the six
months ended July 31, 1996 and 1995, respectively) since USTs have been or will
be upgraded at Getty's expense by December 22, 1998.
The results of operations for the interim periods ended July 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the full
fiscal years.
2. PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock that would have been
outstanding during the period had the Distribution taken place
F-17
<PAGE> 59
as of the beginning of such period. Common stock equivalents are not included in
earnings per share computations since their effect is immaterial.
3. ACCOUNTING CHANGE
The consolidated statement of operations for the six months ended July 31,
1995 includes an after-tax charge to earnings of $282,000 for the cumulative
effect of adopting, at the end of that fiscal year, Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
4. INVENTORIES
Inventories, primarily finished petroleum products, are principally
accounted for under the lower of last-in, first-out ("LIFO") cost or market. Due
to changes in product costs during the six months ended July 31, 1996, Marketing
recorded a LIFO inventory reserve of $2,258,000, which increased cost of sales
and decreased pre-tax income by such amount. During the prior year's comparable
period, there was no LIFO inventory charge.
5. STOCKHOLDERS' EQUITY
A summary of the changes in stockholders' equity for the six months ended
July 31, 1996 is as follows (in thousands):
<TABLE>
<S> <C>
Balance, February 1, 1996................................. $58,742
Net income................................................ 1,287
-------
Balance, July 31, 1996.................................... $60,029
=======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
In connection with the Distribution, Marketing will establish a leveraged
Employee Stock Ownership Plan (the "Marketing ESOP") that will purchase newly
issued shares of Marketing common stock from Marketing equal to five percent of
the outstanding shares of Marketing. The Marketing ESOP will purchase such
newly-issued shares from Marketing using the proceeds of a loan to be made by
Marketing to the Marketing ESOP. The Marketing ESOP loan will be repaid over a
five-year period, and Marketing will contribute annually to the Marketing ESOP
the funds required to repay such loan. The principal amount of the Marketing
ESOP loan is expected to be equal to the number of shares purchased by the
Marketing ESOP (approximately 667,000) multiplied by the purchase price per
share (determined on the basis of the value of the Marketing common stock). It
is expected that the repayment of the Marketing ESOP loan will result in
projected allocations to participants' accounts of an aggregate of approximately
133,400 shares of Marketing common stock per year, allocated in proportion to
compensation. Marketing expects that the five percent of the outstanding stock
of Marketing purchased by the Marketing ESOP will be allocated to covered
employees over a five-year period. Commencing February 1, 1997, Marketing will
recognize a charge to operating results over a five-year period relating to the
Marketing ESOP. Such charge will be based on the value of the Marketing common
stock in the future and, as such, is not currently determinable.
Immediately prior to the Distribution, each current holder of an option to
acquire shares of Getty Common Stock pursuant to Getty's 1985, 1988 and 1991
Stock Option Plans will receive, in exchange therefor, two separately
exercisable options: one to purchase shares of Getty Common Stock (a "Getty
Option") and one to purchase Marketing common stock (a "Marketing Option"), each
exercisable for the same number of shares and containing substantially
equivalent terms as the pre-Distribution option. The exercise price of each
Getty Option and Marketing Option will be set so as to preserve the Aggregate
Spread (as defined below) in value attributed to the options currently held by
such directors, officers and key employees. The "Aggregate Spread" is an amount
representing the difference between the exercise price of an option and the
price of a share of Getty Common Stock immediately prior to the Distribution
multiplied by the number of shares underlying such option. Options granted in
connection with the Distribution will be immediately exercisable for persons
covered by certain "change of control" agreements.
F-18
<PAGE> 60
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.
Date: November 19, 1996
GETTY PETROLEUM MARKETING INC.
By: /s/ Leo Liebowitz
----------------------------------------
Leo Liebowitz
Chairman and Chief Executive Officer
F-19
<PAGE> 1
EXHIBIT 2.1
REORGANIZATION AND
DISTRIBUTION AGREEMENT
between
GETTY PETROLEUM CORP.
and
GETTY PETROLEUM MARKETING INC.
dated as of
January 31, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS ................................................. 2
Section 1.01 General ............................................. 2
Section 1.02 Terms Defined Elsewhere in Agreement ................ 14
ARTICLE II - TRANSFER OF ASSETS ........................................ 14
Section 2.01 Merger of Aero into Getty ........................... 14
Section 2.02 Transfer of Assets to Marketing ..................... 14
Section 2.03 Transfers Not Effected Prior to the Distribution .... 15
Section 2.04 Cooperation Regarding Assets ........................ 16
Section 2.05 No Representations or Warranties; Consents .......... 17
Section 2.06 Conveyancing and Assumption Instruments ............. 18
ARTICLE III - ASSUMPTION AND SATISFACTION OF LIABILITIES ................ 21
Section 3.01 Assumption and Satisfaction of Liabilities .......... 21
ARTICLE IV - THE DISTRIBUTION ........................................... 21
Section 4.01 Cooperation Prior to the Distribution ............... 21
Section 4.02 Getty Board Action; Conditions Precedent
to the Distribution ................................. 22
Section 4.03 The Distribution .................................... 24
ARTICLE V - INDEMNIFICATION ............................................. 24
Section 5.01 Indemnification by Getty ............................ 24
Section 5.02 Indemnification by Marketing ........................ 25
Section 5.03 Insurance Proceeds .................................. 25
Section 5.04 Procedure for Indemnification ....................... 26
Section 5.05 Remedies Cumulative ................................. 30
Section 5.06 Survival of Indemnities ............................. 30
i
<PAGE> 3
ARTICLE VI - CERTAIN ADDITIONAL MATTERS ................................ 30
Section 6.01 Marketing Board ................................... 30
Section 6.02 Resignations; Getty Board .......................... 31
Section 6.03 Charter and Bylaws ................................. 31
Section 6.04 Employee Stock Ownership Plan ...................... 31
Section 6.05 Certain Post-Distribution Transactions ............. 32
Section 6.06 Corporate Name ..................................... 33
ARTICLE VII - ACCESS TO INFORMATION AND SERVICES ....................... 33
Section 7.01 Provision of Corporate Records ..................... 33
Section 7.02 Access to Information .............................. 34
Section 7.03 Production of Witnesses ........................... 34
Section 7.04 Reimbursement ...................................... 35
Section 7.05 Retention of Records ............................... 35
Section 7.06 Confidentiality .................................... 35
Section 7.07 Privileged Matters ................................. 36
ARTICLE VIII - INSURANCE ............................................... 39
Section 8.01 Policies and Rights Included Within
the Marketing Assets ............................... 39
Section 8.02 Post-Distribution Date Claims ...................... 40
Section 8.03 Administration and Reserves ........................ 40
Section 8.04 Agreement for Waiver of Conflict and
Shared Defense ..................................... 42
Section 8.05 Surety Bonds and Letters of Credit ................. 42
ARTICLE IX - MISCELLANEOUS ............................................. 43
Section 9.01 Complete Agreement; Construction ..................... 43
Section 9.02 Expenses ............................................. 44
Section 9.03 Governing Law ........................................ 44
Section 9.04 Notices .............................................. 44
Section 9.05 Amendments ........................................... 45
Section 9.06 Successors and Assigns ............................... 45
Section 9.07 Termination ......................................... 45
Section 9.08 Subsidiaries ......................................... 45
Section 9.09 No Third-Party Beneficiaries ........................ 45
Section 9.10 Titles and Headings .................................. 45
Section 9.11 Exhibits and Schedules ............................... 46
ii
<PAGE> 4
Section 9.12 Legal Enforceability................................... 46
Section 9.13 Consent of Parties..................................... 46
iii
<PAGE> 5
SCHEDULE OF EXHIBITS
Exhibit A: Getty Pro Forma Balance Sheet
Exhibit B: Marketing Bylaws
Exhibit C: Marketing Restated Certificate of Incorporation
Exhibit D: Marketing Pro Forma Balance Sheet
Exhibit E: Master Lease between Marketing and Getty
Exhibit F: Office Space License between Marketing and Getty
Exhibit G: Services Agreement between Marketing and Getty
Exhibit H: Tax Sharing Agreement between Marketing and Getty
Exhibit I: Trademark License Agreement between Marketing and Getty
iv
<PAGE> 6
LIST OF SCHEDULES
Schedule 1.01(a) Environmental Liabilities
Schedule 1.01(b) Upgrades
Schedule 1.01(c) Marketing Equipment
Schedule 1.01(d) Shared Policies
Schedule 2.06 Conveyance and Assumption Instruments
Schedule 4.01 Consents
v
<PAGE> 7
REORGANIZATION AND DISTRIBUTION AGREEMENT
This REORGANIZATION AND DISTRIBUTION AGREEMENT (this "Agreement") is
made this 31st day of January, 1997 between Getty Petroleum Corp., a Delaware
corporation ("Getty"), and Getty Petroleum Marketing Inc. a Maryland corporation
and a wholly-owned subsidiary of Getty ("Marketing").
RECITALS
WHEREAS, Getty, directly and through subsidiaries, (i) acquires,
develops, leases and disposes of real estate (the "Real Estate Business"),
purchases, stores, transports and sells home heating oil to residential and
commercial customers in Pennsylvania and Maryland (the "Aero Home Heating Oil
Business"), and (ii) purchases, stores, markets and distributes gasoline and
diesel fuel in 12 Northeastern and Middle Atlantic States and purchases, stores,
transports and sells home heating oil to residential and commercial customers in
the New York Mid-Hudson Valley (which businesses described in this clause (ii)
are more specifically defined herein as the "Marketing Business");
WHEREAS, the Board of Directors of Getty has determined that it is in
the best interests of Getty to separate the Aero Home Heating Oil Business and
the Real Estate Business on the one hand, and the Marketing Business on the
other hand, and, in order to effect such separation, to transfer to Marketing
the stock of certain Getty subsidiaries principally engaged in the Marketing
Business and certain other assets relating principally to the Marketing Business
(collectively, the "Asset Transfers"), and thereafter to distribute all of the
outstanding shares of common stock, par value $.01 per share, of Marketing to
the holders of Getty common stock (the "Distribution");
<PAGE> 8
WHEREAS, Getty has effected (i) certain preliminary transfers and
corporate restructurings and (ii) the elimination of all intercompany and
intracompany receivables, payables and loans between entities that will be part
of Getty and its subsidiaries after the Distribution and entities that will be
part of Marketing and its subsidiaries after the Distribution, which
transactions are not contingent upon consummation of the Distribution and will
not be undone if the Distribution does not occur; and
WHEREAS, in connection with the Distribution, Getty and Marketing have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. As used in this Agreement, the following terms
shall have the following meanings:
Action: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Aero: Aero Oil Company, a Pennsylvania corporation.
Affiliate: With respect to any specified Person, means any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For purposes of this
definition, "control," when used with
2
<PAGE> 9
respect to any Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing. Notwithstanding
the foregoing, (i) the Affiliates of Getty shall not include Marketing, the
Marketing Subsidiaries or any other Person that would be an Affiliate of Getty
by reason of Getty's ownership of the capital stock of Marketing prior to the
Distribution or the fact that any officer or director of Marketing or any of
the Marketing Subsidiaries shall also serve as an officer or director of Getty
or any of the Retained Subsidiaries, and (ii) the Affiliates of Marketing shall
not include Getty, the Retained Subsidiaries or any other Person that would be
an Affiliate of Marketing by reason of Getty's ownership of the capital stock
of Marketing prior to the Distribution or the fact that any officer or director
of Marketing or any of the Marketing Subsidiaries shall also serve as an
officer or director of Getty or any of the Retained Subsidiaries.
Agent: The distribution agent appointed by Getty to distribute the
Marketing Common Stock pursuant to the Distribution.
Claims Administration: The processing of pre-Distribution claims made
under the Policies (including Self Insurance Programs), including the reporting
of claims to the insurance carrier, management and defense of claims and
providing for appropriate releases upon settlement of claims.
Code: The Internal Revenue Code of 1986, as amended.
Commission: The Securities and Exchange Commission.
Conveyancing and Assumption Instruments: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers
3
<PAGE> 10
and the assumption of Liabilities in the manner contemplated by this Agreement
and the Related Agreements.
Distribution Date: The date determined by the Getty Board as the date
on which the Distribution shall be effected.
Distribution Record Date: The date established by the Getty Board as
the date for taking a record of the Holders of Getty Common Stock entitled to
participate in the Distribution.
Employee Stock Ownership Plan: The Employee Stock Ownership Plan of
Getty Petroleum Marketing Inc.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Financing Obligations: All (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, notes, debentures or similar instruments, (iii)
obligations under capitalized leases and deferred purchase arrangements, (iv)
reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
Gasway: Gasway, Inc., a New York corporation.
Getty Board: The Board of Directors of Getty.
Getty Books and Records: The books and records (including
computerized records, ledgers, files and software) of Getty and the Retained
Subsidiaries and all books and records owned by Getty and its Subsidiaries which
relate to the Retained Business, are necessary to operate the Retained Business,
or are required by law to be retained by Getty, including, without limitation,
all such books and records relating to Retained Employees, all
4
<PAGE> 11
files relating to any Action pertaining to the Retained Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to Getty, the Retained
Subsidiaries or the Retained Business (but not including the Marketing Books
and Records, provided that Getty shall have access to, and shall have the right
to obtain duplicate copies of, the Marketing Books and Records in accordance
with the provisions of Article VII).
Getty Common Stock: The common stock, par value $0.10 per share, of
Getty.
Getty Group: Getty and the Retained Subsidiaries, collectively.
[Getty Pro Forma Balance Sheet: The Pro Forma Consolidated Balance
Sheet for Getty, after giving effect to the Distribution, as of [ October 31,
1996] attached hereto as Exhibit A.
Holders: The holders of record of Getty Common Stock as of the
Distribution Record Date.
HSR Act: The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Indemnified Environmental Liabilities: All Liabilities relating to
(i) the pre-closing environmental liabilities and obligations set forth on
Schedule 1.01(a) hereto, (ii) all future upgrades set forth on Schedule 1.01(b)
hereto necessary to cause USTs to conform to the 1998 federal standards for
USTs, and (iii) all environmental liabilities and obligations arising out of
discharges with respect to the properties containing USTs that have not been
upgraded to conform to the 1998 federal standards for USTs, that are discovered
prior to the date such USTs are upgraded to meet the 1998 federal standards.
5
<PAGE> 12
Insurance Administration: With respect to each Policy, the accounting
for premiums, retrospectively rated premiums, defense costs, adjuster's fees,
indemnity payments, deductibles and retentions as appropriate under the terms
and conditions of such Policy; and the reporting to excess insurance carriers of
any losses or claims in accordance with Policy provisions, and the distribution
of Insurance Proceeds as contemplated by this Agreement.
Insurance Proceeds: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of an insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
Insured Claims: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
IRS: The Internal Revenue Service.
KOSCO: Kingston Oil Supply Corp., a New York corporation.
Liabilities: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental
6
<PAGE> 13
entity or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
Marketing Adjustment Amount: The difference between the Marketing
Initial Target Net Working Capital and the Marketing Initial Net Working
Capital.
Marketing Balance Sheet: The Consolidated Balance Sheet for Marketing
as of [October 31, 1996] attached hereto as Exhibit D.
Marketing Board: The Board of Directors of Marketing.
Marketing Books and Records: The books and records (including
computerized records, ledgers, files and software) of Marketing and the
Marketing Subsidiaries and all books and records owned by Getty and its
Subsidiaries that relate to the Marketing Business or are necessary to operate
the Marketing Business including, without limitation, all such books and records
relating to Marketing Employees, all files relating to any Action being assumed
by Marketing as part of the Marketing Liabilities, original corporate minute
books, stock ledgers and certificates and corporate seals, and all licenses,
leases, agreements and filings relating to Marketing, the Marketing Subsidiaries
or the Marketing Business (but not including the Getty Books and Records,
provided that Marketing shall have access to, and have the right to obtain
duplicate copies of, the Getty Books and Records in accordance with the
provisions of Article VII).
Marketing Business: The businesses conducted by Marketing and the
Marketing Subsidiaries and the businesses conducted pursuant to or utilizing the
Marketing Assets, including without limitation (i) the purchase, storage,
distribution, marketing and sale of gasoline and diesel fuel and other related
products at wholesale and through terminals and
7
<PAGE> 14
a retail service station network and (ii) the purchase, storage, transportation
and sale of home heating oil to residential and commercial customers in the New
York Mid-Hudson Valley.
Marketing Bylaws: The Bylaws of Marketing, substantially in the form
of Exhibit B, to be in effect at the Distribution Date.
Marketing Charter: The Articles of Incorporation of Marketing,
substantially in the form of Exhibit C, to be in effect at the Distribution
Date.
Marketing Common Stock: The common stock, par value $.01 per share,
of Marketing.
Marketing Employees: The persons employed by the Marketing Group on
the Distribution Date, all of whom (except those employed pursuant to union
contracts or to agreements providing for continued employment upon a change in
control of Getty) are at will employees.
Marketing Equipment: Certain equipment of Getty relating to the
storage, distribution and marketing of motor fuel, including the tanks (other
than the Retained USTs), racks, signs, motor fuel pumps, canopies and associated
equipment described on Schedule 1.01(c) hereto.
Marketing Group: Marketing and the Marketing Subsidiaries,
collectively.
Marketing Initial Cash Balance: $____________, which is the amount of
cash sufficient to cause Marketing Initial Net Working Capital to equal
Marketing Initial Target Net Working Capital.
Marketing Initial Net Working Capital: The excess of the book value
of the current assets of the Marketing Group over the book value of the current
liabilities of the
8
<PAGE> 15
Marketing Group as of the Distribution Date, as determined in accordance with
Section 2.06(b) hereof.
Marketing Initial Target Net Working Capital: $1,100,000.
Marketing Liabilities: (i) All of the Liabilities of the Marketing
Group under, or to be retained or assumed by Marketing or any of the Marketing
Subsidiaries pursuant to, this Agreement or any of the Related Agreements, (ii)
all Liabilities for payment of outstanding drafts of Getty attributable to the
Marketing Business existing as of the Distribution Date, and (iii) all other
Liabilities arising out of or in connection with any of the Marketing Assets or
the Marketing Business, determined on a basis consistent with the determination
of the Liabilities of Marketing included on the Marketing Balance Sheet (but
excluding (i) all Indemnified Environmental Liabilities and (ii) any Financing
Obligations of Getty or any of the Retained Subsidiaries, except to the extent
otherwise set forth above or reflected in the Marketing Balance Sheet).
Marketing Policies: All Policies, current or past, which are owned or
maintained by or on behalf of Getty or any of its Affiliates or predecessors,
that relate to the Marketing Business but do not relate to the Retained
Business, and which Policies are either maintained by the Marketing Group or
assignable to the Marketing Group.
Marketing Balance Sheet: The Consolidated Balance Sheet for Marketing
as of [January 31, 1996] attached hereto as Exhibit D-1.
Marketing Security Deposits: Any claim to or right in (i) monies
deposited with third parties to secure the performance of any obligation of
Getty, Marketing or any of their subsidiaries incurred in connection with the
Marketing Business or any Marketing Asset and (ii) monies deposited with Getty
by motor fuel station operators or dealers.
9
<PAGE> 16
Marketing Subsidiaries: The Transferred Subsidiaries and all
Subsidiaries of Marketing or the Transferred Subsidiaries at the time of the
Distribution.
Master Lease: The Master Lease between Marketing and Getty, which
agreement shall be entered into on or before the Distribution Date in
substantially the form of Exhibit E hereto.
NYSE: The New York Stock Exchange, Inc.
Office Space License: The Office Space License between Marketing and
Getty, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit F hereto.
Person: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
Petro: PT Petro Corp., a New York corporation.
Policies: Insurance policies and insurance contracts of any kind
(each a "Policy") relating to the Marketing Business or the Retained Business as
conducted prior to the Distribution Date, including without limitation primary
and excess policies, comprehensive general liability policies, and automobile
and workers' compensation insurance policies, together with the rights, benefits
and privileges thereunder.
Privileged Information: All Information as to which Getty, Marketing
or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
Privileges: All privileges that may be asserted under applicable law
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
10
<PAGE> 17
Related Agreements: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation, the Conveyancing and Assumption
Instruments, the Master Lease, the Tax Sharing Agreement, the Trademark License
Agreement, the Services Agreement and the Office Space License.
Retained Assets: The assets of Getty other than the Marketing Assets,
including without limitation (i) the capital stock of the Retained Subsidiaries,
(ii) assets relating to the Retained Business, determined on a basis consistent
with the determination of assets included on the Getty Pro Forma Balance Sheet,
(iii) all of the assets expressly allocated to Getty or any of the Retained
Subsidiaries under this Agreement or the Related Agreements, and (iv) any other
assets of Getty and its Affiliates relating to the Retained Business.
Retained Business: The businesses conducted by Getty and its
Affiliates other than the Marketing Business, including without limitation the
Aero Home Heating Oil Business and the Real Estate Business.
Retained Employees: The persons employed by the Getty Group on the
Distribution Date, all of whom (except those employed pursuant to union
contracts or to agreements providing for continued employment upon a change in
control of Getty) are at will employees.
Retained Liabilities: (i) All of the Liabilities arising out of or in
connection with the Retained Assets or the Retained Business [determined on a
basis consistent with the determination of the Liabilities of Getty included on
the Getty Pro Forma Consolidated Balance Sheet], (ii) all of the Liabilities of
Getty under, or to be retained or assumed by
11
<PAGE> 18
Getty or any of the Retained Subsidiaries pursuant to, this Agreement
or any of the Related Agreements, (iii) any Financing Obligations not
constituting Marketing Liabilities, (iv) any Liabilities arising out of the
settlement of lawsuits relating to the Distribution (other than those
Liabilities that constitute Marketing Liabilities), (v) all Liabilities for the
payment of outstanding drafts of Getty attributable to the Retained Business
existing as of the Distribution Date, (vi) all Indemnified Environmental
Liabilities, and (vii) all other Liabilities of Getty not constituting
Marketing Liabilities.
Retained Policies: All Policies, current or past, that are owned or
maintained by or on behalf of any member of the Getty Group (or any of its
predecessors) which relate to the Retained Business but do not relate to the
Marketing Business.
Retained Subsidiaries: All Subsidiaries of Getty, except Marketing
and the Marketing Subsidiaries.
Retained USTs: The USTs that, pursuant to Section 7.6 of the Master
Lease, are retained by Getty after the Distribution Date.
Securities Act: The Securities Act of 1933, as amended.
Services Agreement: The Services Agreement, which shall be entered
into between Getty and Marketing on or prior to the Distribution Date in
substantially the form attached hereto as Exhibit G.
Shared Policies: All Policies, current or past, that are owned or
maintained by or on behalf of Getty or any of its Subsidiaries or their
respective predecessors that relate to both the Retained Business and the
Marketing Business, and all other Policies not constituting Marketing Policies
or Retained Policies, as specified on Schedule 1.01(d) hereto.
12
<PAGE> 19
Subsidiary: With respect to any Person, (a) any corporation of which at
least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned or controlled by such Person, by one or
more Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any non-corporate entity in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof, has
at least majority ownership interest.
Tax Ruling: The private letter ruling issued by the Internal Revenue
Service on September 11, 1996, with respect to certain tax matters relating to
the Distribution.
Tax Sharing Agreement: The Tax Sharing Agreement between Marketing and
Getty, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit H attached hereto.
Terminals: Getty Terminals Corp., a New York corporation.
Trademark License Agreement: The Trademark License Agreement between Getty
and Marketing, pursuant to which Getty will license certain intellectual
property rights to Marketing, which agreement shall be entered into on or prior
to the Distribution Date in substantially the form of Exhibit I attached
hereto.
Transferred Subsidiaries: Terminals, KOSCO, Gasway and Petro.
Transferred Subsidiary Stock: All of the issued and outstanding capital
stock of the Transferred Subsidiaries.
13
<PAGE> 20
UST: An underground storage tank including related piping, underground
pumps, wiring and monitoring devices.
Section 1.02 Terms Defined Elsewhere in Agreement.
Each of the following terms is defined in the Section set forth opposite
such term:
Term Section
---- -------
Aero Home Heating Oil Business Recitals
Asset Transfers Recitals
Consents 4.01
Corporate Expenses 2.06
Current Assets 2.06
Current Liabilities 2.06
Distribution Recitals
Excess Revolving Credit Facilities Balance 2.06
Form 10 Registration Statement 4.01
Getty Recitals
Indemnifiable Loss 5.01
Indemnifying Party 5.03
Indemnitee 5.03
Information 7.02
Marketing Recitals
Marketing Assets 2.02
Marketing Indemnitees 5.01
Marketing Self Insurance Liabilities 8.06
Real Estate Business Recitals
Retained Self Insurance Liabilities 8.06
Third-Party Claim 5.04
Working Capital Accounts 2.06
Working Capital Balance 2.06
ARTICLE II
TRANSFER OF ASSETS
Section 2.01 Merger of Aero into Getty. Prior to the Distribution
Date, Getty shall take or cause to be taken all actions necessary to cause Aero
to merge into Getty.
14
<PAGE> 21
Section 2.02 Transfer of Assets to Marketing. Prior to the
Distribution Date, Getty shall take or cause to be taken all actions necessary
to cause the transfer, assignment, delivery and conveyance to Marketing or the
Marketing Subsidiaries of all of Getty's and its Subsidiaries' right, title and
interest in the Marketing Assets, and Marketing shall take or cause to be taken
all actions necessary to cause the assumption by Marketing or the Marketing
Subsidiaries of the Marketing Liabilities. The "Marketing Assets" shall consist
of the following assets:
(i) the Transferred Subsidiary Stock;
(ii) the Marketing Security Deposits;
(iii) the Marketing Books and Records;
(iv) the Marketing Equipment;
(v) all licenses and permits relating to the Marketing
Business, to the extent such licenses and permits are
transferable;
(vi) all of the other assets to be assigned to Marketing under
this Agreement or the Related Agreements; and
(vii) all other assets (including, without limitation, all
accounts receivable, deferred income taxes, prepaid
expenses, reserves and other current assets) relating
to the Marketing Business, determined on a basis
consistent with the determination of the assets
included on the Marketing Combined Balance Sheet.
15
<PAGE> 22
Section 2.03 Transfers Not Effected Prior to the Distribution. To the
extent that any transfers contemplated by this Article II shall not have been
fully effected on the Distribution Date, the parties shall cooperate to effect
such transfers as promptly as shall be practicable following the Distribution
Date. Nothing herein shall be deemed to require the transfer of any assets or
the assumption of any Liabilities that by their terms or operation of law
cannot be transferred or assumed; provided, however, that Getty and Marketing
and their respective Subsidiaries and Affiliates shall cooperate in seeking to
obtain any necessary consents or approvals for the transfer of all assets and
Liabilities contemplated to be transferred pursuant to this Article II. In the
event that any such transfer of assets or Liabilities has not been consummated
as of the Distribution Date, the party retaining such asset or Liability shall
thereafter hold such asset in trust for the use and benefit of the party
entitled thereto (at the expense of the party entitled thereto) and retain such
Liability for the account of the party by whom such Liability is to be assumed
pursuant hereto, and take such other actions as may be reasonably required in
order to place the parties, insofar as reasonably possible, in the same
position as would have existed had such asset been transferred or such
Liability been assumed as contemplated hereby. As and when any such asset or
Liability becomes transferable, such transfer and assumption shall be effected
forthwith. The parties agree that, except as described in this section below,
as of the Distribution Date, each party hereto shall be deemed to have acquired
complete and sole beneficial ownership over all of the assets, together with
all rights, powers and privileges incidental thereto, and shall be deemed to
have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incidental
thereto, which such party is entitled to acquire or required to assume pursuant
to the terms of this Agreement.
16
<PAGE> 23
Section 2.04 Cooperation Regarding Assets. In the case that at any
time after the Distribution Date, Marketing reasonably determines that any of
the Retained Assets are essential for the conduct of the Marketing Business, or
Getty reasonably determines that any of the Marketing Assets are essential for
the conduct of the Retained Business, and the nature of such assets makes it
impracticable for Marketing or Getty, as the case may be, to obtain substitute
assets or to make alternative arrangements on commercially reasonable terms to
conduct their respective businesses, and reasonable provisions for the use
thereof are not already included in the Related Agreements, then Marketing (with
respect to the Marketing Assets) and Getty (with respect to the Retained Assets)
shall cooperate to make such assets available to the other party on commercially
reasonable terms, as may be reasonably required for such party to maintain
normal business operations (provided that such assets shall be required to be
made available only until such time as the other party may reasonably obtain
substitute assets or make alternative arrangements on commercially reasonable
terms to permit it to maintain normal business operations).
Section 2.05 No Representations or Warranties; Consents. Each of the
parties hereto understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this Agreement or
otherwise, representing or warranting in any way (i) as to the value or freedom
from encumbrance of, or any other matter concerning, any assets of such party or
(ii) as to the legal sufficiency to convey title to any asset transferred
pursuant to this Agreement or any Related Agreement, including, without
limitation, any Conveyancing or Assumption Instruments. It is also agreed and
understood that there are no warranties, express or implied, as to the
merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may
17
<PAGE> 24
be, and all such assets shall be "as is, where is" and "with all
faults" (provided, however, that the absence of warranties shall have no effect
upon the allocation of Liabilities under this Agreement). Similarly, each
party hereto understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this Agreement or
otherwise, representing or warranting in any way that the obtaining of any
consents or approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement
will satisfy the provisions of any or all applicable laws or judgments or other
instruments or agreements relating to such assets. Notwithstanding the
foregoing, the parties shall use their good faith efforts to obtain all
consents and approvals, to enter into all reasonable amendatory agreements and
to make all filings and applications which may be reasonably required for the
consummation of the transactions contemplated by this Agreement, and shall take
all such further reasonable actions as shall be reasonably necessary to
preserve for each of the Marketing Group and the Getty Group, to the greatest
extent feasible, the economic and operational benefits of the allocation of
assets and Liabilities provided for in this Agreement. In case at any time
after the Distribution Date any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such necessary or desirable action.
Section 2.06 Conveyancing and Assumption Instruments. In connection
with the Asset Transfers and the assumptions of Liabilities contemplated by this
Agreement, the parties shall execute or cause to be executed by the appropriate
entities the Conveyancing and Assumption Instruments in such forms as the
parties shall reasonably agree, including the assignment of franchise rights and
the assignment and assumption of existing agreements as
18
<PAGE> 25
set forth in Schedule 2.06 hereto. The transfer of capital stock shall be
effected by means of delivery of stock certificates and executed stock powers
and notation on the stock record books of the corporation or other legal
entities involved and, to the extent required by applicable law, by notation on
public registries.
(a) Cash Allocation on the Distribution Date. To satisfy the
business needs of cash of Getty and Marketing, as of the close of business on
the Distribution Date, Marketing shall be allocated, out of all cash bank
balances and short-term investments of Getty and its Subsidiaries ("Cash"), an
amount of Cash equal to the Marketing Initial Cash Balance and Getty shall
retain all other Cash. To the extent practicable, the parties shall use their
reasonable best efforts to take all necessary action to cause the Cash balances
of Marketing and its Subsidiaries immediately prior to consummation of the
Distribution to be equal to the Marketing Initial Cash Balance. In the event
the actual Cash balances of Marketing and its Subsidiaries as of the
Distribution are less than the Marketing Initial Cash Balance, the amount of the
deficiency shall be recorded in the accounts of Marketing as of the Distribution
Date as a payable from Getty to Marketing (which payable will be paid as
promptly as practicable following the Distribution); and in the event the actual
Cash balances of Marketing and its Subsidiaries as of the Distribution Date
exceeds the Marketing Initial Cash Balance, the amount of such excess shall be
recorded in the accounts of Getty and Marketing as of the Distribution Date as a
payable from Marketing to Getty (which payable will be paid as promptly as
practicable following the time it is determinable).
(b) Post-Distribution Adjustment. Within [30] days of the
Distribution Date, Marketing shall prepare a combining balance sheet of the
Marketing Group showing the Marketing Initial Net Working Capital and the
Marketing Adjustment Amount. If the
19
<PAGE> 26
Marketing Adjustment Amount exceeds zero, Getty shall promptly pay to Marketing
such Marketing Adjustment Amount. If the Marketing Adjustment Amount is less
than zero, Marketing shall promptly pay to Getty such Marketing Adjustment
Amount.
(c) Cash Management After the Distribution Date. Marketing shall
separate from Getty, and establish and maintain a cash management system and
accounting records with respect to the Marketing Business effective as of 12:01
a.m. on the day following the Distribution Date; thereafter, (i) any payments by
Getty or its Retained Subsidiaries on behalf of Marketing or the Marketing
Subsidiaries in connection with the Marketing Business shall be recorded in the
accounts of the Marketing Group as a payable from the Marketing Group to the
Getty Group; (ii) any payments by Marketing or the Marketing Subsidiaries on
behalf of Getty or its Retained Subsidiaries in connection with the Retained
Business shall be recorded in the accounts of the Getty Group as a payable from
the Getty Group to the Marketing Group; (iii) any cash payments received by
Getty and the Retained Subsidiaries relating to the Marketing Business or the
Marketing Assets shall be recorded in the accounts of the Getty Group as a
payable from the Getty Group to the Marketing Group; (iv) any cash payments
received by Marketing or the Marketing Subsidiaries relating to the Retained
Business or the Retained Assets shall be recorded in the accounts of the
Marketing Group as a payable from the Marketing Group to the Getty Group; (v)
Marketing and Getty shall make adjustments for late deposits, checks returned
for not sufficient funds and other post-Distribution Date transactions as shall
be reasonable under the circumstances consistent with the purpose and intent of
this Agreement; and (vi) the net balance due to the Getty Group or the Marketing
Group, as the case may be, in respect of the aggregate amounts of clauses (i),
(ii), (iii), (iv) and (v) shall be paid by Marketing or
20
<PAGE> 27
Getty, as appropriate, as promptly as practicable. For purposes of this
Section 2.06(c), the parties contemplate that the Retained Business and the
Marketing Business, including but not limited to the administration of accounts
payable and accounts receivable, will be conducted in the normal course.
(d) Audit and Disputes. All transactions contemplated in this
Section 2.06 shall be subject to audit by the parties, and any dispute
thereunder shall be resolved by an independent firm of certified public accounts
mutually acceptable to Getty and Marketing, whose decision shall be final and
unappealable.
ARTICLE III
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01 Assumption and Satisfaction of Liabilities. Except as
set forth in the Tax Sharing Agreement, the Master Lease or other Related
Agreements, effective as of and after the Distribution Date, (a) Marketing
shall, and/or shall cause the Marketing Subsidiaries to, assume, pay, perform,
and discharge in due course all of the Marketing Liabilities and (b) Getty
shall, and/or shall cause the Retained Subsidiaries to, pay, perform and
discharge in due course all of the Retained Liabilities.
ARTICLE IV
THE DISTRIBUTION
Section 4.01 Cooperation Prior to the Distribution.
(a) Getty and Marketing have prepared, and Marketing has filed with
the Commission, a Form 10 registration statement with respect to the
registration under the Exchange Act of the Marketing Common Stock (the "Form 10
Registration Statement").
(b) Getty and Marketing shall cooperate in preparing, filing with the
21
<PAGE> 28
Commission and causing to become effective any registration statements or
amendments thereto which are appropriate to reflect the establishment of, or
amendments to, the Employee Stock Ownership Plan and any employee benefit plans
and other plans contemplated by the Agreement.
(c) Getty and Marketing shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
(d) Getty and Marketing shall prepare, and Marketing shall file and pursue,
an application to permit the listing of Marketing Common Stock on the NYSE.
(e) Getty and Marketing shall make any requisite filings under the HSR
Act.
(f) Getty and Marketing shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby, including without limitation the consents or
approvals set forth on Schedule 4.01 hereto ("Consents").
(g) Getty and Marketing will use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary
or desirable under applicable law, to consummate the transactions contemplated
under this Agreement.
Section 4.02. Getty Board Action; Conditions Precedent to the Distribution
The Getty Board shall, in its discretion, establish the Distribution Record Date
and the Distribution Date and any appropriate procedures, including establishing
the exchange ratio,
22
<PAGE> 29
in connection with the Distribution. In no event shall the Distribution occur
unless the following conditions shall have been satisfied:
(i) the transactions contemplated by Sections 2.01 and 2.02 shall have been
consummated in all material respects;
(ii) Getty shall have modified its existing stock option plans and/or
amended option grants thereunder to insure that the Distribution does not
adversely affect the current holders of options under those plans;
(iii) the Marketing Common Stock shall have been approved for listing on
the NYSE, subject to official notice of issuance;
(iv) the Marketing Board, comprised as contemplated by Section 6.01, shall
have been elected by Getty, as sole stockholder of Marketing, and the Marketing
Charter and Marketing Bylaws shall have been adopted and shall be in effect;
(v) the Marketing Board shall have established the Employee Stock Ownership
Plan;
(vi) the Form 10 Registration Statement shall have become effective under
the Exchange Act;
(vii) the Tax Ruling shall have been granted in form and substance
satisfactory to the Getty Board, in its sole discretion;
(viii) a favorable no-action letter shall have been obtained from the
Securities and Exchange Commission regarding issuance of Marketing Common Stock
and certain other matters;
(ix) any applicable waiting period under the HSR Act shall have expired (or
been earlier terminated);
23
<PAGE> 30
(x) Getty and Marketing shall have obtained all Consents and any other
consents, the failure of which to obtain would, in the determination of the
Getty Board, have a material adverse effect on Getty or Marketing; and
(xi) Getty and Marketing shall have entered into the Related Agreements;
provided, however, that (i) any such condition may be waived by the Getty Board
in its sole discretion upon the advice of counsel, and (ii) the satisfaction of
such conditions shall not create any obligation on the part of Getty or any
other party hereto to effect the Distribution or in any way limit Getty's power
of termination set forth in Section 9.07 or alter the consequences of any such
termination from those specified in such Section.
Section 4.03 The Distribution. On the Distribution Date, subject to the
conditions and rights of termination set forth in this Agreement, Getty shall
deliver to the Agent a share certificate representing all of the then
outstanding shares of Marketing Common Stock owned by Getty and shall instruct
the Agent to distribute, on or as soon as practicable following the Distribution
Date, such Marketing Common Stock to the Holders. Marketing agrees to provide
all share certificates that the Agent shall require in order to effect the
Distribution.
ARTICLE V
INDEMNIFICATION
Section 5.01 Indemnification by Getty. Except as otherwise expressly
set forth in a Related Agreement, Getty shall indemnify, defend and hold
harmless Marketing and each of the Marketing Subsidiaries, and each of their
respective directors, officers, employees, agents and Affiliates and each of the
24
<PAGE> 31
heirs, executors, successors and assigns of any of the foregoing (the "Marketing
Indemnitees") from and against the Retained Liabilities.
Section 5.02 Indemification by Marketing. Except as otherwise expressly
set forth in a Related Agreement, Marketing shall indemnify, defend and hold
harmless Getty and each of the Retained Subsidiaries, and each of their
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "Getty
Indemnitees") from and against the Marketing Liabilities.
Section 5.03. Insurance Proceeds. The amount that any party (an
"Indemnifying Party") is or may be required to pay to any other Person (an
"Indemnitee") pursuant to Section 5.01 or Section 5.02 shall be reduced
(including, without limitation, retroactively) by any Insurance Proceeds or
other amounts actually recovered by or on behalf of such Indemnitee in reduction
of the related Indemnifiable Loss. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
or other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount
of such Insurance Proceeds or other amounts actually received.
Section 5.04 Procedure for Indemnification.
(a) Except as may be set forth in a Related Agreement, if an Indemnitee
shall receive notice or otherwise learn of the assertion by a Person (including,
without limitation, any governmental entity) who is not a party to this
Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to
25
<PAGE> 32
provide indemnification pursuant to this Agreement, such Indemnitee shall give
such Indemnifying Party written notice thereof promptly after becoming aware of
such Third-Party Claim; provided, that the failure of any Indemnitee to give
notice as required by this Section 5.04 shall not relieve the Indemnifying of
its obligations under this Article V, except to the extent that such
Indemnifying Party is prejudiced by such failure to give notice. Such notice
shall describe the Third-Party Claim in reasonable detail, and shall indicate
the amount (estimated if necessary) of the Indemnifiable Loss that has been or
may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying
26
<PAGE> 33
Party) subsequently incurred by such Indemnitee in connection with the defense
thereof; provided, that if the defendants in any such claim include both the
Indemnifying Party and one or more Indemnitees and in such Indemnitees'
reasonable judgment a conflict of interest between such Indemnitees and such
Indemnifying Party exists in respect of such claim, such Indemnitees shall have
the right to employ separate counsel and in that event the reasonable fees and
expenses of such separate counsel (but not more than one separate counsel
reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01 or 5.02, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to Indemnifying Party, which shall have the
option within ten days following the receipt of such notice (i) to disapprove
the settlement and assume all past and future responsibility for the claim,
including reimbursing the Indemnitee for prior expenditures in connection with
the claim, or (ii) to disapprove the settlement and continue to refrain from
participation in the defense of the claim, in which event the Indemnifying Party
shall have no further right to contest the amount or reasonableness of the
settlement if the Indemnitee elects to proceed therewith, or (iii) to approve
the amount of the settlement, reserving the Indemnifying Party's right to
contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay
the settlement. In the event the Indemnifying Party makes no response to such
written notice from the Indemnitee, the Indemnifying Party shall be deemed to
have elected option (ii).
27
<PAGE> 34
(c) If an Indemnifying Party chooses to defend or to seek to compromise any
Third-Party Claim, the Indemnitee shall make available to such Indemnifying
Party any personnel and any books, records or other documents within its control
or which it otherwise has the ability to make available that are necessary or
appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the contrary, an
Indemnifying Party shall not settle or compromise any Third-Party Claim unless
such settlement or compromise contemplates as an unconditional term thereof the
giving by such claimant or plaintiff to the Indemnitee of a written release from
all liability in respect of such Third-Party Claim (and provided further that
such settlement may not provide for any non-monetary relief by Indemnitee
without the written consent of Indemnitee). In the event the Indemnitee shall
notify the Indemnifying Party in writing that such Indemnitee declines to accept
any such settlement or compromise, such Indemnitee may continue to contest such
Third-Party Claim, free of any participation by such Indemnifying Party, at such
Indemnitee's sole expense. In such event, the obligation of such Indemnifying
Party to such Indemnitee with respect to such Third-Party Claim shall be equal
to (i) the costs and expenses of such Indemnitee prior to the date such
Indemnifying Party notifies such Indemnitee of the offer to settle or compromise
(to the extent such costs and expenses are otherwise indemnifiable hereunder)
plus (ii) the lesser of (A) the amount of any offer of settlement or compromise
which such Indemnitee declined to accept or (B) the actual out-of-pocket amount
such Indemnitee is obligated to pay subsequent to such date as a result of such
Indemnitee's continuing to pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the
28
<PAGE> 35
applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such
15-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such 15-day period or rejects such claim in whole or in part,
such Indemnitee shall be free to pursue such remedies as may be available to
such party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03, if
the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
Section 5.05 Remedies Cumulative. The remedies provided in this Article V
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
29
<PAGE> 36
Section 5.06. Survival of Indemnities. The obligations of each of
Marketing and Getty under this Article V shall survive the sale or other
transfer by it of any assets or businesses or the assignment by it of any
Liabilities, with respect to any Indemnifiable Loss of the other related to such
assets, businesses or Liabilities.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.01 Marketing Board. Marketing and Getty shall take all actions
which may be required to constitute, effective as of the Distribution Date, the
following persons as the directors of Marketing: (i) Ronald E. Hall, Richard E.
Montag and ________ __________ (none of whom shall be officers, directors or
owners of more than 5% of the outstanding voting stock of Getty) and (ii) Leo
Liebowitz and Milton Safenowitz.
Section 6.02 Resignations; Getty Board.
(a) Marketing shall cause all of its directors and Marketing Employees to
resign, effective as of the Distribution Date, from all boards of directors or
similar governing bodies of Getty or any of its Retained Subsidiaries on which
they serve, and from all positions as officers or employees of Getty or any of
its Retained Subsidiaries in which they serve, except (i) Leo Liebowitz shall
serve as a director, President and Chief Executive Officer of Getty and as a
director and Chief Executive Officer of Marketing and as an officer or director
of certain of the Marketing Subsidiaries and certain of the Retained
Subsidiaries, (ii) Milton Safenowitz shall serve as a director of Marketing and
certain of the Marketing Subsidiaries and as a director of Getty and certain of
the Retained Subsidiaries and (iii) as set forth in the Services Agreement.
Getty shall cause all of its directors and the Retained Employees to resign from
all boards of directors or similar governing bodies of Marketing or
30
<PAGE> 37
any of its subsidiaries on which they serve, and from all positions as officers
or employees of Marketing or any of its subsidiaries in which they serve, except
to the extent specified in the preceding sentence.
Section 6.03 Charter and Bylaws. On or prior to the Distribution
Date, Marketing shall adopt the Marketing Charter and the Marketing Bylaws,
and shall file the Marketing Charter with the Secretary of State of the
State of Maryland.
Section 6.04 Employee Stock Ownership Plan. On or prior to the
Distribution Date, Marketing shall approve and take all steps necessary to
establish the Employee Stock Ownership Plan.
Section 6.05 Certain Post-Distribution Transactions.
(a) Marketing. Marketing shall, and shall cause each of the Marketing
Subsidiaries to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, or to be
obtained, by Getty Marketing acting together, from any such taxing authority
with respect to any transaction contemplated by this Agreement; neither
Marketing nor any of the Marketing Subsidiaries shall take or omit any action
inconsistent therewith, unless, [(i) required to do so by law, (ii) permitted to
do so by the prior written consent of Getty, or (iii)] pursuant to a favorable
supplemental ruling letter reasonably satisfactory to Getty that such act or
omission would not adversely affect the tax consequences of the Distribution to
Getty or the stockholders of Getty, as set forth in any ruling issued by any
taxing authority. Neither Marketing nor any of the Marketing Subsidiaries has a
present intention to take or omit any such action.
(b) Getty. Getty shall, and shall cause each of the Retained Subsidiaries
to, comply with each representation and statement made, or to be made, to any
taxing
31
<PAGE> 38
authority in connection with any ruling obtained, by Getty and Marketing
acting together, from any such taxing authority with respect to any transaction
contemplated by this Agreement; neither Getty nor any of the Retained
Subsidiaries shall take or omit any action inconsistent therewith, unless, [(i)
required to do so by law, (ii) permitted to do so by the prior written consent
of Marketing, or (iii)] pursuant to a favorable supplemental ruling letter
reasonably satisfactory to Marketing that such act or omission would not
adversely affect the tax consequences of the Distribution to Marketing or the
stockholders of Marketing, as set forth in any ruling issued by any taxing
authority. Neither Getty nor any of the Retained Subsidiaries has a present
intention to take or omit any such action.
Section 6.06 Corporate Name. Effective as of the Distribution Date, Getty
shall change its corporate name to "Getty Realty Corp.," either by statutory
merger or by action of the stockholders. All references to Getty herein shall
be references to such corporation both before and after such corporate name
change.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.01 Provision of Corporate Records.
(a) Except as may otherwise be provided in a Related Agreement, Getty shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation (at Marketing's cost) to Marketing of the
Marketing Books and Records in its possession, except to the extent such items
are already in the possession of Marketing or a Marketing Subsidiary. Such
Marketing Books and Records shall be the property of
32
<PAGE> 39
Marketing, but shall be available to Getty for review and duplication until
Getty shall notify Marketing in writing that such records are no longer of use
to Getty.
(b) Except as otherwise provided in a Related Agreement, Marketing shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation (at Getty's cost) to Getty of the Getty Books
and Records in its possession, except to the extent such items are already in
the possession of Getty. The Getty Books and Records shall be the property of
Getty, but shall available to Marketing for review and duplication until
Marketing shall notify Getty in writing that such records are no longer of use
to Marketing.
Section 7.02 Access to Information. Except as otherwise provided in a
Related Agreement, from and after the Distribution Date, Getty shall afford to
Marketing and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights
during normal business hours to all records, books, contracts, instruments,
computer data, software and systems and other data and information relating to
pre-Distribution operations (collectively, "Information") within Getty's
possession insofar as such access is reasonably required by Marketing for the
conduct of its business, subject to appropriate restrictions for classified or
Privileged Information. Similarly, except as otherwise provided in a Related
Agreement, Marketing shall afford to Getty and its authorized accountants,
counsel and other designated representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to Information within
Marketing's possession, insofar as such is reasonably required by
33
<PAGE> 40
Getty for the conduct of its business, subject to appropriate restrictions for
classified or Privileged Information. Information may be requested under this
Article VII for the legitimate business purposes of either party, including
without limitation, audit, accounting, claims (including claims for
indemnification hereunder), litigation and tax purposes, as well as for purposes
of fulfilling disclosure and reporting obligations and for performing this
Agreement and the transactions contemplated hereby.
Section 7.03 Production of Witnesses. At all times from and after the
Distribution Date, each of Marketing and Getty shall use reasonable efforts to
make available to the other, upon written request, its and its subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any Action.
Section 7.04 Reimbursement. Except to the extent otherwise contemplated
in any Related Agreement, a party providing Information or witness services to
the other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such amounts,
relating to supplies, disbursements and other out-of-pocket expenses (at cost)
and direct and indirect expenses of employees who are witnesses or otherwise
furnish assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.
Section 7.05. Retention of Records. Except as otherwise required by law or
agreed to in a Related Agreement or otherwise in writing, each of Getty and
Marketing may destroy or otherwise dispose of any of the Information (including
information that is material Information and is not contained in other
Information retained by Getty or Marketing, as the case may be) at any time
after the tenth anniversary of this Agreement, provided that, prior
34
<PAGE> 41
to such destruction or disposal, (a) it shall provide no less than 90 or more
than 120 days prior written notice to the other, specifying in reasonable detail
the Information proposed to be destroyed or disposed of and (b) if a recipient
of such notice shall request in writing prior to the scheduled date for such
destruction or disposal that any of the Information proposed to be destroyed or
disposed of be delivered to such requesting party, the party proposing the
destruction or disposal shall promptly arrange for the delivery of such of the
Information as was requested at the expense of the party requesting such
Information.
Section 7.06 Confidentiality. Each of Getty and its Subsidiaries on the
one hand, and Marketing and its Subsidiaries on the other hand, shall hold, and
shall cause its consultants advisors to hold, in strict confidence, all
Information concerning the other in its possession or furnished by the other or
the other's representatives pursuant to this Agreement (except to the extent
that such Information has been (i) in the public domain through no fault of such
party or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other person,
except its auditors, attorneys, financial advisors, rating agencies, bankers and
other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as reasonably advised by its counsel, by other
requirements of law, or unless such Information is reasonably required to be
disclosed in connection with (x) any litigation with any third-parties or
litigation between the Getty Group and the Marketing Group, (y) any contractual
agreement to which the Getty Group or the Marketing Group are currently parties,
or (z) in exercise of either parties' rights hereunder.
Section 7.07 Privileged Matters. Getty and Marketing recognize that legal
and other professional services that have been and will be provided prior to the
Distribution
35
<PAGE> 42
Date have been and will be rendered for the benefit of both the Getty Group and
the Marketing Group and that both the Getty Group and the Marketing Group should
be deemed to be the client for the of asserting all Privileges. To allocate the
interests of each party in the Privileged Information, the parties agree as
follows:
(a) Getty shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which
relates solely to the Retained Business, whether or not the Privileged
Information is in the possession of or under the control of Getty or Marketing.
Getty shall also be entitled, in perpetuity, to control the assertion or waiver
of all Privileges in connection with Privileged Information that relates solely
to the subject matter of any claims constituting Retained Liabilities, now
pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by Getty, whether or not the Privileged
Information is in the possession of or under the control of Getty or Marketing.
(b) Marketing shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which
relates solely to the Marketing Business, whether or not the Privileged
Information is in the possession of or under the control of Getty or Marketing.
Marketing shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Information which relates solely to
the subject matter of any claims constituting Marketing Liabilities, now pending
or which may be asserted in the future, in any lawsuits or other proceedings
initiated against or by Marketing, whether or not the Privileged Information is
in the possession of Marketing or under the control of Getty or Marketing.
36
<PAGE> 43
(c) Getty and Marketing agree that they shall have a shared Privilege, with
equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). (All Privileges relating to any claims, proceedings,
litigation, disputes, or other matters which involve both Getty and Marketing in
respect of which Getty and Marketing retain any responsibility or liability
under this Agreement, shall be subject to a shared Privilege.)
(d) No party may waive any Privilege which could be asserted under any
applicable law, and in which the other party has a shared Privilege, without the
consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within twenty (20) days after notice upon the other
party requesting such consent.
(e) In the event of any litigation or dispute between a member of the Getty
Group and a member of the Marketing Group, either party may waive a Privilege in
which the other party has a shared Privilege, without obtaining the consent of
the other party, provided that such waiver of a shared Privilege shall be
effective only as to the use of Information with respect to the litigation or
dispute between the Getty Group and the Marketing Group, and shall not operate
as a waiver of the shared Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a Privilege
should be waived to protect or advance the interest of either party, each party
agrees that it shall negotiate in good faith, shall endeavor to minimize any
prejudice to the rights of the other party, and shall not unreasonably withhold
consent to any request for waiver by the
37
<PAGE> 44
other party. Each party specifically agrees that it will not withhold consent
to waiver for any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other request
which arguably calls for the production or disclosure of Information subject to
a shared Privilege or as to which the other party has the sole right hereunder
to assert a Privilege, or if any party obtains that any of its current or former
directors, officers, agents or employees have received any subpoena, discovery
or other requests which arguably calls for the production or disclosure of such
Privileged Information, such party shall promptly notify the other party of the
existence of the request and shall provide the other party a reasonable
opportunity to review the Information and to assert any rights it may have under
this Section 7.07 or otherwise to prevent the production or disclosure of such
Privileged Information.
(h) The transfer of the Marketing Books and Records and the Getty Books and
Records and other Information between Getty and its Subsidiaries and Marketing
and its Subsidiaries, is made in reliance on the agreement of Getty and
Marketing, as set forth in Sections 7.06 and 7.07, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Sections 7.01 and 7.02 hereof, the agreement to provide witnesses and
individuals pursuant to Section 7.03 hereof and the transfer of Privileged
Information between Getty and its Subsidiaries and Marketing and its
Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Agreement or otherwise.
38
<PAGE> 45
ARTICLE VIII
INSURANCE
Section 8.01. Policies and Rights Included Within the Marketing Assets.
Without limiting the generality of the definition of the Marketing Assets set
forth in Section 2.02 or the effect of Section 2.02, the Marketing Assets shall
include (a) any and all rights of an insured party under each of the Shared
Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the Marketing Business or, to the extent any claim is made
against Marketing or any of its subsidiaries, the Retained Business, and which
injuries, losses, liabilities, damages and expenses may arise out of insured or
insurable occurrences or events under one or more of the Shared Policies;
provided, however, that except as provided in Section 8.05 below, nothing in
this clause shall be deemed to constitute (or to reflect) the assignment of the
Shared Policies, or any of them, to Marketing and (b) the Marketing Policies.
Section 8.02 Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any person, corporation, firm or entity shall assert a claim
against Marketing or any Marketing Subsidiary with respect to any injury, loss,
liability, damage or expense incurred or claimed to have been incurred prior to
the Distribution Date in or in connection with the conduct of the Marketing
Business or, to the extent any claim is made against Marketing or any of its
Subsidiaries or the Marketing Business, and which injury, loss, liability,
damage or expense may arise out of insured or insurable occurrences or events
under one or more of the Shared Policies, Getty shall at the time such claim is
asserted be
39
<PAGE> 46
deemed to assign, without need of further documentation, to Marketing any and
all rights of an insured party under the applicable Shared Policy with respect
to such asserted claim, specifically including rights of indemnity and the right
to be defended by or at the expense of the insurer; provided, however, that
except as provided in Section 8.05 below nothing in this sentence shall be
deemed to constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to Marketing.
Section 8.03 Administration and Reserves
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of the Master Lease or the Services Agreement, from and
after the Distribution Date:
(i) Marketing shall be responsible for the (A) Insurance
Administration of the Marketing Policies, and (B) Claims Administration
with respect to the Marketing Liabilities; provided, that the
administration of the Marketing Policies by Marketing is in no way intended
to limit, inhibit, or preclude any right to insurance coverage for any
Insured Claim of a named insured under the Marketing Policies, including
but not limited to, Getty and any of its operations, Subsidiaries and
Affiliates;
(ii) Getty shall conduct (A) Insurance Administration of the Shared
Policies, and (B) Claims Administration with respect to the Retained
Liabilities; provided that the administration of the Shared Policies by
Getty is in no way intended to limit, inhibit, or preclude any right to
insurance coverage for any Insured Claim of a named insured under the
Shared Policies, including but not limited to, Marketing and any of its
operations, subsidiaries and Affiliates;
40
<PAGE> 47
(iii) Marketing shall be entitled to any reserves established by Getty
or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the Marketing Liabilities; and
(iv) Getty shall be entitled to any reserves established by Getty or
any of its Subsidiaries, or the benefit of reserves held by any insurance
carrier, with respect to the Retained Liabilities.
(b) Insurance Premiums. Getty shall have the right but not the obligation
to pay the premiums, to the extent that Marketing does not pay premiums with
respect to Marketing Liabilities (retrospectively-rated or otherwise), with
respect to Shared Policies and the Retained Policies, as required under the
terms and conditions of the respective Policies, whereupon Marketing shall
forthwith reimburse Getty for that portion of such premiums paid by Getty as are
attributable to the Marketing Liabilities. Unless otherwise agreed by the
parties hereto, Getty shall purchase (subject to a 50% reimbursement by
Marketing within 15 days of its receipt of invoice) continued coverage under its
director and officer liability insurance policy for a period no longer than 180
days following the Distribution Date for claims relating to periods prior to the
Distribution Date.
(c) Allocation of Insurance Proceeds. Insurance Proceeds received with
respect to claims, costs and expenses under the Policies shall be paid to
Marketing with respect to the Marketing Liabilities and to Getty with respect to
the Retained Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the liability policies will be made to the
appropriate party upon receipt from the insurance carrier. In the event that
the aggregate limits on any Shared Policies are exceeded, the parties agree to
provide an equitable allocation of Insurance Proceeds received after the
41
<PAGE> 48
Distribution Date based upon their respective bona fide claims. The parties
agree to use their best efforts to cooperate with respect to insurance matters.
Section 8.04 Agreement for Waiver of Conflict and Shared
Defense. In the event that Insured Claims of both Marketing and Getty exist
relating to the same occurrence, Marketing and Getty agree to jointly defend
and to waive any conflict of interest necessary to the conduct of that joint
defense. Nothing in this paragraph shall be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this Agreement,
including those created by this Agreement, by operation of law or otherwise.
Section 8.05 Surety Bonds. Schedule 8.05 sets forth the
surety bonds posted by the Getty Group to secure obligations for state motor
fuel licenses (the "Surety Bonds"). Marketing shall use its reasonable best
efforts to replace such Surety Bonds with bonds posted by Marketing. Prior to
the replacement of such Surety Bonds the parties' respective obligations with
respect to such Surety Bonds shall be as follows: (i) the parties shall keep
such Surety Bonds in place after the Distribution to secure obligations
relating to periods preceding the Distribution Date for such time as may be
required by law, (ii) the obligations secured by the Surety Bonds will remain a
direct obligation of Getty; provided, however, that Marketing shall be
responsible for payment of all such obligations constituting Marketing
Liabilities (and shall reimburse Getty for any payment made directly by Getty
with respect to such Marketing Liabilities) and Getty shall be responsible for
all such obligations constituting Retained Liabilities (and shall reimburse
Marketing for any payments made directly by Marketing on behalf of such
Retained Liabilities), consistent with the allocation of Marketing Liabilities
and Retained Liabilities set forth herein; [(iii) Marketing shall execute a
guarantee pursuant to which Marketing will guarantee 100% of the obligations
secured by such Surety
42
<PAGE> 49
Bonds (subject to reimbursement by Getty for any payments made by Marketing
with respect to Retained Liabilities) and (iv)] Marketing will reimburse Getty
for Marketing's pro rata share of any premiums required to be paid to keep such
Surety Bonds outstanding.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Complete Agreement; Construction. This
Agreement, including the Schedules and Exhibits and the Related Agreements and
other agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter. Notwithstanding any other provisions in
this Agreement to the contrary, in the event and to the extent that there shall
be a conflict between any provision of this Agreement and any provision of a
Related Agreement, then the provision in the applicable Related Agreement shall
control.
Section 9.02 Expenses. Except as otherwise set forth in
this Agreement or any Related Agreement, all costs and expenses in connection
with the preparation, execution, delivery and implementation of this Agreement,
the Distribution and with the consummation of the transactions contemplated by
this Agreement shall be charged to the party for whose benefit the expenses are
incurred, with any expenses which cannot be allocated on such basis to be split
equally between the parties.
Section 9.03 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to the principles of conflicts of laws thereof.
43
<PAGE> 50
Section 9.04 Notices. All notices and other
communications hereunder shall be in writing and shall be delivered by hand or
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
To Marketing:
Getty Petroleum Marketing Inc.
125 Jericho Turnpike
Jericho, New York 11753
Attention: __________________
To Getty:
Getty Realty Corp.
125 Jericho Turnpike
Jericho, New York 11753
Attention: __________________
Section 9.05 Amendments. This Agreement may not be
modified or amended except by an agreement in writing signed by the parties.
Section 9.06 Successors and Assigns. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns.
Section 9.07 Termination. This Agreement may be
terminated and the Distribution abandoned at any time prior to the Distribution
Date by and in the sole discretion of the Getty Board without the approval of
Marketing. In the event of such termination, no party shall have any liability
to any other party pursuant to this Agreement.
Section 9.08 Subsidiaries. Each of the parties hereto
shall cause to be performed, and hereby guarantees the performance of, all
actions, agreements and obligations
44
<PAGE> 51
set forth herein to be performed by any Subsidiary of such party which is
contemplated to be a Subsidiary of such party on and after the Distribution
Date.
Section 9.09 No Third-Party Beneficiaries. Except for the
provisions of Article V relating to Indemnities, this Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and
Affiliates and should not be deemed to confer upon third- parties any remedy,
claim, Liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
Section 9.10 Titles and Headings. Titles and headings to
sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
Section 9.11 Exhibits and Schedules. The Exhibits and
Schedules shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
Section 9.12 Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
45
<PAGE> 52
9.13 Consent of Parties. The Parties hereby consent to
the jurisdiction of the New York Supreme Court, Nassau County, or the United
States District Court for the Eastern District of New York for all purposes.
46
<PAGE> 53
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
GETTY PETROLEUM CORP.
By:
----------------------------------
Title:
-------------------------------
GETTY PETROLEUM MARKETING INC.
By:
----------------------------------
Title:
-------------------------------
47
<PAGE> 54
SCHEDULE 1.01(a)
Environmental Liabilities
[To be provided]
48
<PAGE> 55
SCHEDULE 1.01(b)
Upgrades
[To be provided]
49
<PAGE> 56
SCHEDULE 1.01(c)
Marketing Equipment
[To be provided]
50
<PAGE> 57
SCHEDULE 1.01(d)
Shared Policies
[To be provided]
51
<PAGE> 58
SCHEDULE 2.06
Conveyancing and Assumption Instruments
[To be provided]
52
<PAGE> 59
SCHEDULE 4.01
Consents
[To be provided]
53
<PAGE> 1
EXHIBIT 3.1
GETTY PETROLEUM MARKETING INC.
ARTICLES OF INCORPORATION
THIS IS TO CERTIFY THAT:
FIRST: The undersigned, James J. Hanks, Jr., whose address is c/o Ballard
Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202,
being at least eighteen (18) years of age, does hereby form a corporation under
the general laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
Getty Petroleum Marketing Inc.
THIRD: The Corporation is formed for the purpose of carrying on any lawful
business.
FOURTH: The address of the principal office of the Corporation in this
State is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202, Attention: James J. Hanks, Jr.
FIFTH: The name and address of the resident agent of the Corporation are
James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard
Street, Baltimore, Maryland 21202. The resident agent is a citizen of and
resides in the State of Maryland.
SIXTH: The total number of shares of stock which the Corporation has
authority to issue is 1,000 shares, $.01 par value per share, all of one class.
The aggregate par value of all authorized shares having a par value is $10.00.
SEVENTH: The Corporation shall have a board of three directors unless the
number is increased or decreased in accordance with the Bylaws of the
Corporation. However, the number of directors shall never be less than the
minimum number required by the Maryland General Corporation Law. The initial
directors are:
John J. Fitteron
Leo Liebowitz
Alvin A. Smith
EIGHTH: (a) The Corporation reserves the right to make any amendment of the
charter, now or hereafter authorized by law, including any amendment which
alters the contract rights, as
<PAGE> 2
expressly set forth in the charter, of any shares of outstanding stock.
(b) The Board of Directors of the Corporation may authorize the
issuance from time to time of shares of its stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of any
class, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable, subject to such restrictions or limitations, if
any, as may be set forth in the Bylaws of the Corporation.
(c) The Board of Directors of the Corporation may, by articles
supplementary, classify or reclassify any unissued stock from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the stock.
NINTH: No holder of shares of stock of any class shall have any preemptive
right to subscribe to or purchase any additional shares of any class, or any
bonds or convertible securities of any nature; provided, however, that the Board
of Directors may, in authorizing the issuance of shares of stock of any class,
confer any preemptive right that the Board of Directors may deem advisable in
connection with such issuance.
TENTH: To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers, no director
or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of the charter or
Bylaws inconsistent with this Article, shall apply to or affect in any respect
the applicability of the preceding sentence with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 1st day of October, 1996.
/s/ James J. Hanks, Jr.
------------------------
James J. Hanks, Jr.
- 2 -
<PAGE> 1
EXHIBIT 10.2
MASTER LEASE
DATED
FEBRUARY 1, 1997
BETWEEN
GETTY REALTY CORP., AS LANDLORD,
AND
GETTY PETROLEUM MARKETING INC., AS TENANT
<PAGE> 2
TABLE OF CONTENTS
Paragraph Page
1 Definitions............................................ 2
2 Term................................................... 8
3 Rent................................................... 9
4 Additional Payments by Tenant; Impositions............ 10
5 Use................................................... 11
6 Compliance with Law................................... 12
7 Maintenance and Alterations........................... 12
8 Prohibited Liens...................................... 14
9 Hazardous Substances; Environmental Indemnification... 14
10 Indemnification; Liability of Landlord................ 15
11 Right of Contest...................................... 17
12 Insurance............................................. 18
13 Damage or Destruction................................. 20
14 Condemnation.......................................... 20
15 Transfers by Landlord................................. 21
16 Transfers by Tenant; Dealer Leases.................... 22
17 Quiet Enjoyment....................................... 23
18 Default by Tenant; Remedies........................... 24
19 Termination........................................... 28
<PAGE> 3
Paragraph Page
20 Notices.......................................................... 28
21 No Broker........................................................ 28
22 Economic Abandonment............................................. 29
23 Third Party Leases............................................... 29
24 Waivers.......................................................... 30
25 Further Assurances; Additional Deliveries........................ 30
26 Miscellaneous.................................................... 31
27 Interpretation; Execution and Application of Lease............... 32
_____________
<PAGE> 4
This MASTER LEASE (the "Lease") is made and entered into on February 1, 1997
(the "Commencement Date"), between Getty Realty Corp., a Delaware corporation
whose address is 125 Jericho Turnpike, Jericho, New York 11753 ("Landlord"),
and Getty Petroleum Marketing Inc., a Maryland corporation whose address is
125 Jericho Turnpike, Jericho, New York 11753 ("Tenant").
R E C I T A L S
A. Landlord holds good and marketable fee simple absolute title to the
lands described in EXHIBIT A, (the "Land"), together with: (a) all buildings,
structures and other improvements and appurtenances presently located on the
Land; (b) all right, title and interest of Landlord, if any, in and to the land
lying in the bed of any street or highway in front of or adjoining the Land to
the center line of such street or highway; (c) the appurtenances and all the
estate and rights of Landlord in and to the Land; (d) any strips or gores
adjoining the Land; and (e) all right, title and interest of Landlord, if any,
in and to any furnishings, fixtures, equipment or other personal property
attached or appurtenant to any improvements located on the Land which are not
being transferred to Tenant on the date hereof (all, collectively, together
with the properties set forth in Exhibit B, the "Premises") subject only to the
estates, interests, liens, charges and encumbrances set forth in EXHIBIT C (the
"Permitted Exceptions").
B. Landlord (including certain of its subsidiaries) is the lessee of
certain Premises described in EXHIBIT B (the "Third Party Leases").
C. The Premises consist of Petroleum Terminals and Service Stations.
D. Landlord and Tenant have entered into that certain Reorganization and
Distribution Agreement dated as of _______, 1997 (the "Distribution
Agreement") transferring to Tenant the Marketing Assets and Marketing Business
(as such terms are defined in the Distribution Agreement) in anticipation of a
distribution by Landlord of the common stock of Tenant to the stockholders of
Landlord.
E. In accordance with the Distribution Agreement, Landlord desires to
lease or sublease the Premises to Tenant, and Tenant desires to lease or
sublease the Premises from Landlord, most of which Service Station Premises are
subject to the tenancies of lessee-dealers ("Dealers").
F. The parties desire to enter into this Lease to set forth their rights
and obligations relating to the Premises.
NOW, THEREFORE, in exchange for good and valuable consideration, Landlord
hereby leases and subleases the Premises to Tenant and Tenant hereby takes and
hires the Premises from Landlord, subject only to the Permitted Exceptions, and
the Dealers' tenancies, for the Term (as hereinafter defined), upon the terms
and conditions of this Lease.
1
<PAGE> 5
1 Definitions.
The following definitions shall apply throughout this Lease, in addition
to any other definitions elsewhere in this Lease. An Index of Defined Terms
follows the signature page.
1.1 Additional Rent. The term "Additional Rent" means any and all sums
and payments that this Lease requires Tenant to pay to Landlord, except Fixed
Rent. Additional Rent shall also include all Impositions.
1.2 Business Day. A "Business Day" means any weekday on which banks in
the State of New York are generally open to conduct regular banking business
with bank personnel.
1.3 Casualty. A "Casualty" means any damage or destruction affecting any
or all structures or other improvements located on the Premises.
1.4 Commencement Date. February 1, 1997 for all Premises, except for
those Premises requiring consent to a sublease from a Third Party Lessor, which
shall commence on such later date upon which consent is obtained.
1.5 Condemnation. A "Condemnation" means any taking of the Premises or
any part of the Premises by condemnation or by exercise of any right of eminent
domain, or by any similar proceeding or act of any Government.
1.6 Construction Work. The term "Construction Work" means any
alteration, modification, demolition, or other construction or reconstruction
work, or the construction or reconstruction of any new improvements, or repair
of any existing improvements, located on, under or at the Premises.
1.7 County. The "County" means the county where the Premises are
located.
1.8 Default. A "Default" means any Monetary Default or Non-Monetary
Default.
1.9 Equipment Liens. The term "Equipment Liens" means purchase-money
security interests, financing leases, personal property liens, and similar
arrangements (including the corresponding UCC-1 financing statements) relating
to Tenant's acquisition, encumbering or financing of personal property,
fixtures or equipment used in connection with the operation of any business on
the Premises not prohibited by this Lease, any Third Party Lease or any Fee
Mortgage on the Premises, that are leased, purchased pursuant to conditional
sale or installment sale arrangements, encumbered by a security agreement made
by Tenant, or used under licenses, such as convenience food store equipment,
gasoline marketing equipment, UST's, furniture, fixtures and equipment,
telephone, telecommunications and facsimile transmission equipment, point of
sale equipment, televisions, radios, and computer systems, provided that each
2
<PAGE> 6
Equipment Lien encumbers or otherwise relates to only the property financed or
otherwise provided by the secured party under such Equipment Lien.
1.10 Environmental Law. The term "Environmental Law" shall mean any Law
related to environmental conditions on, under, or about the Premises, or
arising from use or occupancy of the Premises, including soil, air and ground
water conditions, or governing the use, generation, storage, transportation,
disposal, release, clean-up or control of Hazardous Substances in, on, at, to
or from the Premises.
1.11 Estoppel Certificate. An "Estoppel Certificate" means a statement
in writing containing any or all of the following statements (identifying in
reasonable detail any exceptions that may exist at the time), as requested by
either party: (a) this Lease has not been amended, constitutes the entire
agreement between Landlord and Tenant relating to the Premises, and is in full
force and effect; (b) neither Landlord nor Tenant is in default under this
Lease and to the best of the signer's knowledge no facts or circumstances exist
that, with the passage of time or the giving of notice, would constitute
defaults under this Lease by Landlord or Tenant; (c) Tenant has paid all Rent
to date; (d) the Commencement Date or any other then-ascertainable date
relevant to this Lease; and (d) such other matters as either party shall
reasonably request.
1.12 Fee Estate. The "Fee Estate" means Landlord's fee estate in the
Premises or any part of the Premises or any direct or indirect interest in such
fee estate or, in the case of Premises owned by a Third Party Lessor, the fee
estate of such Third Party Lessor.
1.13 Fee Mortgage. A "Fee Mortgage" means any mortgage, deed of trust,
deed to secure debt, assignment, security interest, pledge, financing statement
or any other instrument(s) or agreement(s) intended to grant security for any
obligation encumbering the Fee Estate, as entered into, renewed, modified,
amended, extended or assigned from time to time during the Term.
1.14 Fixed Rent. Fixed Rent shall include all rent payable under
Section 3.1 including Rent payable to Third Party Lessors.
1.15 Government. The term "Government" means each and every applicable
governmental authority, department, agency, bureau or other entity or
instrumentality having jurisdiction over the Premises, including the federal
government of the United States, the State government and any subdivisions and
municipalities thereof, including the County government, and all other
applicable governmental authorities and subdivisions thereof.
1.16 Hazardous Substances. The term "Hazardous Substances" shall include
flammable substances, explosives, radioactive materials, asbestos,
polychlorinated biphenyls, chemicals known to cause cancer or reproductive
toxicity, pollutants, contaminants, hazardous wastes, medical wastes, toxic
substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic by Environmental Law.
3
<PAGE> 7
1.17 Hazardous Substances Discharge. The term "Hazardous Substances
Discharge" shall mean any deposit, spill, discharge, or other release of
Hazardous Substances that occurs at or from the Premises or that arises at any
time from the use, occupancy or operation of the Premises or any activities
conducted therein.
1.18 Impositions. The term "Impositions" means all taxes, special and
general assessments, water rents, rates and charges, commercial rent taxes, UST
fees and taxes, sewer rents and other impositions and charges of every kind and
nature whatsoever with respect to the Premises, that may be assessed, levied,
confirmed, imposed or become a lien on the Premises (other than on account of
any actions or omissions of Landlord or Third Party Lessor or conditions
existing on, at or with respect to the Premises before the Commencement Date)
by or for the benefit of any Government with respect to any period during the
Term together with any taxes and assessments that may be levied, assessed or
imposed by any Government upon the gross income arising from any Rent or in
lieu of or as a substitute, in whole or in part, for taxes and assessments
imposed upon or related to the Premises and commonly known as real estate
taxes. Notwithstanding the foregoing, all such obligations of a lessee in a
Third Party Lease are also Impositions. The term "Impositions" shall, however,
not include any of the following, all of which Landlord shall pay before
delinquent or payable only with a penalty: (a) any franchise, income, excess
profits, estate, inheritance, succession, transfer, gift, corporation,
business, capital levy, or profits tax, or license fee, of Landlord, (b) the
incremental portion of any of the items listed in this paragraph that would not
have been levied, imposed or assessed but for any sale or other direct or
indirect transfer of the Fee Estate or of any interest in Landlord during the
Term, (c) any charges that would not have been payable but for any act or
omission of Landlord or conditions existing on, at or with respect to the
Premises before the Commencement Date, (d) any charges that are levied,
assessed or imposed against the Premises during the Term based on the recapture
or reversal of any previous tax abatement or tax subsidy, or compensating for
any previous tax deferral or reduced assessment or valuation, or based on a
miscalculation or misdetermination of any charge(s) of any kind imposed or
assessed with respect to the Premises, relating to any period(s) before the
Commencement Date, and (e) interest, penalties and other charges with respect
to items "a" through "d."
1.19 Indemnify. Wherever this Lease provides that a party shall
"Indemnify" another from or against a particular matter, such term means that
the Indemnitor shall indemnify the Indemnitee (and the owner of the Fee Estate
and their respective partners, officers, directors, agents and employees) and
defend and hold the Indemnitee (and the owner of the Fee Estate and their
respective partners, officers, directors, agents and employees) harmless from
and against any and all loss, cost, claims, liability, penalties, judgments,
damage or other injury, detriment, or expense (including Legal Costs, interest
and penalties) reasonably incurred or suffered by the Indemnitee (and its
partners, officers, directors, agents and employees) on account of the matter
that is the subject of such indemnification or in enforcing the Indemnitor's
indemnity.
1.20 Indemnitee. An "Indemnitee" is a party that is entitled to be
Indemnified pursuant to this Lease.
4
<PAGE> 8
1.21 Indemnitor. An "Indemnitor" is a party that agrees to Indemnify
another party pursuant to this Lease.
1.22 Insubstantial Condemnation. An "Insubstantial Condemnation" means
any Condemnation other than a Substantial Condemnation.
1.23 Landlord. Getty Realty Corp. and certain of its subsidiaries, who
have approved this Lease on the signature page hereof.
1.24 Law. The term "Law" or "Laws" means all laws, ordinances,
requirements, orders, directives, rules and regulations of any applicable
Government affecting the development, improvement, alteration, use,
maintenance, operation or occupancy of the Premises or any part of the
Premises, whether in force at the Commencement Date or passed, enacted or
imposed at some time in the future, subject in all cases, however, to all
applicable waivers, variances and exemptions limiting the application of the
foregoing to the Premises.
1.25 Leasehold Estate. The "Leasehold Estate" means Tenant's leasehold
estate under this Lease, upon and subject to all the terms and conditions of
this Lease, and any Third Party Lease affecting the Premises, or any part of
such leasehold estate or any direct or indirect interest in such leasehold
estate.
1.26 Legal Costs. "Legal Costs" means all reasonable costs and expenses
incurred by a party to this Lease in connection with any legal proceeding,
including reasonable attorneys' fees, consultant's fees, court costs, and
expenses.
1.27 Monetary Default. A "Monetary Default" means any failure by Tenant
to pay any Rent or other sum(s) of money, including Additional Rent payable
pursuant to this Lease, when and as required to be paid pursuant to this Lease.
1.28 Non-Monetary Default. A "Non-Monetary Default" means any failure by
Tenant to comply with any terms or provisions of, or perform as required, by
this Lease, other than a Monetary Default.
1.29 Notice. The term "Notice" means any notice, demand, request,
election, designation, or consent, including any of the foregoing relating to a
Default or alleged Default, that is permitted, required or desired to be given
by either party in connection with this Lease. Notices shall be delivered, and
shall become effective, only in accordance with the requirements of Paragraph
20.
1.30 Notice of Default. A "Notice of Default" means any Notice from one
party to the other claiming or giving Notice of a Default or alleged Default by
the recipient.
5
<PAGE> 9
1.31 Person. "Person" is an individual, corporation or partnership,
including without limitation, Power Test Realty Company Limited Partnership.
1.32 Petroleum Terminal. "Petroleum Terminal" is a Premises which is a
terminal for the storage and distribution of petroleum products either owned or
leased by Landlord or one of its subsidiaries.
1.33 Premises. Each property listed in Exhibits A and B and,
collectively, all of the properties listed in Exhibits A and B, except for
those properties which may be deleted from time to time by Substantial
Condemnation, or by the expiration of a Third Party Lease or by not exercising
a Renewal Option.
1.34 Prime Rate. The "Prime Rate" means the prime rate or equivalent
"base" or "reference" rate for corporate loans that, at Landlord's election, by
Notice to Tenant, is: (a) published from time to time in the Wall Street
Journal; (b) announced from time to time by Chase Manhattan Bank, New York, New
York, or any other large United States "money center" commercial bank
designated by Landlord; or (c) if such rate is no longer so published or
announced, then a reasonably equivalent rate published by an authoritative
third party designated by Landlord. Notwithstanding anything to the contrary
in this paragraph, the Prime Rate shall never exceed the highest rate of
interest legally permitted to be charged in transactions of the character of
this Lease between parties of a character similar to Landlord and Tenant.
1.35 Prohibited Liens. A "Prohibited Lien" means any mechanic's,
vendor's, laborer's or material supplier's statutory lien or other similar lien
arising by reason of work, labor, services, equipment or materials supplied, or
claimed to have been supplied, to Tenant, which lien either: (a) is filed
against the Fee Estate or (b) is filed against the Leasehold Estate and, upon
termination of this Lease, would under the law of the State attach to the Fee
Estate. Notwithstanding anything to the contrary in this Lease, an Equipment
Lien shall not constitute a Prohibited Lien and nothing in this Lease shall
prohibit Tenant from creating, or require Tenant to remove, any Equipment Lien
except upon termination of this Lease.
1.36 Renewal Option. The right to renew the Lease as provided in Section
2.1 for each Premises individually.
1.37 Rent. The "Rent" means Fixed Rent and Additional Rent.
1.38 Service Station. A Premises which is currently used to sell motor
fuels or convenience store items or both, and in some instances is used for
motor vehicle repairs and/or other services ancillary to the sale of motor
fuels or convenience store items.
1.39 State. The "State" means the State where the Premises are located.
6
<PAGE> 10
1.40 Sublease. The term "Sublease" means any sublease of the Premises or
any part of the Premises, or any other agreement or arrangement (including a
license agreement or concession agreement) made by Tenant granting any third
party the right to occupy, use or possess any portion of the Premises. The
leases to the Dealers assigned under Paragraph 16.2 are Subleases.
1.41 Substantial Condemnation. A "Substantial Condemnation" means any
Condemnation that, in Tenant's reasonable judgment, renders the remaining
portion of the Premises unsuitable for the conduct of Tenant's business as a
gasoline service station and/or convenience store or such other permitted,
lawful use at the time of the Condemnation. Tenant may waive its right to
treat as a Substantial Condemnation any Condemnation that would otherwise
qualify as such.
1.42 Subtenant. The term "Subtenant" means any person having rights of
occupancy, use or possession under a Sublease, and any concessionaires and
licensees that Tenant elects to treat as Subtenants. The Dealers are
Subtenants.
1.43 Temporary Condemnation. A "Temporary Condemnation" means a
Condemnation relating to the temporary right to use or occupy the Premises or
any part of the Premises.
1.44 Tenant. Getty Petroleum Marketing Inc. and for certain Premises
located in the Mid-Hudson Valley, Kingston Oil Supply Corp.
1.45 Termination Date. The "Termination Date" means the date when this
Lease terminates or expires (i) for any Premises for which a Renewal Option is
not exercised, (ii) for Third Party Leases upon their expiration date, and
(iii) for all Premises, whether pursuant to the expiration of the Term as
provided for in this Lease or pursuant to Landlord's exercise of remedies upon
occurrence of an Event of Default.
1.46 Third Party Lease. A lease between a Third Party Lessor and Landlord
or a subsidiary of Landlord for the Premises.
1.47 Third Party Lessor. A Person who owns Premises and leases it to
Landlord or a subsidiary of Landlord. Power Test Realty Company Limited
Partnership is a Third Party Lessor.
1.48 Unavoidable Delay. The term "Unavoidable Delay" means a delay in
the performance of any obligation under this Lease (excluding in any case any
obligation to pay money) arising from or on account of any cause whatsoever
beyond the reasonable control of the person required to perform, including
strikes, labor troubles, litigation, Casualty, Condemnation, accidents, Laws,
governmental preemption, war, riots, and other causes beyond such party's
reasonable control, whether similar to or dissimilar to the causes specifically
enumerated in this
7
<PAGE> 11
paragraph. In no event shall Unavoidable Delay be deemed to include any delay
caused by a person's financial condition.
1.49 UST. An underground storage tank including related piping,
underground pumps, wiring and their monitoring devices.
1.50 Waiver of Subrogation. A "Waiver of Subrogation" means a provision
in, or endorsement to, any insurance policy required by this Lease, by which
the insurance carrier agrees to waive all rights of recovery by way of
subrogation against either party to this Lease in connection with any loss
covered by such insurance policy.
2 Term.
2.1 Initial Term and Renewal Term(s). The initial term of this Lease
(the "Initial Term") shall commence on the Commencement Date. The Initial Term
shall continue until 11:59 p.m. on January 31, 2012, unless terminated sooner.
Except as provided in Paragraph 23.3, Tenant shall have the absolute and
unconditional right and option (each such right and option, a "Renewal Option")
to extend and renew this Lease as to any or all of the Premises upon the same
terms and conditions (except for rental) as this Lease, for four (4) additional
successive periods (each, a "Renewal Term") following expiration of the Initial
Term. Tenant shall exercise each Renewal Option, if at all, by giving Landlord
Notice thereof (in compliance with this Lease) at least two (2) years before
the first day of the corresponding Renewal Term. Wherever this Lease refers to
the "Term," such reference means the Initial Term as extended from time to
time, pursuant to Tenant's Renewal Option(s), to include one or more Renewal
Term(s), so that upon Tenant's exercise of any Renewal Option(s), the "Term"
shall include the corresponding Renewal Term(s). At the expiration or
termination of (i) the Lease as applicable to any Premises and (ii) the final
Renewal Term provided for below, Tenant shall have no further rights to renew
or extend this Lease (x) as it applies to any Premises not previously extended
or renewed and (y) at the expiration of the final Renewal Term. The Renewal
Options and Renewal Terms are as follows:
2.1.1 First Renewal Term. The first Renewal Term shall be for a period
of ten (10) years beginning on February 1, 2012 and ending on January 31, 2022.
2.1.2 Second Renewal Term. The second Renewal Term shall be for a period
of ten (10) years beginning on February 1, 2022 and ending on January 31, 2032.
2.1.3 Third Renewal Term. The third Renewal Term shall be for a period
of ten (10) years beginning on February 1, 2032 and ending on January 31, 2042.
2.1.4 Fourth Renewal Term. The fourth and final Renewal Term shall be
for a period of ten (10) years beginning on February 1, 2042 and ending on
January 31, 2052.
8
<PAGE> 12
2.2. Default by Tenant. Tenant's Renewal Options shall remain effective
notwithstanding Tenant's Default, unless and until all cure periods available
to Tenant shall have expired without cure and Landlord shall have terminated
this Lease. Provided only that this Lease has not been terminated, there shall
be no conditions (express or implied) to Tenant's exercise of any Renewal
Option(s) (except as set forth in Section 23.3 as it pertains to a Third Party
Lease).
2.3 Title to Improvements and Personal Property. Notwithstanding
anything to the contrary in this Lease, except for certain USTs referred to in
Paragraph 7.6, and except for property owned by third parties, all
improvements constructed by Tenant and all personal property and equipment
located in, on or at the Premises or otherwise constituting part of the
Premises shall at all times during the Term be owned by, and shall belong to,
Tenant. All the benefits and burdens of ownership of the foregoing shall be
and remain in Tenant during the Term.
3 Rent.
3.1 Fixed Rent. Throughout the Term and all Renewal Terms, Tenant shall
pay Landlord, without notice or demand, in lawful money of the United States of
America, at Landlord's office or as Landlord shall otherwise designate, a net
annual rental (the "Fixed Rent") as follows:
3.1.1. Calculation of Fixed Rent. During the Initial Term and all
Renewal Terms, Fixed Rent shall be $______ per month all as more fully set
forth in Schedule 1 and as adjusted in this Article 3. The Fixed Rent during
the Initial Term and all Renewal Terms shall be reduced at the time that any
Premises may be deleted from the Lease by Substantial Condemnation, or by the
expiration or termination of a Third Party Lease described in Exhibit B by the
amount of Fixed Rent set forth on Schedule 1(as it may be increased pursuant to
Paragraph 3.1.2) attributable to such deleted Premises. The Fixed Rent during
any Renewal Term shall be reduced by the amount of Fixed Rent set forth on
Schedule 1 (as it may be increased pursuant to Paragraph 3.1.2) attributable to
all Premises for which Renewal Options have not been exercised by Tenant.
3.1.2. CPI Increases. At the end of the fifth (5th) Lease year (in the
first instance, on February 1, 2002) and at the end of each five (5) year
period thereafter during the Term and all Renewal Terms the Fixed Rent in
effect at the end of each such five (5) year period shall be increased by an
amount equal to all increases in the Consumer Price Index, Northeast Region or
the successor index thereto ("CPI"), over the prior five (5) year period (such
CPI increase to be computed on the Fixed Rent in effect for the relevant
January before the February 1 when the increase is to be effective); provided,
however, that in no event shall any one increase exceed fifteen (15%) percent
of the Fixed Rent in effect before the applicable February 1 increase effective
date. If the relevant CPI index is not yet available on any February 1 when an
9
<PAGE> 13
increase is to be effective, the Rent will be adjusted retroactively when such
CPI index becomes available.
3.2 Payment; Proration; Etc. Tenant shall pay Fixed Rent in equal
monthly installments in advance on the first day of each month. Rent for
partial months at the beginning or end of the Term shall be prorated based on
the number of days in such month within the Term divided by the total number of
days in the entire month. Tenant shall pay all Rent payable to Landlord by wire
transfer of currently available federal funds to Landlord's bank account as
designated by Landlord.
3.3 Additional Rent. In addition to Fixed Rent, Tenant shall pay
Landlord, as additional rent under this Lease, all Additional Rent within twenty
(20) days after receipt of invoice therefor or as otherwise set forth in
Paragraph 4.
3.4 No Allocation to Personal Property. None of the Rent provided for
under this Lease is allocable to any personal property included in the Premises.
3.5 Offsets. Tenant shall pay all Rent without offset, defense, claim,
counterclaim, reduction, deduction, or exercise of recoupment rights of any kind
whatsoever, except that notwithstanding anything to the contrary in this Lease,
Tenant shall be entitled to offset against Rent an amount equal to any of the
following obligations required to be performed by Landlord to the extent
Landlord fails to perform any such obligation after Notice and demand:
3.5.1 Landlord's obligation pursuant to Paragraph 7.6 to upgrade or
replace the UST's at the locations set forth in Exhibit D, to the extent Tenant
is required to expend monies therefor; and
3.5.2 Landlord's obligation pursuant to Paragraph 7.6 to comply in all
material respects with Environmental Laws at the locations set forth in Exhibit
D and Exhibit E, to the extent Tenant is required to expend monies to achieve
such compliance.
4 Additional Payments by Tenant; Impositions.
4.1 Landlord's Net Return. The parties intend that this Lease shall
constitute a "net lease," so that the Rent shall provide Landlord with "net"
return for the Term, free of any expenses or charges with respect to the
Premises, except as specifically provided in this Lease. Accordingly, Tenant
shall pay as Additional Rent and discharge, before failure to pay the same shall
create a material risk of forfeiture or give rise to a penalty, each and every
item of expense, of every kind and nature whatsoever, related to or arising from
the Premises, or by reason of or in any manner connected with or arising from
the development, leasing, operation, management, maintenance, repair, use or
occupancy of the Premises or any portion of the Premises. Notwithstanding
anything to the contrary in this Lease, Tenant shall not be required to pay any
of the following incurred by Landlord: (a) principal, interest, or other charges
payable under any
10
<PAGE> 14
Fee Mortgage; (b) depreciation, amortization, brokerage commissions, financing
or refinancing costs, management fees or leasing expenses incurred by Landlord
with respect to the Fee Estate or the Premises; (c) consulting, overhead,
travel, legal, staff, and other similar costs incidental to Landlord's ownership
of the Premises, other than Legal Costs that Tenant has expressly agreed to pay;
(d) any costs arising from or pursuant to any instrument or agreement affecting
the Premises that is not a Permitted Exception and to which Landlord is a party
and Tenant is not a party; and (e) the obligations of Landlord set forth in
Paragraphs 7.6 and 9.3.
4.2 Impositions. For any period within the Term (with daily proration for
periods partially within the Term and partially outside the Term), Tenant shall
pay and discharge, before failure to pay the same shall create a material risk
of forfeiture or give rise to a penalty, all Impositions. Tenant shall also pay
all interest and penalties assessed by any Government on account of late payment
of any Imposition, unless such late payment was caused by Landlord's failure to
remit an Imposition (paid to Landlord by Tenant) in accordance with Tenant's
reasonable instructions or Landlord's failure to promptly forward Tenant a copy
of a tax bill received by Landlord, in which case Landlord shall pay such
interest and penalties. Tenant shall within a reasonable time after Notice from
Landlord provide Landlord with reasonable proof that Tenant has paid any
Imposition(s) that this Lease requires Tenant to have paid.
4.3 Assessments in Installments. To the extent that may be permitted by
law or by a Third Party Lease, Tenant shall have the right to apply for
conversion of any assessment to cause it to be payable in installments. After
such conversion, Tenant shall pay and discharge only such installments of such
assessment as shall become due and payable during the Term.
4.4 Direct Payment by Landlord. If any Imposition or other item of Rent
is required to be paid directly by Landlord, then: (a) Landlord appoints Tenant
as Landlord's attorney in fact for the purpose of making such payment; and (b)
if the person entitled to receive such payment refuses to accept it from Tenant,
then Tenant shall give Landlord Notice of such fact and shall remit payment of
such Imposition to Landlord in a timely manner accompanied by reasonable
instructions as to the further remittance of such payment. Landlord shall with
reasonable promptness comply with Tenant's reasonable instructions and shall
Indemnify Tenant against Landlord's failure to do so.
4.5 Utilities. Tenant shall pay all fuel, gas, light, power, water,
sewage, garbage disposal, telephone and other utility charges, and the expenses
of installation, maintenance, use and service in connection with the foregoing,
relating to the Premises during the Term.
5 Use.
Tenant may use (a) a Service Station Premises for a gasoline service
station/convenience store, and (b) a Petroleum Terminal Premises for the storage
and distribution of petroleum products, and any other lawful purpose but only in
conjunction with the foregoing permitted uses. In using the Premises, Tenant
shall comply with all restrictions and mandates set forth in
11
<PAGE> 15
the Permitted Exceptions or a Third Party Lease where applicable. Tenant shall
not have any obligation to actually operate the Premises or otherwise conduct
business of any nature thereon and Tenant may discontinue operation of the
Premises at any time or from time to time except as may be required under a
Third Party Lease, Fee Mortgage or instances where a license(s) or permit(s) or
the continued use may be in jeopardy in which event Tenant shall continue
operation to the extent necessary to protect the license(s) or permit(s), or as
required pursuant to a Third Party Lease or a Fee Mortgage.
6 Compliance with Law.
Tenant shall during the Term, at Tenant's expense: (a) observe and comply
with all Laws affecting the Premises; (b) procure every permit, license,
certificate or other authorization required in connection with the lawful and
proper maintenance, operation, use and occupancy of the Premises or required in
connection with any Construction Work or improvements erected on the Premises
and (c) comply with all such permits, licenses, certificates and other
authorizations. Notwithstanding the foregoing, Tenant shall have the right to
contest any such Laws in accordance with this Lease.
7 Maintenance and Alterations.
7.1 Obligation to Maintain. During the Term, Tenant shall, except as
otherwise expressly provided in this Lease, keep and maintain the Premises and
every portion thereof in good order, condition and repair, subject to Casualty
and Condemnation (governed by separate applicable provisions of this Lease),
reasonable wear and tear, and any other conditions that this Lease does not
require Tenant to repair. Tenant's obligations to maintain the Premises shall
extend to all repairs that the Premises (including plumbing, heating, air
conditioning, ventilating, electrical, lighting, fixtures, walls, roof,
foundations, ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences and signs located in, on or at the
Premises, together with any sidewalks and parkways adjacent to the Premises) may
require from time to time during the Term, whether structural or nonstructural,
foreseen or unforeseen, including such repairs as may be required by conditions
in existence at the Commencement Date and those Tenant is obligated to perform
under Paragraph 7.6.
7.2 Tenant's Right to Perform Alterations. At Tenant's sole cost and
expense and subject to the provisions of any Third Party Lease or Fee Mortgage,
Tenant shall have the right to perform any Construction Work relating to the
Premises, without Landlord's consent, as Tenant shall consider necessary or
appropriate. Tenant shall perform all Construction Work in a good,
professional, safe, and workmanlike manner, using licensed and insured
contractors in compliance with Law.
7.3 Plans and Specifications. To the extent that Tenant performs or
causes to be performed any Construction Work and obtains plans and
specifications or surveys (including working plans and specifications and
"as-built" plans and specifications and surveys) for such
12
<PAGE> 16
Construction Work, Tenant shall promptly upon Landlord's request provide
Landlord, for Landlord's information only, with a true and complete copy of such
plans and specification(s) or survey(s), subject to the terms of any agreement
between Tenant and the applicable outside architect, engineer or surveyor.
(Tenant shall exercise reasonable efforts to cause its agreements with such
outside professionals to permit the deliveries described in this paragraph.)
7.4 Excavations. If an excavation shall be made (or authorized) upon land
adjacent to the Land, then at Tenant's election Tenant shall either: (a) afford
to the person causing or authorized to cause such excavation, license to enter
the Premises, in accordance with Tenant's reasonable instructions, to perform
such work as such person shall reasonably deem necessary or desirable, and as
Tenant shall reasonably approve, to preserve and protect the Premises from
injury or damage and to support the same by proper foundations, or (b) perform
or cause to be performed, without cost or expense to Landlord in its capacity as
Landlord under this Lease, work of the nature described in clause (a) to the
extent reasonably necessary under the circumstances. Tenant shall not, by
reason of any excavations or work described in this paragraph, have any claim
against Landlord in its capacity as Landlord under this Lease for damages or for
Indemnity or for suspension, diminution, abatement or reduction of any Rent.
7.5 Cooperation by Landlord. Upon Tenant's request, subject to the
provisions of any Fee Mortgage, Landlord shall, without cost to Landlord,
promptly join in and execute (or assist Tenant in obtaining the requisite
consent of a Third Party Lessor) any instruments including, but not limited to,
applications for building permits, demolition permits, alteration permits,
consents, zoning, rezoning or use approvals, amendments and variances,
easements, encumbrances, and/or liens (excluding Mortgages) against the Premises
(Fee Estate and Leasehold Estate), and such other instruments as Tenant may from
time to time request in connection with Construction Work or to enable Tenant
from time to time to use and operate the Premises in accordance with this Lease,
provided each of the foregoing is in reasonable and customary form and does not
cause the Fee Estate to be encumbered as security for any obligation and does
not otherwise expose the Fee Estate to any material risk of forfeiture during
the Term. Tenant shall reimburse Landlord's Legal Costs and all other
out-of-pocket costs incurred in performing under this paragraph.
7.6 UST'S. Landlord shall retain responsibility for the maintenance and
repair of UST's at the Premises set forth in EXHIBIT D hereto, which UST's are
leased to Tenant hereunder. Tenant shall be responsible for the repair and
maintenance and replacement of all other UST's which were transferred to Tenant
on the date hereof. At the time the replacement or upgrading of the UST's is
completed at the Premises set forth in Exhibit D so that the UST's meet the
requirements of Law effective December 22, 1998, Landlord shall no longer be
responsible for the maintenance, repair or replacement of such UST's and,
except for Landlord's obligation under Paragraph 9.3 to remediate, Tenant shall
be solely responsible therefor. In the event that Tenant exercises the Renewal
Option for the First Renewal Term for certain Premises, under Paragraph 2.1, at
that time Landlord shall by a quitclaim Bill of Sale (disclaiming all
warranties, express and implied, including merchantability and fitness) transfer
the UST's under such
13
<PAGE> 17
Premises to Tenant for nominal consideration, except that the foregoing shall
not apply to any USTs owned by Third Party Lessors.
8 Prohibited Liens.
8.1 Tenant's Covenant. Tenant shall not suffer or permit any Prohibited
Lien to be filed. If a Prohibited Lien is filed then Tenant shall, within 30
days after receiving Notice from Landlord of such filing (but in any case within
15 days after receipt of Notice from Landlord of commencement of foreclosure
proceedings), commence and then prosecute appropriate action to cause such
Prohibited Lien to be paid, discharged or bonded. Nothing in this Lease shall
be construed to restrict Tenant's right to contest the validity of any
Prohibited Lien and to pursue Tenant's position to a final judicial
determination. The mere existence of a Prohibited Lien shall not be construed
as a default under this Lease unless Tenant fails to take action as aforesaid.
8.2 Protection of Landlord. Notice is hereby given that Landlord shall
not be liable for any labor or materials furnished or to be furnished to Tenant
upon credit, and that no mechanic's or other lien for any such labor or
materials shall attach to or affect the Fee Estate. Nothing in this Lease shall
be deemed or construed in any way to constitute Landlord's consent or request,
express or implied, by inference or otherwise, to any contractor, subcontractor,
laborer, equipment or material supplier for the performance of any labor or the
furnishing of any materials or equipment for any improvement, alteration or
repair of, or to, the Premises, or any part of the Premises, nor as giving
Tenant any right, power or authority to contract for, or permit the rendering
of, any services, or the furnishing of any materials that would give rise to the
filing of any liens against the Fee Estate. Tenant shall Indemnify Landlord
against any Construction Work performed on the Premises for or by Tenant,
including any Prohibited Lien arising from such Construction Work.
9 Hazardous Substances; Environmental Indemnification.
9.1 Restrictions. Tenant shall not cause or permit to occur after the
Commencement Date: (a) any material violation of any Environmental Law; or (b)
the use, generation, release, manufacture, refining, production, processing,
storage or disposal of any Hazardous Substance on, under, or about the Premises,
or the transportation to or from the Premises of any Hazardous Substance, except
to the extent that such use (i) is reasonably necessary for the conduct of
Tenant's business in accordance with acceptable industry standards for the
petroleum industry in which Tenant operates and (ii) complies in all material
respects with all applicable Environmental Laws.
9.2 Landlord's Representation. Except for the Premises set forth on
Exhibit D and Exhibit E, Landlord represents and warrants to Tenant that as of
the Commencement Date to the knowledge of Landlord the Premises comply in all
material respects with all Environmental Laws.
14
<PAGE> 18
9.3 Compliance; Clean-Up; Environmental Indemnification. Landlord shall
retain responsibility for the ongoing remediations at the Premises, set forth on
EXHIBIT E. Except as provided in the following sentence, Tenant shall, at
Tenant's expense, comply with all applicable Environmental Laws to the extent
such compliance is necessitated by events occurring after the Commencement Date.
Landlord shall, at Landlord's expense, comply with all applicable Environmental
Laws (a) to the extent such compliance is necessitated by events that occurred
before the Commencement Date, and (b) affecting the Premises (i) set forth on
Exhibit D until such time as the UST's have either been replaced or upgraded to
comply with the Law requiring compliance by December 22, 1998 and all
remediation has been completed until such time as Government closure has been
received for such Premises whether or not the Hazardous Substances Discharge
being remediated was discovered during the upgrade or replacement of the USTs,
and (ii) set forth on Exhibit E until all remediation has been completed to
Government closure. Except as expressly set forth hereinabove, any Hazardous
Substances Discharge discovered after the Commencement Date shall be deemed to
be an event that occurred after, and not before, the Commencement Date
notwithstanding the fact that the discharge causing the contamination may have
occurred in whole or in part before the Commencement Date. Any party required
by this paragraph to comply with Environmental Laws (the "Clean-Up Obligor")
shall, at the Clean-Up Obligor's own expense, make all submissions to, provide
all information required by, and otherwise fully comply with all requirements of
any Government arising under Environmental Laws with which such Clean-Up Obligor
is required to comply. If any Government requires any clean-up plan or clean-up
measures on account of Hazardous Substances Discharges for which a Clean-Up
Obligor is responsible, such Clean-Up Obligor shall, at its own expense, prepare
and submit the required plans and all related bonds and other financial
assurances and shall promptly and diligently carry out all such clean-up plans.
Any Clean-Up Obligor shall promptly provide the other party with all information
reasonably requested by such other party regarding the Clean-Up Obligor's use,
generation, storage, transportation or disposal of Hazardous Substances in, at,
or about the Premises and the remediation efforts undertaken.
9.4 Indemnity. Tenant shall Indemnify Landlord against any Hazardous
Substances Discharge for which Tenant is responsible under Paragraph 9.3.
Landlord shall Indemnify Tenant against any Hazardous Substances Discharge for
which Landlord is responsible under Paragraph 9.3.
10 Indemnification; Liability of Landlord.
10.1 Mutual Indemnity Obligations. Landlord and Tenant shall each
Indemnify the other against: (a) any wrongful act, wrongful omission or
negligence of the Indemnitor (and, in the case of (i) Tenant, that of any of
Tenant's Subtenants, and (ii) Landlord, that of any Third Party Lessor ) or its
or their partners, directors, officers, or employees; and (b) any breach or
default by the Indemnitor under this Lease. In addition to and without limiting
the generality of the foregoing indemnity, Tenant shall Indemnify Landlord and
Third Party Lessors against all the following matters (except to the extent any
claim arises from any wrongful act, wrongful
15
<PAGE> 19
omission or negligence of Landlord or any Third Party Lessor): (w) the operation
or occupancy of the Premises; (x) any Construction Work performed during the
Term; (y) the condition of the Premises or any street, curb or sidewalk
adjoining the Premises, whether or not such condition existed before the
Commencement Date; or of any vaults, tunnels, passageways or space under,
adjoining or appurtenant to the Premises whether or not such condition existed
before the Commencement Date; and (z) any accident, injury or damage whatsoever
caused to any person occurring during the Term, in or on the Premises or upon or
under the sidewalks adjoining the Premises. Notwithstanding anything to the
contrary in this Lease, neither party shall be required to Indemnify the other
party from or against such other party's intentional acts or negligence. This
paragraph is not intended to cover Environmental Laws and Hazardous Substances
Discharges, which are covered in Paragraph 9.
10.2 Liability of Landlord. Tenant is and shall be in exclusive control
and possession of the Premises during the Term as provided in this Lease.
Landlord shall not be liable for any injury or damage to any property or to any
person occurring on or about the Premises nor for any injury or damage to any
property of Tenant, or of any other person, during the Term. The provisions of
this Lease permitting Landlord to enter and inspect the Premises are intended to
allow Landlord to be informed as to whether Tenant is complying with the
agreements, terms, covenants and conditions of this Lease, and to the extent
permitted by this Lease, to perform such acts required by Landlord under this
Lease and of Tenant as Tenant shall fail to perform. Such provisions shall not
be construed to impose upon Landlord any obligation, liability or duty to third
parties, but nothing in this Lease shall be construed to exculpate, relieve or
Indemnify Landlord from or against any obligation, liability or duty of Landlord
to third parties existing at or before the Commencement Date.
10.3 Indemnification Procedures. Wherever this Lease requires an
Indemnitor to Indemnify an Indemnitee, the following procedures and requirements
shall apply:
10.3.1 Prompt Notice. The Indemnitee shall give the Indemnitor
prompt Notice of any claim. To the extent, and only to the extent, that both
(a) the Indemnitee fails to give prompt Notice and (b) the Indemnitor is
thereby prejudiced, the Indemnitor shall, except as otherwise required under a
Third Party Lease, be relieved of its indemnity obligations under this Lease.
10.3.2 Selection of Counsel. The Indemnitor shall be required to
select counsel reasonably acceptable to the Indemnitee. Counsel to the
Indemnitor's insurance carrier shall be deemed satisfactory. Indemnitee may
have its own counsel, at Indemnitee's expense, consult with Indemnitor's
counsel.
10.3.3 Settlement. The Indemnitor may, with the consent of the
Indemnitee, not to be unreasonably withheld, settle the claim, except that no
consent by the Indemnitee shall be required as to any settlement by which (x)
the Indemnitor procures (by payment, settlement, or otherwise) a release of the
Indemnitee pursuant to which the Indemnitee is not required to make
16
<PAGE> 20
any payment whatsoever to the claimant, (y) neither the Indemnitee nor the
Indemnitor acting on behalf of the Indemnitee makes any admission of liability,
and (z) the continued effectiveness of this Lease is not jeopardized in any way.
10.4 Insurance Proceeds. The Indemnitor's obligations shall be reduced by
net insurance proceeds actually collected by the Indemnitee on account of the
loss.
10.5 Survival. All indemnities set forth in the Lease shall survive the
termination or expiration of the Lease.
11 Right of Contest.
11.1 Tenant's Right. Notwithstanding anything to the contrary in this
Lease, Tenant shall have the right to contest, at its sole expense, by
appropriate legal proceedings diligently conducted in good faith, the amount or
validity of any Imposition or Prohibited Lien; the valuation, assessment or
reassessment (whether proposed or final) of the Premises for purposes of real
estate taxes; the validity of any Law or the application of any Law to the
Premises; or the validity or merit of any claim against which Tenant is required
to Indemnify Landlord under this Lease (any of the foregoing, a "Contest").
Tenant may defer payment of the contested Imposition or compliance with the
contested Law or performance of any other contested obligation pending the
outcome of the Contest, provided that such deferral does not subject the
Premises to any risk of imminent forfeiture or Fee Mortgage Foreclosure or
Landlord to any risk of criminal liability.
11.2 Landlord's Obligations and Protections. Landlord shall not be
required to join in any Contest unless a Law shall require that such Contest be
brought in the name of Landlord or any owner of the Fee Estate. In such case,
Landlord shall cooperate with Tenant, as Tenant shall reasonably request, so as
to permit such Contest to be brought in Landlord's name. Tenant shall pay all
reasonable costs and expenses (including Legal Costs) incident to a Contest.
Tenant shall Indemnify Landlord against any Contest brought by Tenant.
11.3 Miscellaneous. Tenant shall be entitled to any refund of any
Imposition (and penalties and interest paid by Tenant) based upon Tenant's prior
overpayment of such Imposition, whether such refund is made during or after the
Term. Upon termination of Tenant's Contest of an Imposition, Tenant shall pay
the amount of such Imposition (if any) as has been finally determined in such
Contest to be due, together with any costs, interest, penalties or other
liabilities in connection with such Imposition. Upon final determination of
Tenant's Contest of a Law, Tenant shall comply with such final determination.
Landlord shall not enter any objection to any Contest. Tenant's right to contest
any Imposition or the valuation, assessment or reassessment of the Premises for
tax purposes shall not be to the exclusion of Landlord, and Landlord shall have
the right to contest the foregoing upon notice to Tenant.
17
<PAGE> 21
12 Insurance.
12.1 Tenant to Insure. Tenant shall, at Tenant's sole cost and expense,
during the Term, maintain the following insurance (or its then reasonably
available equivalent) or such greater coverage as may be required by a Third
Party Lease:
12.1.1 Building. Building insurance providing coverage for the
Premises and all equipment, fixtures, and machinery at or in the Premises,
against loss, damage, and destruction by fire and other hazards encompassed
under broad form coverage as may be customary for like properties in the County
(but Tenant shall in no event be required to maintain earthquake or war risk
insurance) from time to time during the Term, in an amount not less than 80% of
the replacement value of the insurable buildings, structures, improvements and
equipment (excluding excavations and foundations) located at the Premises, but
in any event sufficient to avoid co-insurance. To the extent customary for like
properties at the time, such insurance shall include coverage for explosion of
steam and pressure boilers and similar apparatus located at the Premises; an
"increased cost of construction" endorsement; and an endorsement covering
demolition and cost of debris removal.
12.1.2 Liability. General public liability insurance against claims
for personal injury, death or property damage occurring upon, in or about the
Premises and adjoining streets and passageways. The coverage under all such
liability insurance shall be at least $50 million in the aggregate for any Lease
year, $5 million in respect of injury or death to a single person, and at least
$10 million, in respect of any one accident, and not less than full replacement
value for property damage. Landlord shall be entitled from time to time, upon
180 days' Notice to Tenant, to increase the dollar limits set forth in this
paragraph, subject to the following limitations, which shall be cumulative: (a)
such increased limits shall never exceed the limits initially set forth plus an
increase proportionate to the increase in the consumer price index from the
Commencement Date to the adjustment date, rounded to the nearest $1,000,000; (b)
such limits shall never exceed the limits customarily maintained for similar
commercial properties located in the County; and (c) Landlord shall not be
entitled to increase such limits more frequently than once every three years.
12.1.3 Workers' Compensation. Workers' compensation insurance
covering all persons employed in connection with any Construction Work or
operation of the Premises, and with respect to whom any claim could be asserted
against Landlord or the Fee Estate.
12.1.4 Other. All other insurance as Tenant determines appropriate
in the exercise of Tenant's reasonable business judgment.
12.2 Nature of Insurance Program. Tenant may provide any insurance
required by this Lease pursuant to a "blanket" or "umbrella" insurance policy,
provided that (i) such policy or a certificate of such policy shall specify the
amount(s) of the total insurance allocated to the
18
<PAGE> 22
Premises, which amount(s) shall not be subject to reduction on account of claims
made with respect to other properties and (ii) such policy otherwise complies
with this Lease.
12.3 Policy Requirements and Endorsements. All insurance policies
required by this Lease shall contain (by endorsement or otherwise) the following
provisions:
12.3.1 Additional Insureds. Liability insurance policies shall name
as additional insureds Landlord, its subsidiaries, Third Party Lessors and Fee
Mortgagees.
12.3.2 Primary Coverage. All policies shall be written as primary
policies not contributing with or in excess of any coverage that Landlord may
carry.
12.3.3. Tenant's Acts or Omissions. Each policy shall include, if
available without additional cost, a provision that any act or omission of
Tenant shall not prejudice any party's rights (other than Tenant's) under such
insurance coverage.
12.3.4 Contractual Liability. Policies of liability insurance shall
contain contractual liability coverage, relating to Tenant's indemnity
obligations under this Lease, to the extent ordinarily insured.
12.3.5 Insurance Carrier Standards. Each insurance carrier shall be
authorized to do business in the State and shall have a "Best's" rating of at
least B+-VI.
12.3.6 Notice to Landlord. The insurance carrier shall undertake to
give Landlord 60 days' prior Notice of cancellation or amendment. Failure to
give such Notice shall not adversely affect the rights or increase the
obligations of the insurance carrier.
12.4 Deliveries to Landlord. Upon Notice to such effect by Landlord,
Tenant shall deliver to Landlord and Third Party Lessors certificates and or
certified copies of the insurance policies required by this Lease, endorsed
"Paid" or accompanied by other evidence that the premiums for such policies have
been paid, at least thirty days before expiration of any then current policy.
12.5 Tenant's Inability to Obtain Insurance. So long as (a) any
insurance required by this Lease should, after diligent effort by Tenant, be
unobtainable at commercially reasonable rates through no act or omission by
Tenant and (b) Tenant shall obtain the maximum insurance reasonably obtainable
and give Notice to Landlord of the extent of Tenant's inability to obtain any
insurance required to be maintained under this Lease, then unless Tenant's
inability to procure and maintain such insurance results from some activity or
conduct not within Tenant's reasonable control, Tenant's obligation to procure
and maintain such insurance as is unobtainable shall be excused, but only so
long as conditions (a) and (b) are satisfied. Notwithstanding the foregoing, if
Tenant, after diligent effort, is unable to obtain any insurance required by
this
19
<PAGE> 23
Lease, Landlord shall have the right to obtain such insurance and shall charge
the cost of such insurance to Tenant as Additional Rent.
12.6 Waiver of Certain Claims. To the extent that Landlord or Tenant
purchases any hazard insurance relating to the Premises, the party purchasing
such insurance shall attempt to cause the insurance carrier to agree to a Waiver
of Subrogation. If any insurance policy cannot be obtained with a Waiver of
Subrogation, or a Waiver of Subrogation is obtainable only by the payment of an
additional premium, then the party undertaking to obtain the insurance shall
give Notice of such fact to the other party. The other party shall then have 10
Business Days after receipt of such Notice either to place the insurance with a
company that is reasonably satisfactory to the other party and that will issue
the insurance with a Waiver of Subrogation at no additional cost, or to agree to
pay the additional premium if such a policy can be obtained only at additional
cost. To the extent that the parties actually obtain insurance with a Waiver of
Subrogation, the parties release each other, and their respective authorized
representatives, from any claims for damage to any person or the Premises that
are caused by or result from risks insured against under such insurance
policies, but only to the extent of the available insurance proceeds.
12.7 No Representation of Adequate Coverage. Neither party makes any
representation, or shall be deemed to have made any representation, that the
limits, scope, or form of insurance coverage specified in this Article are
adequate or sufficient.
13 Damage or Destruction.
13.1 Notice; No Rent Abatement. Tenant shall promptly give Landlord
Notice of any Casualty. There shall be no abatement or reduction of Fixed Rent
or Additional Rent on account of a Casualty. Tenant shall with reasonable
promptness restore the damaged improvements as nearly as may be practicable to
their condition, quality, and class immediately prior to such Casualty, with
such changes or alterations (including demolition) as Tenant shall elect to
make in conformity with this Lease, all at Tenant's sole cost and expense.
13.2 Adjustment of Claims; Use of Insurance Proceeds. Tenant shall be
solely responsible for the adjustment of any insurance claim. All proceeds of
building or hazard insurance shall be paid to Tenant to be held and applied in
compliance with this Lease.
14 Condemnation.
14.1 Substantial Condemnation. If a Substantial Condemnation of any
Premises shall occur, then this Lease shall terminate as to such Premises as of
the effective date of such Substantial Condemnation, such Premises shall be
deemed to be deleted from Exhibit A or Exhibit B, and the Rent shall be reduced
accordingly. The proceeds of the Substantial Condemnation shall belong
entirely to Landlord or Third Party Lessor, other than such award(s) as Tenant
may be entitled to receive for moving expenses, trade fixtures and the like,
provided
20
<PAGE> 24
that such awards to Tenant do not reduce Landlord's share of the award or
conflict with a Third Party Lease.
14.2 Insubstantial Condemnation. If an Insubstantial Condemnation at any
Premises shall occur, then subject to the terms of any Fee Mortgage to the
contrary, any award or awards shall be paid to Tenant to be applied first to
repair, restoration or reconstruction of any remaining part of the improvements
not so taken. If the award(s) for any such Insubstantial Condemnation is not
sufficient to pay for said repair, restoration or reconstruction, Tenant shall
be responsible for completing same at Tenant's sole cost and expense. Tenant
shall perform such repair, restoration or reconstruction in accordance with
applicable requirements of this Lease. The balance of any such award or awards
remaining after the repair, restoration or reconstruction shall be distributed
to Landlord. From and after the effective date of the Insubstantial
Condemnation, Fixed Rent shall be adjusted as follows. New Fixed Rent shall
equal Fixed Rent, as it would have been determined without regard to the
Insubstantial Condemnation, multiplied by a fraction whose numerator is the
total value of the Premises after the Insubstantial Condemnation and whose
denominator is the total value of the Premises immediately before the effective
date of such Insubstantial Condemnation and without considering such
Insubstantial Condemnation or the expectation thereof.
14.3 Temporary Condemnation. If a Temporary Condemnation shall occur with
respect to any Premises, Rent shall not abate and, subject to the terms of any
Fee Mortgage or Third Party Lease to the contrary, Tenant will be entitled to
receive any award or payment.
14.4 Other Governmental Action. In the event of any action by any
Government not resulting in a Condemnation but creating a right to compensation,
such as the changing of the grade of any street upon which the Premises abut,
then this Lease shall continue in full force and effect without reduction or
abatement of Rent and subject to the terms of any Fee Mortgage or Third Party
Lease to the contrary, Tenant shall be entitled to receive the award or payment
made in connection with such action.
14.5 Prompt Notice. If either party becomes aware of any Condemnation or
threatened or contemplated Condemnation, then such party shall promptly give
Notice thereof to the other party.
15 Transfers by Landlord.
15.1 Landlord's Right to Convey. Landlord shall be entitled to convey the
Fee Estate of any Premises from time to time subject to the terms and conditions
of this Lease. Without limiting Tenant's remedies on account of any such
transaction, if Landlord conveys the Fee Estate in violation of this paragraph,
then: (x) such transaction shall be null, void, and of no force or effect; (y)
notwithstanding the foregoing, Tenant shall be entitled to equitable relief
requiring the cancellation and rescission of such transaction; and (z) Tenant
shall be entitled to have such
21
<PAGE> 25
violating Premises deleted from this Lease. Any conveyance of the Fee Estate
shall not terminate or impair any of the grantor's obligations as Landlord under
this Lease.
15.2 Landlord's Mortgages. This Lease shall be subject and subordinate to
all existing Fee Mortgages. This Lease and the Leasehold Estate hereunder shall
be subject and subordinate to all subsequent Fee Mortgages and the rights of
holders of such Fee Mortgages where a non-disturbance agreement is obtained
whereunder Tenant's rights under this Lease will not be disturbed upon any
foreclosure or other exercise of remedies under a Fee Mortgage, and provides
such other similar assurances as Tenant shall reasonably request. This Lease
and Leasehold Estate hereunder shall be prior and superior to all subsequent Fee
Mortgages where a non-disturbance agreement has not been obtained, except as
otherwise set forth in a Third Party Lease.
15.3 Zoning Lots. Without Tenant's prior written consent, which Tenant
shall not unreasonably withhold, Landlord shall not enter into any agreement or
instrument by which the Premises are combined with any other real property for
purposes of any Law governing zoning, bulk, development rights, or any similar
matter, or by which any rights arising under such Laws to develop the Premises
are transferred to any other real property.
16 Transfers by Tenant and Dealer Leases.
16.1 Tenant's Limited Right. Tenant may not assign, mortgage, pledge or
transfer all of this Lease (collectively, a "Transfer") without Landlord's
consent, which consent shall not be unreasonably withheld provided that the
assignee is no less credit worthy than Tenant. Tenant may not assign any
part(s) of this Lease and it is deemed reasonable for Landlord to refuse to
grant its consent therefor. Any permitted assignee of Tenant shall assume all
obligations and liabilities of Tenant under this Lease and if not so assumed,
Tenant shall continue to remain liable and responsible under this Lease. In no
event shall Tenant be relieved from its liabilities and obligations incurred or
accruing prior to the assignment. Tenant shall promptly notify Landlord of the
completion of any approved Transfer.
16.2 Dealer Leases. Landlord hereby assigns to Tenant, and Tenant hereby
assumes Landlord's interest in any leases of the Premises to all Dealers. From
the Commencement Date to the end of the Term, Tenant shall be entitled to all
rentals paid by Dealers and during such period Tenant shall perform all of the
obligations under each such Dealer lease attributable to lessor therein. Except
for those Dealer leases set forth in EXHIBIT F, to Landlord's knowledge,
Landlord represents that all such Dealer leases are currently in full force and
effect and that there are no defaults by any party under the terms of such
leases.
16.3 Tenant's Right to Sublet. Subject to the terms of any Third Party
Lease, Tenant may enter into a Sublease for the permitted uses set forth in
Paragraph 5, extend, renew or modify any Sublease, consent to any subleasing (or
further levels of subleasing) (all of which shall be within the defined term
"Sublease," and the occupants thereunder shall all be deemed "Subtenants"),
22
<PAGE> 26
terminate any Sublease or evict any Subtenant, all without Landlord's consent.
The term of any Sublease (including renewal options thereof,) shall not extend
beyond the Term (including only any Renewal Options previously exercised by
Tenant). If Tenant enters into any Sublease, then such Sublease shall be
subordinate to this Lease. If Tenant desires to enter into a Sublease for a use
other than the permitted uses set forth in Paragraph 5, any such Sublease shall
require Landlord's consent, which, except as provided in the following sentence
or under any Third Party Lease, shall not be unreasonably withheld. Landlord
may withhold consent to a Sublease if it, in its sole judgment, it determines
that (i) valuable licenses and permits will be lost as a result of the proposed
Sublease or (ii) Tenant's intended new use for the Premises will make the
premises materially less valuable. In the event that Landlord grants its
consent to a Sublease for lawful purposes other than the permitted uses set
forth in Paragraph 5, before commencing such new Sublease Tenant shall at its
expense remove all UST's and contaminated soil, if any, before the commencement
of the Sublease term. Thereafter, Tenant shall at its expense complete all
environmental investigations and/or remediations as may be required by
governmental authorities. Tenant hereby assigns, transfers and sets over to
Landlord all of Tenant's right, title, and interest in and to each Sublease
entered into by Tenant from time to time, together with all subrents or other
sums of money due and payable under such Sublease and all security deposited
with Tenant under such Sublease. Such assignment shall, however, become
effective and operative only if this Lease shall expire or be terminated or
canceled, or if Landlord re-enters or takes possession of the Premises pursuant
to this Lease, following (in either case) the expiration of all applicable cure
periods. Notwithstanding the foregoing, Tenant agrees, that upon the request of
Landlord, all subtenancies, as specified by Landlord, for the sale of petroleum
products will be terminated before the expiration, termination or cancellation
of this Lease.
16.4 Leasehold Mortgages. Notwithstanding anything in this Lease to the
contrary, Tenant shall not have the right, without Landlord's consent, to
execute and deliver Leasehold Mortgage(s) encumbering this Lease and the
Leasehold Estate.
16.5 No Release. No Transfer or Sublease shall affect or reduce any of
Tenant's obligations or Landlord's rights under this Lease. All obligations of
Tenant under this Lease shall continue in full force and effect notwithstanding
any Sublease or Transfer.
17 Quiet Enjoyment.
Landlord covenants that, so long as Landlord has not terminated this Lease
on account of an Event of Default by Tenant, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises for the Term without molestation or
disturbance by or from Landlord or anyone claiming by or through Landlord or
having title to the Premises paramount to Landlord, and free of any encumbrance
created or suffered by Landlord, except Permitted Exceptions, provided, however,
that the foregoing shall not apply if Landlord loses possession under a Third
Party Lease for any reason other than Landlord's default thereunder.
23
<PAGE> 27
18 Default by Tenant; Remedies.
18.1 Definition of "Event of Default." The term "Event of Default" shall
mean and refer to the occurrence of any one or more of the following
circumstances:
18.1.1 Monetary Default. If a Monetary Default shall occur and the
Monetary Default shall continue for 10 days after Landlord has given Tenant
Notice of such Monetary Default, specifying in reasonable detail the amount of
money required to be paid by Tenant and the nature of such payment. Monetary
Defaults shall include, without limitation, failure by Tenant to pay any item
of Rent, Additional Rent or any other charge or sum required to be paid by
Tenant hereunder.
18.1.2 Non-Monetary Default. Except for those Non-Monetary Defaults
set forth below which cannot be cured within 30 days, if a Non-Monetary Default
shall occur and the Non-Monetary Default shall continue and not be remedied by
Tenant within 30 days after Landlord shall have delivered to Tenant a Notice
describing the same in reasonable detail, or, in the case of a Non-Monetary
Default that cannot with due diligence be cured within 30 days from such Notice,
if Tenant shall not (x) within 30 days from Landlord's Notice advise Landlord of
Tenant's intention to take all reasonable steps necessary to remedy such
Non-Monetary Default, (y) duly commence the cure of such Non-Monetary Default
within such period, and then diligently prosecute to completion the remedy of
the Non-Monetary Default and (z) complete such remedy within a reasonable time
under the circumstances.
Non-Monetary Defaults shall include, without limitation, (a) if Tenant
shall make an assignment for the benefit of its creditors; (b) if any petition
shall be filed against Tenant in any court, whether or not pursuant to any
statute of the United States or of any State, in any bankruptcy, reorganization,
composition, extension, arrangement or insolvency proceedings, and Tenant shall
thereafter be adjudicated bankrupt, or if such proceedings shall not be
dismissed within ninety (90) days after the institution of the same; or if any
such petition shall be so filed by Tenant or a liquidator; (c) if, in any
proceeding, a receiver, receiver and manager, trustee or liquidator be appointed
for all or any portion of Tenant's property, and such receiver, receiver and
manager, trustee or liquidator shall not be discharged within ninety (90) days
after the appointment of such receiver, receiver and manager, trustee or
liquidator; (d)Tenant shall fail to perform any covenant required by the
Distribution Agreement which failure shall continue beyond such cure periods, if
any, as are provided for in such Distribution Agreement; or (e) a default under
any Third Party Lease or under the provisions of a Fee Mortgage which affect
Tenant's use of the Premises.
18.2 Remedies. If an Event of Default occurs, then Landlord shall, at
Landlord's option, have any or all of the following remedies, all of which shall
be cumulative (so that Landlord's exercise of one remedy shall not preclude
Landlord's exercise of another remedy), in addition to such other remedies as
may be available at law or in equity or pursuant to any other terms of this
Lease. Landlord's remedies shall include, without limitation:
24
<PAGE> 28
18.2.1 Termination of Tenant's Rights. Landlord may terminate
Tenant's right to possession of the Premises by any lawful means, in which case
this Lease and the Term shall terminate (and such date of termination shall be
the Termination Date) and Tenant shall immediately surrender possession of all
of the Premises to Landlord.
18.2.2 Taking of Possession. Landlord may re-enter and take
possession of any or all of the Premises with or without process of law and
remove Tenant, with or without having terminated this Lease. This is intended
to constitute an express right of re-entry on Landlord's part.
18.2.3 Security Devices. Landlord may change the locks and other
security devices providing admittance to the Premises.
18.2.4 Conditional Limitation. Landlord may serve upon Tenant a
10-day notice of cancellation and termination of this Lease. Upon the
expiration of such 10-day period, this Lease and the Term shall automatically
and without any action by anyone terminate, expire and come to an end, by the
mere lapse of time, as fully and completely as if the expiration of such 10-day
period were the Termination Date. The passage of such 10-day period constitutes
the limit beyond which Tenant's tenancy no longer exists. Tenant shall then
quit and surrender the Premises to Landlord but Tenant shall remain liable as
provided for in this Lease. It is a conditional limitation of this Lease that
the Term shall terminate and expire as set forth in this paragraph. This
paragraph is intended to establish a conditional limitation and not a condition
subsequent.
18.2.5 Injunction of Tenant's Breaches. Landlord shall be entitled
to obtain a court order enjoining Tenant from continuing conduct constituting a
breach of Tenant's covenants in this Lease. Tenant specifically acknowledges
that damages would not constitute an adequate remedy for Tenant's breach of any
non-monetary covenant contained in this Lease.
18.2.6 Damages. Landlord may recover from Tenant all damages
incurred by Landlord by reason of Tenant's default, including the costs of
recovering possession, reletting the Premises, and any and all other damages
legally recoverable by Landlord. Such damages shall include, at Landlord's
election, either (a) the Rent provided for in this Lease, when and as due and
payable pursuant to this Lease, less (in the case of this clause "b" only)
Landlord's actual proceeds of reletting net of Landlord's actual reasonable
costs of reletting, or (b) the entire amount of Rent due for the entire Term (or
Renewal Term if applicable) shall accelerate and immediately become due and
payable. Landlord may recover such damages at any time after Tenant's default,
including after expiration of the Term.
18.2.7 Continue Lease. Landlord may at Landlord's option maintain
Tenant's right to possession, in which case this Lease shall continue in effect
and Landlord shall be entitled to continue to enforce this Lease, including the
right to collect Rent and the right to any remedies for nonpayment.
25
<PAGE> 29
18.3 Mitigation of Damages. Landlord agrees to take all commercially
reasonable steps necessary or appropriate to mitigate any damages that Landlord
may suffer on account of an Event of Default under this Lease. Without limiting
the preceding sentence, Landlord shall diligently endeavor to relet the Premises
under any circumstances where such reletting would mitigate Landlord's damages.
18.4 Tenant's Late Payments. If Tenant makes any payment required under
this Lease after such payment is first due and payable, then in addition to any
other remedies Landlord may have under this Lease, and without reducing or
adversely affecting any of Landlord's other rights and remedies, Tenant shall
pay Landlord within 10 days after demand interest on such late payment, at an
interest rate equal to the Prime Rate plus 3%, beginning on the date such
payment was first due and payable and continuing until the date when Tenant
actually makes such payment.
18.5 Landlord's Right to Cure. If Tenant shall at any time fail to make
any payment or perform any other act on its part to be made or performed
pursuant to this Lease, then Landlord, after ten (10) Business Days' Notice to
Tenant, or with such notice (if any) as is reasonably practicable under the
circumstances in case of an emergency, and without waiving or releasing Tenant
from any obligation of Tenant or from any default by Tenant and without waiving
Landlord's right to take such action as may be permissible under this Lease as a
result of such Default, may (but shall be under no obligation to) make such
payment or perform such act on Tenant's part to be made or performed pursuant to
this Lease. Landlord may enter upon the Premises for such purpose, and take all
such action on the Premises, as may be reasonably necessary under the
circumstances, but in doing so shall not unreasonably interfere with the conduct
of operations on the Premises by Tenant or anyone claiming through Tenant and
shall comply with Tenant's reasonable instructions. Tenant shall reimburse
Landlord, as Additional Rent (within 10 days after Notice from Landlord
accompanied by reasonable backup documentation), for all reasonable sums paid by
Landlord and all costs and expenses reasonably incurred by Landlord, together
with Landlord's Legal Costs, in connection with the exercise of Landlord's cure
rights under this paragraph.
18.6 Holding Over. The parties recognize and agree that if for any reason
or no reason Tenant remains in the Premises after the Termination Date, then
Landlord will suffer injury that is substantial, difficult or impossible to
measure accurately. Therefore, if both (a) Tenant remains in the Premises after
the Termination Date (for any month or partial month), for any reason or no
reason, and (b) either (i) Landlord at any time gives Tenant Notice that
Landlord elects to require Tenant to pay the liquidated damages described in
this paragraph or (ii) as of the date 31 days after the Termination Date,
Landlord has not commenced holdover proceedings against Tenant or otherwise
proceeded to remove Tenant from the Premises, then in addition to any other
rights or remedies available to Landlord, Tenant shall pay to Landlord, as
liquidated damages and not as a penalty, for each month (or portion of a month)
during which Tenant holds over in the Premises after the Termination Date, a sum
equal to: 120% (for the first month or partial month of holding over), 140% (for
the second month or partial month of holding over),
26
<PAGE> 30
and 150% (for each subsequent month or partial month of holding over) times the
Rent, including Additional Rent, payable under this Lease for the month in which
the Termination Date occurs.
18.7 Legal Costs. Provided in each and every case that Landlord
prevails, Tenant shall pay Landlord, as Additional Rent, all Legal Costs and any
other out-of-pocket costs incurred by Landlord on account of any litigation or
dispute between Landlord and Tenant, or claim made by Landlord against Tenant,
arising from this Lease, a Third Party Lease or the landlord-tenant relationship
under this Lease, or on account of Landlord's enforcement of this Lease upon
Tenant's default. In addition, subject to the same proviso, Tenant shall
reimburse Landlord for all Legal Costs and any other out-of-pocket costs
incurred by Landlord in any litigation to enforce or interpret this Lease or
seek declaratory or injunctive relief against Tenant in connection with this
Lease; to exercise Landlord's remedies against Tenant upon an Event of Default
under this Lease or pursuant to Law; to regain or attempt to regain possession
of the Premises or otherwise terminate this Lease; and in any proceeding under
the federal bankruptcy code, or under any similar statute affecting Tenant.
18.8 Waivers. Landlord and Tenant irrevocably waive all rights to trial
by jury in any action, proceeding, counterclaim or other litigation arising out
of or relating to this Lease, the relationship of Landlord and Tenant under this
Lease, the enforcement of this Lease, Tenant's use or occupancy of the Premises,
any claim of injury or damage arising between Landlord and Tenant, or any
actions of Landlord in connection with or relating to the enforcement of this
Lease. Tenant waives any right of redemption provided for by Law.
18.9 Accord and Satisfaction; Partial Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the amount required to be paid by
Tenant under this Lease shall be deemed to be other than a payment on account by
Tenant, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment of Rent be deemed an accord or satisfaction.
Landlord may accept any such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy for
nonpayment, including termination of this Lease and commencement of a summary
dispossess proceeding. Notwithstanding any endorsement on any check or any
statement to the contrary in any letter accompanying any check or payment,
Landlord shall apply any partial payments of back Rent made by Tenant to the
oldest outstanding Rent under this Lease, except to the extent Landlord elects
otherwise in its sole and absolute discretion.
18.10 Cross-Default. Any default by Tenant under the Distribution
Agreement which remains uncured during the applicable grace period, shall be an
Event of Default under this Lease. In addition, any default under a Third Party
Lease which remains uncured during the applicable grace period shall be an Event
of Default under this Lease and any default under this Lease pertaining to a
single or to multiple Premises shall be an Event of Default pertaining to all
Premises.
27
<PAGE> 31
19 Termination.
Upon the Termination Date for any or all Premises, all improvements
(including UST's) constituting part of the Premises shall become Landlord's
property (subject to Permitted Exceptions), and Tenant shall deliver to
Landlord possession of the Premises, in good condition and state of repair free
of violations of Law and Environmental Laws, free of Hazardous Substances and
free of all Subleases and tenancies except as otherwise set forth in Paragraph
16.3. In addition, upon such termination Tenant shall assign to Landlord,
without recourse, all assignable licenses and permits affecting the Premises
and all assignable contracts, warranties and guarantees then in effect relating
to the Premises, together with all unpaid insurance awards and rights against
insurance carriers as to then-existing insurance claims relating to the
Premises. In addition, Tenant shall deliver to Landlord any unapplied building
insurance proceeds in Tenant's possession. Tenant's personal property and
equipment not removed from the Premises within 30 days after the Termination
Date shall be deemed abandoned. Tenant shall continue to completion after the
Termination Date any environmental remediations as required by Environmental
Law and shall continue to pay Rent (including Additional Rent) for any Premises
which are rendered substantially unusable because of the remediation
activities.
20 Notices.
All Notices shall be in writing and shall be addressed to Landlord and
Tenant as set forth below. Notices shall be (i) delivered personally to the
addresses set forth below, (ii) by Federal Express or other courier service to
the addresses set forth below, in which case they shall be deemed delivered on
the date of delivery (or when delivery has been attempted twice, as evidenced
by the written report of the courier service) to the address(es) set forth
below; or (iii) sent by certified mail, return receipt requested, in which case
they shall be deemed delivered three Business Days after deposit in the United
States mail, provided that no postal strike is then in effect. Either party
may change its address by giving
Notice in compliance with this Lease. Notice of such a change shall be
effective only upon receipt. The addresses of the parties are:
Landlord: 125 Jericho Turnpike, Jericho, New York 11753
Attention: Real Estate Manager
Tenant: 125 Jericho Turnpike, Jericho, New York 11753
Attention: President
21 No Broker.
Landlord and Tenant each represents and warrants to each other that it did
not engage any broker or finder in connection with this Lease and that no
person is entitled to any commission or finder's fee on account of any
agreements or arrangements made by such party with any broker or
28
<PAGE> 32
finder. Each party shall Indemnify the other party against any breach of the
foregoing representation by the Indemnitor.
22 Economic Abandonment.
If during the Term Tenant determines that a Service Station Premises has
become uneconomic or unsuitable for its own use and occupancy and Tenant has
discontinued use of the Service Station Premises or intends to discontinue use
of the Service Station Premises for a period of not less than one year from the
date of said determination, Tenant shall have the right to cease selling motor
fuels and sublease such Service Station Premises for any lawful use by giving
notice to Landlord of Tenant's intention so to sublease. Said notice shall be
delivered to Landlord at least sixty (60) days prior to the effective date of
such termination specified in said notice and shall be accompanied by a
certificate of an officer of Tenant to the effect that Tenant has determined
that the Service Station Premises has become uneconomic or unsuitable for its
then use and occupancy as a service station/convenience store and the Tenant
has discontinued or intends to discontinue use of the Service Station Premises
for a period of not less than one (1) year from the date of said determination.
Any such Sublease shall be subject to Paragraph 16.3 except that Landlord's
consent shall not be required. Prior to the commencement of such sublease term
Tenant shall remove the UST's and any contaminated soil, and thereafter Tenant
shall perform all requisite environmental investigations and/or remediations.
Tenant shall be limited to ten (10) economic abandonments (non-cumulative)
during any lease year during the Term. For Petroleum Terminal Premises and
the Premises subject to Third Party Leases, Tenant shall have no right of
economic abandonment under this Paragraph or otherwise.
23 Third Party Leases.
23.1 Subordination: Conflict. The rights of Tenant hereunder are at all
times subject to the terms and provisions of the Third Party Leases and Tenant
agrees to perform all of Landlord's obligations, as lessee, to be performed by
it under the Third Party Leases' initial terms and all renewal terms except
that Landlord shall remit the rent due to the Third Party Lessors. In the
event that there is any conflict between the terms and conditions of this Lease
and the terms and conditions of any Third Party Lease, the terms and conditions
of the Third Party Lease shall control. In the event that the Third Party
Lease is terminated for any reason, Tenant acknowledges and agrees that the
term of this Lease as applicable to the Third Party Lease Premises shall end 30
days prior to the termination of the Third Party Lease. Landlord disclaims any
warranties, express or implied, that it has the right pursuant to the Third
Party Lease to enter into this Lease.
23.2 Renewal Options. Landlord has the right to exercise all renewal
options under all Third Party Leases and Tenant has the right, but not the
obligation, to sublease any such Premises during any such Third Party Leases
renewal options. Tenant is not obligated to sublease any such Premises after
the first to occur of (i) the end of the term of the Third Party Lease in
effect on the date hereof, or (ii) January 31, 2012. In the event that Tenant
elects to
29
<PAGE> 33
continue to sublease such Premises beyond the end of the term of a Third Party
Lease, Tenant shall give Landlord notice of such election not less than 60 days
prior to the date that notice is due to Third Party Lessor and Landlord agrees
to give such notice to the Third Party Lessor pursuant to the terms of the Third
Party Lease.
23.3 Renewals. Landlord covenants and agrees that from time to time it
will use all commercially reasonable efforts to renew all Third Party Leases
which expire on or prior to the end of the Initial Term or applicable Renewal
Term (where such Third Party Leases do not contain Renewal Options) on terms and
conditions acceptable to both Landlord and Tenant. Tenant shall advise
Landlord not less than one (1) year prior to the expiration of a Third Party
Lease if Tenant does not desire to continue its tenancy at such Premises, in
which event Landlord will not renew the Third Party Lease for that Premises for
Tenant's use but may renew for Landlord's other purposes, including subleasing
to a third party. In the event that Tenant does not give Landlord the notice as
aforesaid. Tenant shall be deemed to have agreed to renew the Lease as to such
Premises on the terms and conditions negotiated by Landlord with the Third Party
Lessor. In the event that Tenant does give Landlord the notice as aforesaid,
the Lease as to such Premises shall expire and terminate at the end of the then
current term of the applicable Third Party Lease.
24 Waivers.
24.1 No Waiver by Silence. Failure of either party to complain of any
act or omission on the part of the other party shall not be deemed a waiver by
the noncomplaining party of any of its rights under this Lease. No waiver by
either party at any time, express or implied, of any breach of any provisions of
this Lease shall be a waiver of a breach of any other provision of this Lease or
a consent to any subsequent breach of the same or any other provision. No
acceptance by Landlord of any partial payment shall constitute an accord or
satisfaction but shall only be deemed a part payment on account.
24.2 No Landlord's Lien. Landlord confirms and acknowledges that
Landlord has no lien or security interest in any personal property of Tenant
located in, on or at the Premises, and that such personal property shall not
constitute security for payment of any Rent. If, at any time after the
Commencement Date, any statute or principle of law would grant Landlord any such
lien or security interest, then Landlord hereby waives the benefit of any such
statute and such lien. Landlord further agrees to execute such documentation,
in recordable form, as Tenant shall reasonably require to confirm the foregoing
waiver.
25 Further Assurances; Additional Deliveries.
25.1 Estoppel Certificates. At any time and from time to time, upon not
less than 10 Business Days' prior written request by either party to this Lease
(the "Requesting Party"), the other party to this Lease (the "Certifying
Party") shall execute, acknowledge and deliver to the Requesting Party (or
directly to a third party whose name and address are provided by the
30
<PAGE> 34
requesting party) up to four original counterparts of an Estoppel Certificate.
Any Estoppel Certificate may be relied upon by any third party to whom an
Estoppel Certificate is required to be directed.
25.2 Equipment Liens. If at any time or from time to time Tenant desires
to enter into or grant any Equipment Liens, then upon Tenant's request Landlord
shall enter into such customary documentation (with a detailed description) with
respect to the property leased or otherwise financed or encumbered pursuant to
such Equipment Liens as Tenant shall request, providing for matters such as the
following: (a) Landlord's waiver of the right to take possession of such
property upon occurrence of an Event of Default; and (b) customary agreements by
Landlord to enable the secured party to repossess such property without damage
to the Premises in the event of a default by Tenant permitting such secured
party to exercise remedies under its Equipment Lien. Any such Equipment Lien
shall be subordinate to this Lease. Notwithstanding the foregoing, Landlord
shall have no obligation to approve Equipment Liens for subtenants and Tenant
shall prevent its subtenants from creating any Equipment Liens.
25.3 Further Assurances. Each party agrees to execute and deliver such
further documents, and perform such further acts, as may be reasonably necessary
to achieve the intent of the parties with respect to Tenant's leasing of the
Premises from Landlord, as set forth in this Lease.
26 Miscellaneous.
26.1 Force Majeure. Each party's obligation to perform or observe any
term, condition, covenant or agreement on such party's part to be performed or
observed pursuant to this Lease (other than any obligation to pay money when
due) shall be suspended during such time as such performance or observance is
prevented or delayed by reason of any Unavoidable Delay.
26.2 Performance Under Protest. If a dispute arises regarding
performance of any obligation under this Lease, the party against which such
obligation is asserted shall have the right to perform it under protest, which
shall not be regarded as voluntary performance. A party that shall have
performed under protest shall have the right to institute appropriate
proceedings to recover any amount paid or the reasonable cost of otherwise
complying with any such obligation, together with interest at the Prime Rate on
funds expended.
26.3 Legal Costs, Generally. If either party prevails in any
litigation or other dispute relating to the enforcement or interpretation of
this Lease, then the losing party shall promptly after Notice (accompanied by
reasonable backup documentation), reimburse the prevailing party's Legal Costs
incurred in such litigation or other dispute.
26.4 Access. Landlord and its agents, representatives and designees
shall have the right to enter the Premises upon reasonable notice to Tenant
during regular business hours, and in accordance with Tenant's reasonable
instructions, for the purpose of complying with Landlord's
31
<PAGE> 35
specific obligations pursuant to this Lease and for the purpose of curing
Tenant's defaults of which Landlord shall have given Tenant prior Notice or to
exhibit the Premises in connection with the mortgaging or sale of the Fee Estate
in compliance with this Lease. In entering the Premises pursuant to this
paragraph, Landlord and its designees shall use reasonable efforts not to
interfere with the conduct of operations on the Premises by Tenant or anyone
claiming through Tenant, and shall comply with Tenant's reasonable instructions.
Landlord shall Indemnify Tenant against any claims arising from Landlord's entry
upon the Premises pursuant to this paragraph or any other provision of this
Lease permitting Landlord to enter the Premises (except upon termination of this
Lease).
26.5 Vault Space. Any vaults and other areas now existing or subsequently
built extending beyond the building line of the Premises are not included within
the Premises, but Tenant may occupy and use the same during the Term, subject to
applicable Laws and payment of all applicable Impositions. No revocation by any
Government of any license or permit to maintain and use any such vaults shall in
any way affect this Lease or the Rent due and owing hereunder.
26.6 No Third Party Beneficiaries. Nothing in this Lease shall be deemed
to confer upon any person (other than Landlord, Tenant, Third Party Lessors or
Fee Mortgagees) any right to insist upon, or to enforce against Landlord or
Tenant, the performance or observance by either party of its obligations under
this Lease.
26.7 Amendment. Any modification or amendment to this Lease must be in
writing signed by Landlord and Tenant.
26.8 Partial Invalidity. If any term or provision of this Lease or the
application of such term or provision to any party or circumstance shall to any
extent be invalid or unenforceable, then the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected by such
invalidity. All remaining provisions of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
26.9 Successors and Assigns. This Lease shall bind and benefit Landlord
and Tenant and their successors and assigns, but this shall not limit or
supersede any transfer restrictions contained in this Lease.
27 Interpretation; Execution and Application of Lease.
27.1 Governing Law. This Lease and its interpretation and performance
shall be governed, construed and regulated by the laws of the State of New York,
without regard to principles of conflict of laws.
27.2 Counterparts. This Lease may be executed in counterparts.
32
<PAGE> 36
27.3 Reasonableness. Wherever this Lease states that approval by either
party shall not be unreasonably withheld: (a) such approval shall not be
unreasonably delayed or conditioned; and (b) no withholding of approval shall be
deemed reasonable unless withheld by Notice specifying reasonable grounds, in
reasonable detail, for such withholding of approval, and indicating specific
reasonable changes in the proposal under consideration that would cause such
proposal to be acceptable.
27.4 Interpretation. No inference in favor of or against any party shall
be drawn from the fact that such party has drafted any portion of this Lease.
The parties have both participated substantially in the negotiation, drafting
and revision of this Lease with representation by counsel and such other
advisers as they have deemed appropriate. The words "include" and "including"
shall be construed to be followed by the words: "without limitation."
27.5 Delivery of Drafts. Neither Landlord nor Tenant shall be bound by
this Lease unless and until each party shall have executed at least one
counterpart of this Lease and delivered such executed counterpart to the other
party. The submission of draft(s) of this Lease or comment(s) on such drafts
shall not bind either party in any way and such draft(s) and comment(s) shall
not be considered in interpreting this Lease.
27.6 Captions. The captions of this Lease are for convenience and
reference only and in no way affect this Lease.
27.7 Entire Agreement. This Lease contains all the terms, covenants and
conditions relating to Tenant's leasing of the Premises. There are no separate
understandings or agreements, oral or written, between Landlord and Tenant
relating to the Premises or Tenant's use or occupancy of the Premises, except
for the Distribution Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day
and year first above written.
LANDLORD
GETTY REALTY CORP.
By: ________________
Leo Liebowitz
Its: President
33
,
34
<PAGE> 37
LEEMILT'S PETROLEUM, INC., as holder of the Fee Estate to some of the Premises
hereby consents to this Lease.
LEEMILT'S PETROLEUM, INC.
By: ____________________________
GETTYMART INC., as lessee of a Third Party Lease to some of the Premises,
hereby consents to this Lease.
GETTYMART INC.
By: ____________________________
GETTY TERMINALS CORP., as lessee of a Third Party Lease to some of the
Premises, hereby consents to this Lease.
GETTY TERMINALS CORP.
By: ____________________________
DONNA OIL CORP., as lessee of a Third Party Lease to some of the Premises,
hereby consents to this Lease.
DONNA OIL CORP.
By: __________________________
34
<PAGE> 38
TENANT
GETTY PETROLEUM
MARKETING INC.
By: _________________
Its: President
KINGSTON OIL SUPPLY CORP., with respect to certain premises located in the
Mid-Hudson Valley as set forth on Exhibit B hereto.
KINGSTON OIL SUPPLY CORP.
By:_____________________________
35
<PAGE> 39
MASTER LEASE
ATTACHMENTS:
Exhibit "A" = Legal Description
Exhibit "B" = Third Party Lease locations
Exhibit "C" = Permitted Exceptions
Exhibit "D" = Premises with Non-complying UST's
Exhibit "E" = Premises with Ongoing Remediations
Exhibit "F" = Dealers in Default
Schedule 1 - Initial Term Fixed Rent
36
<PAGE> 40
INDEX OF DEFINED TERMS
DEFINED TERM PAGE
------------ ----
Additional Rent ....................... 2
Business Day .......................... 2
Casualty .............................. 2
Certifying Party ...................... 30
Clean-Up Obligor ...................... 15
Commencement Date...................... 2
Condemnation .......................... 2
Construction Work ..................... 2
Contest ............................... 17
County ................................ 2
Dealers ............................... 1
Default ............................... 2
Distribution Agreement................. 1
Equipment Liens ....................... 2
Environmental Law...................... 3
Estoppel Certificate................... 3
Event of Default ...................... 23
Fee Estate ............................ 3
Fee Mortgage .......................... 3
Fixed Rent ............................ 9
Government ............................ 3
Hazardous Substances................... 3
Hazardous Substances Discharge......... 4
Impositions ........................... 4
Include ............................... 33
Including ............................. 33
Indemnify ............................. 4
Indemnitee ............................ 4
Indemnitor ............................ 5
Initial Term .......................... 8
Insubstantial Condemnation............. 5
Land .................................. 1
Landlord .............................. 5
Law ................................... 5
Laws .................................. 5
Lease ................................. 1
Leasehold Estate ...................... 5
i
<PAGE> 41
INDEX OF DEFINED TERMS (continued)
DEFINED TERM PAGE
------------ ----
Legal Costs ............... 5
Monetary Default .......... 5
Non-Monetary Default ...... 5
Notice .................... 5
Notice of Default ......... 5
Permitted Exceptions ...... 1
Person .................... 6
Petroleum Terminal ........ 6
Premises .................. 6
Prime Rate ................ 6
Prohibited Liens .......... 6
Renewal Option ............ 6
Renewal Term .............. 8
Rent ...................... 6
Requesting Party .......... 30
Service Station ........... 6
State ..................... 6
Sublease .................. 7
Substantial Condemnation... 7
Subtenant ................. 7
Subtenants ................ 7
Temporary Condemnation..... 7
Tenant .................... 7
Term ...................... 8
Termination Date .......... 7
Third Party Lease ......... 7
Third Party Lessor ........ 7
Transfer .................. 21
Unavoidable Delay ......... 7
UST ....................... 8
Waiver of Subrogation ..... 8
________
ii
<PAGE> 1
EXHIBIT 10.3
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT, dated as of , 1997, among Getty
Petroleum Corp., a Delaware corporation ("Getty"), Getty Petroleum Marketing
Inc., a Maryland corporation ("Marketing"), and their direct and indirect
subsidiaries which are listed on the signature pages below. References herein
to a "party" (or "parties") to this Agreement, shall refer to Getty, Marketing
and, where appropriate and the context so requires, their subsidiaries.
WHEREAS, Getty and its subsidiaries have joined in the filing of
consolidated federal Tax Returns and certain consolidated, combined or unitary
state or local Tax Returns; and
WHEREAS, Getty and Marketing have entered into that certain Reorganization
and Distribution Agreement, dated as of the date hereof (the "Distribution
Agreement"), pursuant to which Getty will distribute all of the outstanding
common stock in Marketing to its stockholders in a transaction intended to
qualify for tax-free treatment under section 355 of the Code (the "Spin-off");
and
WHEREAS, pursuant to the Distribution Agreement, Marketing and its
subsidiaries will leave the Pre-Spin-off Group; and
WHEREAS, in connection with the Spin-off, Getty will change its name to
Getty Realty Corp. ("Realty") and will be referred to herein as Getty or
Realty, as the context requires; and
WHEREAS, the parties hereto wish to provide for (i) allocations of, and
indemnifications against, certain liabilities for Taxes, (ii) the preparation
and filing of Tax Returns on a basis consistent with prior practice and the
payment of Taxes with respect thereto, and (iii) certain related matters;
NOW THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS.
When used herein the following terms shall have the following meanings:
"Affiliate" -- with respect to any corporation (the "given corporation"),
each person, corporation, partnership or other entity that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the given corporation. For purposes of this
definition, "control" means the possession, directly or indirectly, of 50% or
more of the voting power or value of outstanding voting interests.
1
<PAGE> 2
"Affiliated Group" -- an affiliated group of corporations within the
meaning of section 1504(a) of the Code for the Taxable Period or, for purposes
of any state income tax matters, any consolidated, combined or unitary group of
corporations within the meaning of the corresponding provisions of tax law for
the state in question.
"Closing" -- the time at which the Spin-off shall become effective on the
Closing Date.
"Closing Date" -- the date on which the Spin-off is effected by Getty.
"Code" -- the Internal Revenue Code of 1986, as amended, or any successor
thereto, as in effect for the Taxable Year in question.
"Combined Jurisdiction" -- for any Taxable Period, any state, local or
foreign jurisdiction in which Getty or a Getty Affiliate is included in a
consolidated, combined, unitary or similar return with Getty or any Getty
Affiliate for state or local Tax purposes.
"Distribution Agreement" -- as defined in the preamble to this Agreement.
"Final Determination" -- (i) a decision, judgment, decree, or other order
by a court of competent jurisdiction, which has become final and unappealable;
(ii) a closing agreement or accepted offer in compromise under Code Sections
7121 or 7122, or comparable agreements under the laws of other jurisdictions;
(iii) any other final settlement with the IRS or other Taxing Authority; or
(iv) the expiration of an applicable statute of limitations.
"Getty"-- as defined in the preamble to this Agreement.
"Information Return(s)" -- with respect to any corporation or Affiliated
Group, any and all reports, returns, declarations or other filings (other than
Tax Returns) required to be supplied to any Tax Authority.
"IRS" -- the Internal Revenue Service.
"Marketing"-- as defined in the preamble to this Agreement.
"Marketing Group" -- Marketing and each corporation that joins with
Marketing in filing a consolidated federal income tax return for any
Post-Closing Taxable Period. For purposes of this Agreement, the Marketing
Group shall exist from the beginning of the day immediately after the Closing
Date.
"Marketing Member" -- a corporation that was a Pre-Spin-off Member and
becomes a member of the Marketing Group at the beginning of the day immediately
after the Closing Date.
2
<PAGE> 3
"Net Tax(es)" -- Taxes (as defined herein) less any related interest or
penalty attributed to such Taxes.
"Overdue Rate" -- a rate of interest per annum that equals the 30-day
LIBOR rate plus 400 basis points.
"Post-Closing Straddle Period" -- with respect to any Straddle Period, the
period beginning on the day after the Closing Date and ending on the last day
of such Taxable Year.
"Post-Closing Taxable Period" -- a Taxable Year that begins on or after
the day immediately after the Closing Date.
"Pre-Closing Straddle Period" -- with respect to any Straddle Period, the
period beginning on the first day of such Taxable Year and ending on the close
of business on the Closing Date.
"Pre-Closing Taxable Period" -- a Taxable Year that ends at or before the
close of business on the Closing Date.
"Preliminary Transactions" -- those certain transactions occurring on or
before the Closing Date that are described as "Preliminary Transactions" in the
request for rulings filed with the IRS, dated as of March 12, 1996, as
supplemented by subsequent submissions.
"Pre-Spin-Off Affiliate" -- any Affiliate of any Pre-Spin-Off Member.
"Pre-Spin-off Group" -- Getty and each corporation that joined with Getty
in filing a consolidated federal income tax return for any Pre-Closing Taxable
Period. For purposes of this Agreement, the Pre-Spin-off Group shall terminate
at the close of business on the Closing Date.
"Pre-Spin-off Member" -- a corporation that was a member of the
Pre-Spin-off Group at the close of business on the Closing Date.
"Realty"-- as defined in the preamble to this Agreement.
"Realty Group" -- Realty and each corporation that joins with Realty in
filing a consolidated federal income tax return for any Post-Closing Taxable
Period. For purposes of this Agreement, the Realty Group shall exist from the
beginning of the day immediately after the Closing Date.
"Realty Member" -- a corporation that was immediately before the Spin-off
a Pre-Spin-off Member and becomes a member of the Realty Group at the beginning
of the day immediately after the Closing Date.
3
<PAGE> 4
"Representative" -- with respect to any person or entity, any of such
person's or entity's directors, officers, employees, agents, consultants,
accountants, attorneys and other advisors.
"Separate Return Basis" -- the Tax liability for the Marketing Group (or
any Marketing Member) calculated with Marketing as the common parent of the
Affiliated Group and without regard to any Realty Members.
"Spin-off" -- as defined in the Preamble to this Agreement.
"Straddle Period" -- any Taxable Year beginning before and ending after
the close of business on the Closing Date.
"Tax(es)" -- with respect to any corporation or group of corporations, any
and all taxes based upon or measured by net income, gross income, gross
receipts (when levied in lieu of an income tax) or alternative minimum taxable
income, capital or net worth, or motor fuel taxes, regardless of whether
denominated as an "income tax," a "franchise tax" or otherwise, imposed by any
Taxing Authority, whether any such tax is imposed directly or through
withholding, together with any interest and any penalty, addition to tax or
additional amount.
"Taxable Period" -- a Pre-Closing Taxable Period, a Post-Closing Taxable
Period or a Straddle Period.
"Taxable Year" -- a taxable year (which may be shorter than a full
calendar or fiscal year), year of assessment or similar period with respect to
which any Tax may be imposed.
"Tax Benefit(s)" -- (i) in the case of a Tax for which a consolidated
federal, or a consolidated, combined or unitary state or other, Tax Return is
filed, the amount by which the Tax liability of the Affiliated Group or other
relevant group of corporations is actually reduced on a "with and without"
basis (by deduction, entitlement to refund, credit, offset or otherwise,
whether available in the current Taxable Year, as an adjustment to taxable
income in any other Taxable Year or as a carryforward or carryback, and
including the effect of such reduction on other Taxes), plus any interest
received with respect to any related Tax refund, and (ii) in the case of any
other Tax, the amount by which the Tax liability of a corporation is actually
reduced on a "with and without" basis (as a result of a deduction, entitlement
to refund, credit, offset or otherwise, whether available in the current
Taxable Year, or as an adjustment to taxable income in any other Taxable Year
or as a carryforward or carryback, and including the effect of such reduction
on other Taxes), plus any interest received with respect to any related Tax
refund.
"Taxing Authority" -- the IRS and any other domestic or foreign
governmental authority responsible for the administration of any Tax.
4
<PAGE> 5
"Tax Practices" -- the most recently applied policies, procedures and
practices employed by the Pre-Spin-off Group in the preparation and filing of,
and positions taken on, any Tax Returns of Getty or any Pre-Spin-off Member or
Pre-Spin-off Affiliate for any Pre-Closing Taxable Period.
"Tax Return(s)" -- with respect to any corporation or Affiliated Group,
all returns, reports, estimates, information statements, declarations and other
filings relating to, or required to be filed in connection with, the payments
or refund of any Tax for any Taxable Period.
2. OBLIGATIONS, RESPONSIBILITIES AND RIGHTS OF REALTY AND MARKETING.
(a) Preparation and Filing of Tax Returns.
(i) By Realty. Realty shall prepare and timely file (or cause
to be prepared and timely filed):
(A) all Tax Returns and Information Returns of the Pre-
Spin-off Group and any Pre-Spin-off Member that are required to be filed on or
before the Closing Date (without regard to extensions of time);
(B) all Tax Returns and Information Returns of the Pre-
Spin- off Group and any Pre-Spin-off Member for all Pre-Closing Taxable Periods
that are not required to be filed on or before the Closing Date (without
regard to extensions of time);
(C) all Tax Returns and Information Returns of the Realty
Group and any Realty Member for all Straddle Periods and Post-Closing Taxable
Periods; and
(D) all Tax Returns and Information Returns with respect to
Pre-Closing Taxable Periods or Straddle Periods not otherwise required to be
filed by Realty or Marketing pursuant to this Section 2(a)(i) and Section 2(a)
(ii).
(ii) By Marketing. Marketing shall prepare and timely file (or
cause to be prepared and timely filed):
all Tax Returns and Information Returns of the Marketing
Group and any Marketing Member for all Straddle Periods and Post-Closing
Taxable Periods.
(b) Provision of Filing Information. Each party shall cooperate and
assist the other party in the preparation and filing of all Tax and Information
Returns subject to Section 2(a) and submit to the other party (i) all necessary
filing information in a manner consistent with past Tax Practices and (ii) all
other information reasonably requested by the other party in connection with
the preparation of such Tax and Information Returns promptly after such request.
(c) Taxable Year. Marketing and Realty agree that, for Tax purposes,
(i) each Marketing Member shall be included in the consolidated federal Tax
Return of the Pre-
5
<PAGE> 6
Spin-off Group for the Taxable Year of such Marketing Member that includes the
close of business on the Closing Date (and in all corresponding consolidated,
combined or unitary state or other Tax Returns of the Pre-Spin-off Group) and
(ii) the Marketing Group and each Marketing Member shall begin a new Taxable
Year for purposes of such federal and, to the extent permitted by law, state
Taxes on the day after the Closing Date. The parties further agree that, to
the extent permitted by applicable law, all federal, state or other Tax Returns
shall be filed consistently with that position.
(d) Straddle Period Taxes.
(i) For purposes of this Agreement, Taxes shall be allocated
between the Pre- and Post-Closing Straddle Periods under a method selected by
Realty (including a ratable method) permitted under applicable law.
(ii) Realty shall pay to Marketing within fourteen (14) days
after receipt of an executed Straddle Period Tax Return prepared by Marketing
pursuant to Section 2(a)(ii), the excess of any amount so allocated (based on
the amount of Tax shown on such Tax Return) to the Pre-Closing Straddle Period
over the amount of any estimated Taxes previously paid by any Pre-Spin-off
Member to the relevant Taxing Authority prior to the Closing Date; or Marketing
shall pay to Realty within fourteen (14) days after the filing of such Tax
Return the excess of the amount of any estimated Taxes previously paid by any
Pre-Spin-off Member to the relevant Taxing Authority prior to the Closing Date
over the amount so allocated to such Period.
(e) Payment of Taxes. Realty shall pay (i) all Taxes shown to be due
and payable on all Tax Returns filed by Realty pursuant to Section 2(a)(i)
here of and (ii) subject to Section 3, all Taxes that shall thereafter become
due and payable with respect to all Tax Returns filed pursuant to Section 2(a)
(i) as a result of a Final Determination. Marketing shall pay all Taxes
attributable to all Tax Returns filed by Marketing pursuant to Section 2(a)(ii)
hereof.
(f) Amendments to Tax Returns. No Tax Returns for any Pre-Closing
Taxable Periods may be amended without Realty's and Marketing's consent, which
consent shall not be unreasonably withheld.
(g) Refunds of Taxes and Tax Benefits.
(i) Realty shall be entitled to any refund of Taxes and any Tax
Benefits realized as a result of a Final Determination with respect to all Tax
Returns filed by Realty pursuant to Section 2(a)(i). Marketing shall be
entitled to any refund with respect to all Tax Returns filed by Marketing
pursuant to Section 2(a)(ii). Any such refunds attributable to a Straddle
Period shall be allocated between the Pre-Closing Straddle Period and Post-
Closing Straddle Period on a basis consistent with the method used to allocate
the Tax liability for such Straddle Period. With respect to Straddle Period
Tax Returns prepared by Marketing pursuant to Section 2(a)(ii), Realty shall be
entitled to any refund attributable to a Pre-Closing Straddle Period.
6
<PAGE> 7
(ii) If Realty or any Realty Member receives a Tax refund or Tax
Benefit to which Marketing or any Marketing Member is entitled pursuant to this
Agreement, Realty shall pay (in accordance with Section 4) the amount of such
Tax refund or Tax Benefit to Marketing within fourteen (14) days of receipt
thereof.
(iii) Except as otherwise provided in this Agreement, if
Marketing or any Marketing Member receives a Tax refund or Tax Benefit to which
Realty or any Realty Member is entitled pursuant to this Agreement, Marketing
shall pay (in accordance with Section 4) the amount of such Tax refund or Tax
Benefit (including any interest received thereon) to Realty within fourteen
(14) days of receipt thereof.
(h) Carrybacks. Marketing shall not file any carryback claim for
federal Taxes or state or local Taxes in a Combined Jurisdiction for the
Marketing Group or any Marketing Member into a Pre-Closing Taxable Period
without the prior written consent of Realty, which consent shall not be
unreasonably withheld.
3. INDEMNIFICATION.
(a) By Realty.
(i) Taxes. Except as provided in Section 3(b), Realty shall
indemnify and hold Marketing and Marketing Members harmless against any and
all (A) Taxes attributable to all Tax Returns filed by Realty pursuant to
Section 2(a)(i), (B) with respect to Straddle Period Tax Returns prepared by
Marketing pursuant to Section 2(a)(ii), Taxes attributable to Pre-Closing
Straddle Periods as shown on such Tax Returns, and (C) Taxes attributable to
the Spin-off or the Preliminary Transactions.
(ii) Liability Under Treasury Regulation Section 1.1502-6.
Except as provided in Sections 3(a)(i) and 3(b), Realty shall indemnify and hold
Marketing and the Marketing Members harmless against each and every liability
for Taxes of the Pre-Spin-off Group under Treasury Regulation Section 1.1502-6
or any similar law, rule or regulation administered by any Taxing Authority.
(b) By Marketing. Marketing shall indemnify and hold Realty and
Realty Members harmless against any and all Taxes attributable to all Tax
Returns filed by Marketing pursuant to Section 2(a)(ii) (but excluding Taxes
attributable to Pre-Closing Straddle Periods that are shown on any Straddle
Period Tax Returns).
(c) Certain Reimbursements. Marketing (or Realty, as the case may be)
shall notify Realty (or Marketing) of any Taxes paid by the Marketing Group or
any Marketing Member (or the Realty Group or any Realty Member) which are
subject to indemnification under this Section 3. To the extent not otherwise
provided in this Section 3, any other notification contemplated by this Section
3(c) shall include a detailed calculation (including, if applicable, separate
allocations of such Taxes between Pre- and Post-Closing Taxable Periods and
Pre- and Post-Closing Straddle Periods and supporting work papers) and a brief
explanation of the basis for indemnification hereunder. Whenever a
notification described in this Section
7
<PAGE> 8
3(c) is given, the notified party shall pay the amount requested in such notice
to the notifying party in accordance with Section 4, but only to the extent
that the notified party agrees with such request. To the extent the notified
party disagrees with such request, it shall, within 20 business days, so
notify the notifying party, whereupon the parties shall use their best efforts
to resolve any such disagreement. Any payment made after such 20 business day
period shall include interest from the date such payment would have been made
under Section 4 based upon the original notice given by the notifying party,
at the Overdue Rate calculated as of such date.
(d) Other Indemnifications. Notwithstanding the foregoing, the
indemnification provisions in this Agreement shall not restrict the scope of
any other indemnification provisions between any Realty Member and any
Marketing Member as set forth in any other intercompany agreements entered into
in connection with the Spin-off or the Preliminary Transactions, including, but
not limited to, the Distribution Agreement.
4. METHOD, TIMING AND CHARACTER OF PAYMENTS REQUIRED BY THIS
AGREEMENT.
(a) Payment in Immediately Available Funds; Interest. All
payments made pursuant to this Agreement shall be made in immediately available
funds. Except as otherwise provided herein, any payment not made within
fourteen (14) days of when due shall thereafter bear interest from the date
such payment was due at the Overdue Rate calculated as of such date.
(b) Characterization of Payments. Any payment (other than
interest thereon) made hereunder by Realty to Marketing or by Marketing to
Realty shall be treated by all parties for Tax purposes to the extent permitted
by law, and for accounting purposes to the extent permitted by generally
accepted accounting principles, as non-taxable dividend distributions or
capital contributions, as the case may be, made prior to the close of business
on the Closing Date.
5. TAX RETURNS; COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
(a) Provision of Cooperation, Documents and Other Information.
Upon the reasonable request of any party to this Agreement, Realty and
Marketing shall provide (and shall cause the members of their respective
Affiliated Groups to provide) the requesting party, promptly upon request, with
such cooperation and assistance, documents, and other information, without
charge, as may reasonably be requested by such party in connection with (i) the
preparation and filing of any original or amended Tax Return, (ii) the conduct
of any audit or other examination or any judicial or administrative proceeding
involving to any extent Taxes or Tax Returns within the scope of this
Agreement, or (iii) the verification by a party of an amount payable hereunder
to, or receivable hereunder from, another party. Such cooperation and
assistance shall include, without limitation: (i) the provision on demand of
books, records, Tax Returns, documentation or other information relating to any
relevant Tax Return; (ii) the execution of any document that may be necessary
or reasonably helpful in connection with the filing of any Tax Return, or in
connection with any audit, proceeding, suit or action of the type generally
referred to in the preceding sentence, including, without limitation, the
execution of powers of attorney and extensions of applicable statutes of
limitations, with respect to Tax
8
<PAGE> 9
Returns which Realty may be obligated to file on behalf of Marketing
Members pursuant to Section 2(a); (iii) the prompt and timely filing of
appropriate claims for refund; and (iv) the use of reasonable efforts to obtain
any documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing. Each party shall make
its employees and facilities available on a mutually convenient basis to
facilitate such cooperation.
(b) Retention of Books and Records. Realty, each Realty Member,
Marketing and each Marketing Member shall retain or cause to be retained all
Tax Returns, and all books, records, schedules, workpapers, and other documents
relating thereto, until the expiration of the later of (i) all applicable
statutes of limitations (including any waivers or extensions thereof), and (ii)
any retention period required by law or pursuant to any record retention
agreement. The parties hereto shall notify each other in writing of any waivers,
extensions or expirations of applicable statutes of limitations. The parties
shall provide written notice of any intended destruction of the documents
referred to in this subsection. A party giving such a notification shall not
dispose of any of the foregoing materials without first offering to transfer
possession thereof to all notified parties.
(c) Status and Other Information Regarding Audits and Litigation.
Each party shall use reasonable efforts to keep the other party advised, as to
the status of Tax audits and litigation involving any issue relating to any
Taxes, Tax Returns or Tax Benefits subject to indemnification under this
Agreement. To the extent relating to any such issue, each party shall promptly
furnish the other party copies of any inquiries or requests for information
from any Taxing Authority or any other administrative, judicial or other
governmental authority, as well as copies of any revenue agent's report or
similar report, notice of proposed adjustment or notice of deficiency.
(d) Confidentiality of Documents and Information. Except as
required by law or with the prior written consent of the other party, all Tax
Returns, documents, schedules, work papers and similar items and all information
contained therein, which Tax Returns and other materials are within the scope
of this Agreement, shall be kept confidential by the parties hereto and their
Representatives, shall not be disclosed to any other person or entity and shall
be used only for the purposes provided herein.
6. CONTESTS AND AUDITS.
(a) Notification of Audits or Disputes. Upon the receipt by a
party of notice of any pending or threatened Tax audit or assessment which may
affect the liability for Taxes that are subject to indemnification hereunder,
such party shall promptly notify the other party in writing of the receipt of
such notice.
(b) Control and Settlement. Realty shall have the right and
obligation to control, and to represent the interests of all affected taxpayers
in, any Tax audit or administrative, judicial or other proceeding relating, in
whole or in part, to any Pre-Closing Taxable Period or any other Taxable Period
for which Realty is responsible, in whole or in part, for Taxes under Sections
2(e) and (3), and to employ counsel of its choice; provided, however, that,
with respect to such issues that may cause an indemnity payment, Realty (i)
shall in good faith
9
<PAGE> 10
consult with Marketing as to the handling and disposition of such issues
and (ii) shall not enter into any settlement that impacts Marketing or any
Marketing Member for any taxable period without the written consent of
Marketing, which consent shall not be unreasonably withheld; and provided,
further, that Marketing shall deliver to Realty a written response to any
notification by Realty of a proposed settlement within ten days of the receipt
of such notification. If Marketing fails to so respond within such ten day
period, Marketing shall be deemed to have consented to the proposed settlement.
(c) Delivery of Powers of Attorney and Other Documents.
Marketing shall execute and deliver to Realty, promptly upon request, powers
of attorney authorizing Realty to extend statutes of limitations, receive
refunds, negotiate settlements and take such other actions that Realty
reasonably considers to be appropriate in exercising its control rights
pursuant to Section 6(b), and any other documents reasonably necessary to
effect the exercising of such control rights.
7. MISCELLANEOUS.
(a) Effectiveness. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of any applicable
statute of limitations; provided, however, that this Agreement shall terminate
immediately upon a termination of the Distribution Agreement in accordance with
the terms of Section 11.07 thereof and thereafter this Agreement shall be of
no further force and effect.
(b) Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof.
This Agreement terminates and supersedes, on a prospective basis only, any and
all other sharing or allocation agreements with respect to Taxes in effect at
the time between the Pre-Spin-off Group and the Marketing Members, but shall
not affect any such agreement to the extent applicable only among Realty
Members.
(c) Guarantees of Performance. Realty and Marketing hereby
guarantee the complete and prompt performance by the members of their
respective Affiliated Groups of all of their obligations and undertakings
pursuant to this Agreement. If, subsequent to the close of business on the
Closing Date, either Realty or Marketing shall be acquired by another entity
such that 50% or more of its common stock is in common control with such
acquirer, such acquirer shall, by making such acquisition, simultaneously
agree to jointly and severally guarantee the complete and prompt performance by
the acquired corporation and any Affiliate of the acquired corporation of all
of their obligations and undertakings pursuant to this Agreement.
(d) Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions hereof without including any of such
which may
10
<PAGE> 11
hereafter be declared invalid, void or unenforceable. In the event that any
such term, provision, covenant or restriction is hereafter held to be invalid,
void or unenforceable, the parties hereto agree to use their best efforts to
find and employ an alternate means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.
(e) Indulgences, etc. Neither the failure nor any delay on the
part of any party hereto to exercise any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other or further exercise of the same or any other right,
nor shall any waiver of any right with respect to any occurrence be construed
as a waiver of such right with respect to any other occurrence.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
regard to the conflict of law principles thereof.
(g) Notices. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To Marketing:
Getty Petroleum Marketing, Inc.
125 Jericho Turnpike Jericho,
New York 11753
Attention: __________________
To Getty:
Getty Realty Corp.
125 Jericho Turnpike
Jericho, New York 11753
Attention: __________________
(h) Modification or Amendment. This Agreement may be amended at
any time by written agreement executed and delivered by duly authorized
officers of Marketing and Realty.
11
<PAGE> 12
(i) Successors and Assigns. A party's rights and obligations
under this Agreement may be assigned to the successor in interest or assignee of
substantially all of its business or assets, or the surviving party of any
merger or consolidation to which it is a party, provided that the assignee of
any assignment assumes all the assignor's obligations hereunder. Apart from
any assignment permissible under the preceding sentence, a party's rights and
obligations under this Agreement may not be assigned without the prior written
consent of the other party. All of the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns.
(j) No Third-Party Beneficiaries. This Agreement is solely for
the benefit of the parties to this Agreement and their respective Affiliates and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without this Agreement.
(k) Other. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all of such counterparts shall together constitute one and the same
instrument. The section numbers and captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(l) Predecessors and Successors. To the extent necessary to
give effect to the purposes of this Agreement, any reference to any
corporation, Affiliated Group or member of an Affiliated Group shall also
include any predecessors or successors thereto, by operation of law or
otherwise.
(m) Tax Elections. Nothing in this Agreement is intended to
change or otherwise affect any previous tax election made by or on behalf of the
Pre-Spin-off Group (including the election with respect to the calculation of
earnings and profits under Code Section 1552 and the regulations thereunder).
Realty, as common parent of the Realty Group, shall continue to have
discretion, reasonably exercised, to make any and all elections with respect to
all members of the Pre-Spin-off Group for all Pre-Closing Taxable Periods for
which it is obligated to file Tax or Information Returns under Section 2(a)(i).
(n) Injunctions. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches hereto and to enforce specifically the terms and provisions
hereof in any court having jurisdiction; such remedy shall be in addition to
any other remedy available at law or in equity.
(o) Further Assurances. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each party shall, in connection with entering into this Agreement,
performing its obligations hereunder and taking any and all actions relating
hereto, comply with all
12
<PAGE> 13
applicable laws, regulations, orders and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the other party with all such information as it
may reasonably request in order to be able to comply with the provisions of
this sentence.
(p) Costs and Expenses. Unless otherwise specifically provided
herein, each party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
(q) Rules of Construction. Any ambiguities shall be resolved
without regard to which party drafted the Agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
above written.
GETTY PETROLEUM CORP.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
[Subsidiaries -- To be supplied.]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
GETTY PETROLEUM MARKETING INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
[Subsidiaries -- To be supplied.]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
14
<PAGE> 1
EXHIBIT 10.4
SERVICES AGREEMENT
AGREEMENT, dated as of February 1, 1997 between GETTY REALTY CORP., a
Delaware corporation ("Realty"), and GETTY PETROLEUM MARKETING INC., a Maryland
corporation ("Marketing").
SUMMARY
Pursuant to a Reorganization and Distribution Agreement dated as of
__________,1997, (the "Distribution Agreement") between Realty and Marketing,
Realty is on the date hereof transferring to Marketing the Marketing Assets
and Marketing Business (as such terms are defined in the Distribution
Agreement) in anticipation of a distribution by Realty of the common stock of
Marketing to the stockholders of Realty. A condition of the closing of the
transactions contemplated by the Distribution Agreement is that Realty and
Marketing enter into a services agreement pursuant to which Marketing shall
provide certain services as agent for Realty and Realty shall provide certain
services as agent for Marketing.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, and intending to be legally bound hereby, the
parties agree as follows:
1. MARKETING SERVICES. Marketing agrees, as agent for Realty, to utilize
its employees and assets to provide certain services consistent with the type,
quality and level of such services required by Realty and provided by Getty
Petroleum Corp. immediately prior to the date hereof, in connection therewith.
The services to be provided are set forth below, together with the applicable
monthly charge for each such service:
<TABLE>
<CAPTION>
SERVICES MONTHLY CHARGE
-------------------------- --------------
<S> <C>
Financial Reporting $ 9,300.00
Accounting/Payroll $11,700.00
Data Processing/Computer $11,600.00
Tax $ 5,600.00
Legal $15,600.00
Treasury $ 4,600.00
Office Services $ 2,300.00
Human Resources $ 3,200.00
Engineering/Environmental $ 7,900.00
Investor Relations $ 3,900.00
Purchasing $ 700.00
Servicing of Non-Petroleum
Class "137 " Leases $ 5,500.00
</TABLE>
2. INVOICE AND PAYMENT. Marketing shall invoice Realty once each month
for the services performed during the prior month and Realty shall pay
Marketing for such services not later than ten (10) days from the receipt of
invoice. The amount paid shall be net of the amount owing to Realty under
Paragraphs 3 and 4.
3. REALTY SERVICES. Realty agrees that as agent for Marketing (i) Realty
will act as the permittee or licensee under all permits and licenses until such
time(s) as all permits and licenses are either
1
<PAGE> 2
transferred to Marketing or new ones are issued therefor; (ii) Realty will
continue to act as the party at interest in all instances where contracts,
leases or the like are not assignable to Marketing or Realty has been unable to
obtain consent to assignment where consent is required; and (iii) Realty will
draw on all electronic funds transfer authorizations ("EFT") issued by third
parties to Realty and letters of credit in favor of Realty (collectively
hereinafter "draws") until such time as new EFT agreements and letters of
credit are issued, all for the benefit of Marketing. Marketing (x) will
reimburse Realty for any out-of-pocket expenses it may incur in performing such
services, and (y) will defend, indemnify and hold harmless Realty in the event
that any such draws made at Marketing's direction result in claims for damages
for wrongful draws made under clause (iii) above. The services to be provided
are set forth below together with the applicable monthly charge for each such
service.
<TABLE>
<CAPTION>
Services Monthly Charge
- - ------------------------------------------------ --------------
<S> <C>
Servicing of Permits and Licenses $700.00
Servicing of Non-Assignable Contracts and Leases $700.00
Servicing of EFT Transfers and Letters of Credit $500.00
</TABLE>
4. OUTSIDE SERVICES; ADJUSTMENTS TO CHARGES. The charges for the
foregoing services to be performed hereunder shall be all-inclusive of supplies
and utilities required for such services, provided, however, that, if the level
of activity for any service should increase above the level required prior to
the date hereof, the party providing such service (the "providing party") shall
have the right to charge the other party for the additional supplies and
utilities being used, on a cost-plus 10% basis. In the event that the
providing party is required to retain outside consultant/contractor assistance
to perform any of the services hereunder, the providing party shall first
obtain the consent of the other party to such retention and the other party
shall pay directly the fees of such consultant/contractor. The providing party
shall not be held responsible for the performance of such consultant/contractor
services and the other party assumes the risk thereof. At any time the other
party desires reports, software, files or the like, the providing party shall
provide them to the other party at cost.
The services to be performed hereunder shall be performed and used in
compliance with the applicable provisions of the Distribution Agreement.
The parties hereto agree that once every six (6) months they will review the
foregoing monthly charges and, if it is mutually determined in good faith that
certain monthly charge(s) do not correctly compensate the providing party for
the service(s) rendered, the monthly charge(s) shall be increased or reduced,
as the case may be.
5. CONTRACTUAL RELATIONSHIP. The relationship between Realty and
Marketing under this Agreement shall be that of principal and agent in respect
of the services to be performed hereunder. In no event is the relationship of
the parties intended to be that of employer and employee and in no event is
either party to be deemed or purported to be the partner or joint venturer of
the other for any purpose whatsoever.
6. TERM. The term of this Agreement shall be two (2) years from the
date hereof, provided, however, that, upon one hundred and twenty (120) days
notice (i) to Realty, Marketing shall have the right to terminate any or all of
the services set forth in Paragraph 1; and (ii) to Marketing, Realty shall have
the right to terminate any or all of the services set forth in Paragraph 3. In
the event of partial termination, the monthly charge for such terminated
service shall cease upon the effective date of the partial termination. Realty
understands and agrees that certain services (e.g. Data Processing) cannot be
terminated if other services (e.g. Accounting ) are to continue and that
"Office Services" cannot be terminated while Realty is subleasing office
2
<PAGE> 3
space in the Jericho Building. Upon the termination of all services,
payment therefor and payment of all consultants/contractors, this Agreement
shall terminate.
7. LIMITATION OF LIABILITY. Neither party shall have any liability
whatsoever to the other party or to any third party for any loss, liability,
damage, cost or deficiency (collectively "Losses"), or for any claim for
Losses, including, without limitation, Losses or claims for personal injury,
death or property damage, warranty, tort or products liability, resulting from,
caused by or arising out of a party's performance under this Agreement except
for claims arising out of the negligence or willful default or breach of such
party hereunder. In no event shall any party have liability to to the other
party or to any third party for indirect, special or consequential damages or
loss of profits (except with respect to its willful default or breach), or for
punitive damages for any reason whatsoever.
8. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission, telexed or mailed by overnight delivery service or by registered
or certified mail (return receipt requested), postage prepaid, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) if to Getty Realty Corp.:
125 Jericho Turnpike
Jericho, New York 11753
Attention: President
(b) if to Getty Petroleum Marketing Inc.:
125 Jericho Turnpike
Jericho, New York 11753
Attention: President
9. ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other party (other than
to an affiliate of Marketing ). Any purported assignment in violation of the
provisions hereof shall be void.
10. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York (regardless of the laws that might otherwise govern under
applicable New York conflict of laws principles) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.
11. SUITS IN NEW YORK. The parties agree that any action or proceeding
relating in any way to this Agreement shall be brought and enforced in the
Supreme Court of the State of New York for Nassau County or the United States
District Court for the Eastern District of New York and the parties hereby
waive any objection to jurisdiction or venue in any such proceeding commenced
in such court.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the
3
<PAGE> 4
meaning or interpretation of this Agreement.
14. SEVERANCE. In the event that any provision of this Agreement is
declared illegal, invalid or unenforceable or contrary to law, it shall not
affect any other provision in the Agreement.
15. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to the transactions contemplated hereby.
IN WITNESS WHEREOF, each of Realty and Marketing has caused this
Agreement to be executed by its duly authorized officer as of the date first
above written.
GETTY REALTY CORP.
By: _________________________
President
GETTY PETROLEUM MARKETING INC.
By: __________________________
President
4
<PAGE> 1
EXHIBIT 10.5
TRADEMARK LICENSE AGREEMENT
THIS LICENSE AGREEMENT, effective as of the _______ day of _____, 1997, is
entered into by and between: Getty Realty Corp. (hereinafter called "REALTY"),
a corporation organized and existing under the laws of the State of Delaware,
located at 125 Jericho Turnpike, Jericho, New York 11753 and Getty Petroleum
Marketing Inc. (hereinafter called "MARKETING"), a corporation organized and
existing under the laws of the State of Maryland, located at 125 Jericho
Turnpike, Jericho, New York 11753.
WHEREAS, REALTY is the owner of certain trademarks, service marks and
trade names that have been utilized in, among other businesses, the motor fuel
marketing business; WHEREAS, REALTY has subleased various motor fuel outlet
properties to MARKETING under certain net lease agreements (hereinafter
collectively called, the "Master Lease");
WHEREAS, REALTY seeks to license certain trademarks, service marks and
trade names to MARKETING for use in its marketing business;
WHEREAS, MARKETING wishes to license those trademarks, service marks and
trade names from REALTY for use in its marketing business on those terms;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties agree as follows:
DEFINITIONS
A. "Licensed Marks" shall mean the trademarks, service marks or trade
names listed on Schedule A attached hereto.
<PAGE> 2
B. "Licensed Territory" shall mean the following states of the United
States: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland and
Virginia, plus any additional states added to the Licensed Territory pursuant
to the Grant of Option(s) to MARKETING described in Paragraph 15, below.
C. "Marketing Business" shall mean: (i) the purchase, storage,
distribution, marketing, and sale of gasoline, diesel fuel and other related
products at wholesale and through terminals and a retail service station
network; (ii) the operation of convenience stores; and (iii) the purchase,
storage, transportation and sale of home heating oil to residential and
commercial customers in mid-Hudson Valley, New York. By way of example,
"Marketing Business" does not include the home heating oil business previously
carried on by the Aero Oil Company or the real estate business previously
carried on by Getty Petroleum Corp., both of which are currently being carried
on by REALTY.
2. GRANT OF LICENSE
A. Subject to the terms and conditions set out herein, REALTY grants to
MARKETING an exclusive, payment-free, license to use the Licensed Marks in the
Licensed Territory in connection with its Marketing Business. MARKETING may
incorporate its business under the name "Getty Petroleum Marketing Inc."
MARKETING accepts the license subject to the terms and conditions of this
License Agreement.
B. Subject to the consent of REALTY, which consent shall not be
unreasonably withheld, MARKETING may sublicense the Licensed Marks to retailers
or wholesalers of petroleum and other related products and operators of
convenience stores, including but not limited to service station retailers,
jobbers and distributors, but only subject
2
<PAGE> 3
to the terms and conditions of this License Agreement all of which shall be
equally binding on the sublicensees. In determining the reasonableness of a
refusal to consent to a sublicense, the parties shall be guided by the
following considerations: (i) the parties shall not knowingly take any action
which would materially tarnish the image or cause a material adverse impact on
the value of the Licensed Marks; and (ii) the parties shall not permit the
indiscriminate proliferation of sublicensees which would cause the Licensed
Marks to lose significance as a source of origin. In connection with any
sublicense granted hereunder, the sublicensee shall be required to agree in
writing to be bound by and comply with all the terms and conditions of this
License Agreement. REALTY hereby consents to the sublicenses of the Licensed
Marks set out in Schedule B hereto and authorizes MARKETING to make amendments
and revisions in those sublicenses that are not of a material nature.
3. OWNERSHIP OF MARKS
MARKETING acknowledges REALTY's ownership of the Licensed Marks.
MARKETING agrees that it will do nothing inconsistent with such ownership and
that all use of the Licensed Marks by MARKETING shall inure to the benefit of,
and be on behalf of, REALTY. MARKETING agrees that nothing in this License
Agreement shall give MARKETING any right, title or interest in the Licensed
Marks other than the right to use the Licensed Marks in accordance with this
License Agreement. MARKETING agrees that it will not attack the title of
REALTY to the Licensed Marks or attack the validity of this License Agreement.
4. QUALITY STANDARDS
MARKETING agrees that the nature and quality of all services rendered by
MARKETING in connection with the Licensed Marks; all goods sold by MARKETING
3
<PAGE> 4
under the Licensed Marks; and all related advertising, promotional and other
related uses of the Licensed Marks by MARKETING shall conform to reasonable
standards set by and be under the control of REALTY. MARKETING agrees that the
quality of all such services, goods, and advertising and promotional materials
associated with the Licensed Marks shall be of the same high-level quality as
previously associated with the Licensed Marks. MARKETING further agrees that
the quality of all such services, goods, and advertising, promotional and other
related uses of the Licensed Marks shall conform with the standards,
specifications, and instructions as established by REALTY or such subsequent
standards, specifications, or instructions reasonably comparable thereto
promulgated by MARKETING subject to the approval of REALTY, such approval not
to be unreasonably withheld. Without limiting the foregoing, MARKETING agrees
to comply with the standards, specifications, and instructions set out in
Schedule C hereto, as may be modified from time to time in accordance with this
paragraph. If MARKETING intends to use the Licensed Marks on a new product
within the ambit of a particular registration it shall request approval for
such new product from REALTY at least thirty (30) days prior to initiating such
new product use, and such approval shall not be unreasonably withheld by
REALTY. REALTY shall provide MARKETING with notice of approval or
non-approval, as the case may be, within thirty (30) days of the receipt of the
notice with respect to MARKETING's intended new product.
5. QUALITY MAINTENANCE
MARKETING agrees to cooperate with REALTY in facilitating REALTY's control
of the nature and quality of goods, services and related uses associated with
the
4
<PAGE> 5
Licensed Marks, to permit reasonable inspection of MARKETING's operations,
and to supply REALTY with specimens of all uses of the Licensed Marks upon
request. MARKETING shall comply with all applicable laws and regulations and
will obtain all appropriate government approvals pertaining to the sale,
distribution and advertising of goods and services covered by this License
Agreement. REALTY shall have the right to enter and inspect service stations
of MARKETING that use the Licensed Marks. REALTY shall have the right to
receive from MARKETING, upon request and without charge, a reasonable number of
samples of products sold by MARKETING as well as labels, promotional materials,
advertising materials, sales materials and related materials using any of the
Licensed Marks.
6. FORM OF USE
MARKETING agrees to use the Licensed Marks only in the form, manner and
trade dress and with appropriate legends as prescribed from time to time by
REALTY, and not to use any other trademark, trade name, trade dress, or service
mark in combination with any of the Licensed Marks without prior written
approval of REALTY. REALTY hereby approves of the use of the Licensed Marks
used in combination with other trademarks, trade names, trade dress, or service
marks set out in Schedule D hereto. MARKETING shall submit to REALTY for prior
approval, all new or revised labels which are a material departure from those
presently used at least sixty (60) days prior to initiating use of a revised or
new label. REALTY's approval shall not be unreasonably withheld. REALTY shall
provide MARKETING with notice of approval or non-approval, as the case may be,
within
5
<PAGE> 6
thirty (30) days of the receipt of the notice with respect to MARKETING's
intended new or revised label.
7. TRADEMARK NOTICES
MARKETING will utilize on its products bearing the Licensed Marks,
packaging and advertising, whatever lawful notice is reasonably requested in
writing by REALTY in order to protect the Licensed Marks and properly designate
REALTY's legal ownership thereof. Without limiting the foregoing, MARKETING
agrees to utilize, where commercially practicable, a notice sufficient to
indicate that the utilized Licensed Mark is a registered trademark of Getty
Realty Corp. If REALTY does not request a particular trademark notice,
MARKETING shall utilize such notice as in the opinion of its counsel is
appropriate in order to protect the Licensed Marks and properly designate
REALTY's legal ownership thereof and the fact of registration thereof.
However, MARKETING shall advise REALTY of such intended notice, and make any
changes thereto reasonably requested by REALTY.
8. APPROVALS/PROTECTION OF THE LICENSED MARKS
In discharging their respective rights and obligations with respect to
Paragraphs 4, 5, 6, or 7 above, the parties shall be guided by the following
consideration: The parties shall not knowingly take any action which would
materially tarnish the image or cause a material adverse impact on the value of
the Licensed Marks including, without limitation, the indiscriminate
proliferation of uses of the Licensed Marks which would cause any of the
Licensed Marks to lose significance as a source of origin. If there is any
dispute as to either party's obligations with respect to Paragraphs 4, 5, 6, or
7 above, or the application thereof, the parties shall promptly consult to
resolve the matter. If the parties
6
<PAGE> 7
cannot resolve the matter, the dispute shall be submitted to arbitration in
accordance with paragraph 16 below and the arbitrator in that case shall be
guided by the same considerations described above in this Paragraph 8.
9. CONFLICTING TRADEMARKS
MARKETING will not at any time adopt or use, without REALTY's prior
written consent, any word, mark, or designation which is similar or likely to
be confused with any of the Licensed Marks.
10. FUTURE DOCUMENTS, RECORDING
AND TRADEMARK MAINTENANCE
A. The parties agree to cooperate in the execution and delivery, from
time to time, throughout the term of this License Agreement, of any documents
that may be reasonably required or desirable to effectuate and carry out the
purpose and intent of this License Agreement. Such documents shall include
instruments required to file, renew, protect, perfect and/or maintain the
Licensed Marks and REALTY's ownership therein, or to provide for the granting
of any license hereunder. Without limiting the generality of the foregoing,
REALTY shall enter MARKETING or its local designee or cause MARKETING or its
local designee to be entered as a registered user of the Licensed Marks
wherever necessary or desirable, and MARKETING and/or its local designee shall,
upon written request, execute such registered user agreements.
B. Except as provided in Paragraph 11 B below with respect to infringement
of the Licensed Marks by third parties, REALTY shall take such action as is
reasonably required or desirable to obtain and maintain appropriate protection
of the Licensed Marks applicable to MARKETING's business. Except as provided
in Paragraph 11 B below with respect to infringement of the Licensed Marks by
third parties, REALTY shall bear the
7
<PAGE> 8
full cost of all trademark filings, renewals, registered user entries and
actions to protect, perfect or maintain the Licensed Marks applicable to the
Marketing Business, including the attorney's and local agent's fees, taxes,
government filing and other fees.
11. INFRINGEMENT AND OTHER ACTIONS
A. The parties shall promptly notify each other of any claim that is
asserted, and of any action or proceeding that is threatened or commenced, in
which a third party (i) challenges MARKETING's right to use any of the Licensed
Marks, or (ii) alleges that any Licensed Mark infringes the trademark or trade
name rights of such third party, or (iii) in which the revocation, cancellation
or declaration of invalidity of any of the Licensed Marks is sought. REALTY
and MARKETING shall consult with respect to each such claim, action, or
proceeding, the assertion of counterclaims thereto and the settlement thereof
and shall jointly defend, in the name of REALTY and/or in the name of
MARKETING, each such action or proceeding that is commenced. If an action or
proceeding brought by a third party concerns the registrations and/or products
of both REALTY and MARKETING, both REALTY and MARKETING shall be responsible
for their pro rata share of legal expenses incurred in defending such action or
proceeding, said pro rata share to be determined by the proportion of products
and/or registrations at issue in the third party action or proceeding. If
there is a disagreement as to the appropriate pro rata share of legal expenses
to be borne by each party, the matter shall be submitted to arbitration in
accordance with paragraph 16 below. If the claim or action concerns only
products and/or registrations of MARKETING, MARKETING shall bear all legal
expenses incurred in defending such actions and proceedings and bear all
damages and costs, if any, recovered by the third party.
8
<PAGE> 9
B. REALTY and MARKETING will each undertake commercially reasonable
efforts to learn of any unauthorized uses of the Licensed Marks. Promptly upon
receiving notice or knowledge thereof, the parties shall notify each other of
any infringement or other violation by a third party of any of the Licensed
Marks. REALTY and MARKETING shall consult with respect to any such
infringement, and any action or proceeding, including opposition and
cancellation actions, that may be brought against such infringement. REALTY
shall exercise its discretion with respect to taking appropriate action
including the bringing of actions at REALTY's expense in the name of REALTY
and/or MARKETING, but shall not be obligated to take any action or institute
any proceedings. If such action or proceeding is commenced by REALTY, it shall
promptly notify MARKETING and MARKETING shall cooperate, including the defense
of counterclaims, and REALTY shall bear the expenses of MARKETING except for
fees charged by any attorneys retained solely by MARKETING in connection with
such cooperation. MARKETING shall be given an opportunity to participate with
counsel of its choice bearing its own legal and other costs.
In the event that REALTY determines not to commence such action or
proceeding at its expense, it shall promptly notify MARKETING. MARKETING may
then, at its expense, initiate such action or proceedings in its capacity as a
licensee of such Licensed Marks, provided however, that MARKETING must obtain
the prior written approval of REALTY regarding commencement of such action,
such consent not to be unreasonably withheld. REALTY shall cooperate with
MARKETING in such proceeding or action, including the defense of any
counterclaims, and MARKETING shall bear the expenses of REALTY, except for fees
charged by any attorneys retained solely by REALTY
9
<PAGE> 10
in connection with such cooperation. REALTY may, if not a party, join in, with
counsel of its own choice, bearing its own legal and other costs. The party
bringing any action or proceeding under this sub-paragraph (B) shall keep the
other party informed of the proceedings and give the other party an opportunity
to participate in any settlements, but the final decision whether to settle the
action or proceeding shall be made by the party bringing the action or
proceeding, subject to the approval of REALTY (if not a party), such approval
not to be unreasonably withheld. If within ten (10) business days or such
shorter time period as shall be reasonably practicable under the circumstances
REALTY does not approve a proposed settlement recommended by MARKETING in good
faith, REALTY shall be deemed to have taken over responsibility for the action
or proceeding, including subsequent legal fees, awards against REALTY or
MARKETING and expenses relating thereto. No settlement by either party shall
bind the other to make any payment or suffer any loss of existing or future
rights without such other party's consent, which shall not be unreasonably
withheld. Any recovery in such action or proceeding shall be applied first to
reimburse the party or parties for its or their legal expenses in maintaining
such action or proceeding. The excess shall belong to the party maintaining
the action or proceeding at the time such recovery is awarded. If the action
is brought jointly and the recovery is not sufficient to reimburse REALTY and
MARKETING for their legal expenses in such action, the unreimbursed portion of
such legal expenses shall be borne equally by each party.
12. TERM
This License Agreement shall continue in force and effect until February
1, 2052 unless sooner terminated as provided for herein. Except as provided in
Paragraph 15 hereof, the license shall remain exclusive and payment-free for so
long as the Master Lease
10
<PAGE> 11
entered into between the parties hereto of even date is in effect. In the
event that the Master Lease terminates prior to February 1, 2052, then this
license shall, commencing on the date that the Master Lease terminates, become:
a) non-exclusive in all areas, including the Licensed Territory; and b) a
payment-bearing license pursuant to which MARKETING shall pay to REALTY a
rental fee for the use and maintenance of Getty signage and related items based
on the gross revenues generated and/or gallonage sold under the Licensed Marks
at a rate that is reasonable and customary in the trade to be agreed in writing
between the parties. In the event that the parties are unable to agree to the
rental fee, the dispute shall be submitted to arbitration in accordance with
Paragraph 16 below.
13. TERMINATION AND BREACH
This License Agreement shall be terminated: a) in the event of any
affirmative act of insolvency by MARKETING; or b) upon the appointment of any
receiver or trustee to take possession of the properties of MARKETING. REALTY
shall have the right to terminate this License Agreement either a) upon a
material default by MARKETING under the Master Lease which is not cured within
the cure periods specified therein; or b) upon a material default by MARKETING
with respect to its obligations under the Reorganization and Distribution
Agreement between the parties of even date which is not cured within the cure
periods specified therein. In the event of any other breach or threatened
breach of this License Agreement, notice shall be given and the parties shall
promptly consult in good faith to cure such breach, with the party at fault
being given an adequate period of time to remedy the matter. If such breach is
not cured within sixty (60) days of the notice, the matter may be submitted to
arbitration in accordance with paragraph 16 below, which may include a
determination whether a material breach has occurred and/or
11
<PAGE> 12
been cured. In the event the arbitrator determines that a material breach has
occurred, the arbitrator shall not be authorized to terminate this License
Agreement (except in the case of a material breach by MARKETING which creates a
substantial likelihood of loss of rights in the Licensed Marks) but shall be
authorized to issue any other order or award any other relief deemed
appropriate, including, without limitation, injunctive relief.
In the event of a material breach by MARKETING which creates a substantial
likelihood of loss of rights in the Licensed Marks, the arbitrator shall be
authorized to issue any order awarding any relief deemed appropriate,
including, without limitation, injunctive relief, and further providing that in
the event MARKETING fails to comply with the relief ordered within a specified
period of time, the license shall be terminated.
14. EFFECT OF TERMINATION
Upon termination of this License Agreement, MARKETING agrees: a) to
immediately discontinue all use of the Licensed Marks and any term confusingly
similar thereto, and to delete the same from its corporate or business name; b)
to cooperate with REALTY or its appointed agent to apply to the appropriate
authorities to cancel any recording of this License Agreement from all
government records; c) to destroy all printed materials and signs bearing any
of the Licensed Marks; d) that all rights in the Licensed Marks and the good
will connected therewith shall remain the property of REALTY; and (e) to cause
all sub-licenses to terminate and all sublicensees to immediately discontinue
all use of the Licensed Marks and any term confusingly similar thereto, and to
delete the same from their respective business names, if applicable.
12
<PAGE> 13
15. GRANT OF OPTION(S)
In addition to the rights and obligations described above, and subject to
the terms and conditions set out herein, REALTY hereby grants to MARKETING an
option(s) that may be exercised at any time and from time-to-time during the
term hereof to expand the above-defined Licensed Territory to include any other
state of the United States in which MARKETING conducts its Marketing Business.
In the event that MARKETING exercises its option(s) to expand the Licensed
Territory to any additional states, all of the terms and conditions of this
License Agreement shall apply to such additional states, except as follows: a)
the licenses for the additional states shall be for durations to be mutually
agreed upon between the parties hereto but in no event shorter than the term of
the license granted within the Licensed Territories; b) the license will be
non-exclusive within those additional states; and c) MARKETING will pay to
REALTY a rental fee for the use and maintenance of Getty signage and related
items sales within those states based on the gross revenues generated and/or
gallonage sold under the Licensed Marks. These additional terms will be agreed
to in writing between the parties. In the event the parties are unable to
agree to these terms, then any dispute shall be submitted to arbitration in
accordance with Paragraph 16 below.
16. ARBITRATION
Any controversy or claim arising out of, or relating to this License
Agreement or its interpretation, performance or nonperformance or any breach
thereof, which the parties are unable to resolve between themselves, shall
first be submitted to a single arbitrator who shall be knowledgeable in
marketing and trademark matters. The arbitrator shall be mutually appointed by
the parties, and shall not be bound by rules of the American Arbitration
Association, but shall adopt such procedures as shall appear appropriate to
expedite decision
13
<PAGE> 14
making, in order that disputes may be resolved within commercially reasonable
time periods. If the parties cannot agree on the selection of the arbitrator,
the arbitrator shall be selected by The American Arbitration Association. Each
party shall bear its own costs in any such proceeding. The decision of the
arbitrator shall be final and binding upon the parties and may be enforced in
any court of competent jurisdiction.
17. GENERAL PROVISIONS
A. Assignability: This license may be assigned by either party to the
successor in interest or assignee of substantially all of its business or
assets, or the surviving party of any merger or consolidation to which it is a
party provided that the assignee of any assignment assumes all the assignor's
obligations hereunder. Apart from any assignment permissible under the
preceding sentences of this paragraph 17.1, MARKETING may not otherwise assign
the license granted herein or the obligations undertaken herein without the
prior written consent of REALTY, which consent shall not be unreasonably
withheld.
B. Notices: Any notice, approval, consent or other communication required
or permitted hereunder shall be in writing and shall be given by personal
delivery or telecopy, with acknowledgement of receipt, or by prepaid registered
mail, return receipt requested, addressed to the party at its address first
above written, to the attention of its General Counsel, or to any other address
that either party may subsequently designate, by notice in accordance with this
paragraph. Notices and other communications hereunder shall be deemed
effective one (1) day after dispatch if personally delivered or telecopied, and
three (3) days after dispatch, if posted, subject to proof of delivery.
C. Waiver: The waiver by any party of a breach or default of any
provision of this License Agreement by the other party shall not constitute a
waiver by such party of
14
<PAGE> 15
any succeeding breach of the same or other provision; nor shall any delay or
omission on the part of either party to exercise or avail itself of any right,
power or privilege that it has or may have hereunder, operate as a waiver of
any such right, power or privilege by such party.
D. Governing Law: This License Agreement shall be governed by, subject
to and construed under the laws of the State of New York.
E. Unenforceability: In the event that any term, clause or provision of
this License Agreement shall be construed to be or adjudged invalid, void or
unenforceable, such term, clause or provision shall be construed as severed
from this License Agreement, and the remaining terms, clauses and provisions
shall remain in effect.
F. Association: The parties, by this License Agreement, do not intend to
create a partnership, principal/agent, master/servant, franchisor/franchisee,
or joint venture relationship, and nothing in this License Agreement shall be
construed as creating such a relationship between the parties. The parties
agree that this License Agreement does not create any franchise relationship
between them that is subject to the provisions of the Petroleum Marketing
Practices Act or any similar state or local government law.
G. Counterparts: This License Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute one and the same instrument.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this License Agreement
to be executed as of the day and year first above written.
GETTY REALTY CORP.
By:_______________________
Title:____________________
Date:_____________________
GETTY PETROLEUM MARKETING INC.
By:_______________________
Title:____________________
Date:_____________________
16
<PAGE> 1
EXHIBIT 10.7
THE EMPLOYEE STOCK OWNERSHIP PLAN
FOR EMPLOYEES OF GETTY PETROLEUM MARKETING INC.
<PAGE> 2
THE EMPLOYEE STOCK OWNERSHIP PLAN
FOR EMPLOYEES OF GETTY PETROLEUM MARKETING INC.
TABLE OF CONTENTS
Page
Preamble ......................................................... 1
ARTICLE I - DEFINITIONS .......................................... 2
Section 1.1 - General ................................... 2
Section 1.2 - Accounts .................................. 2
Section 1.3 - Active Participant ........................ 2
Section 1.4 - Administrator ............................. 2
Section 1.5 - Annual Addition ........................... 2
Section 1.6 - Bargaining Unit ........................... 3
Section 1.7 - Beneficiary ............................... 4
Section 1.8 - Board ..................................... 4
Section 1.9 - Break in Service Year ..................... 4
Section 1.10 - Cash Account .............................. 5
Section 1.11 - Code ...................................... 5
Section 1.12 - Company; Company Affiliate ................ 5
Section 1.13 - Company Stock ............................. 5
Section 1.14 - Compensation .............................. 5
Section 1.15 - Current Obligations ....................... 6
Section 1.16 - Direct Rollover ........................... 6
Section 1.17 - Disability Retirement ..................... 6
Section 1.18 - Disability Retirement Date ................ 7
Section 1.19 - Distributee ............................... 7
Section 1.20 - Eligible Retirement Plan .................. 7
Section 1.21 - Eligible Rollover Distribution ............ 7
Section 1.22 - Employee .................................. 8
Section 1.23 - ERISA ..................................... 8
Section 1.24 - Freely Tradeable Stock .................... 8
Section 1.25 - Highly Compensated Employee ............... 8
Section 1.26 - Hour of Service ........................... 10
Section 1.27 - Leveraged Company Stock ................... 11
Section 1.28 - Military Leave ............................ 12
Section 1.29 - Normal Retirement ......................... 12
Section 1.30 - Normal Retirement Date .................... 12
Section 1.31 - Option Stock .............................. 12
Section 1.32 - Participant ............................... 12
Section 1.33 - Plan ...................................... 12
Section 1.34 - Plan Representative ....................... 13
Section 1.35 - Plan Year ................................. 13
Section 1.36 - Qualified Holder .......................... 13
Section 1.37 - Rules of the Plan ......................... 13
Section 1.38 - Separation from the Service ............... 13
Section 1.39 - Service ................................... 14
Section 1.40 - Spousal Consent ........................... 14
i
<PAGE> 3
Page
Section 1.41 - Spouse; Surviving Spouse 14
Section 1.42 - Statutory Compensation 14
Section 1.43 - Stock Account 15
Section 1.44 - Suspense Account 15
Section 1.45 - Trust 15
Section 1.46 - Trust Agreement 16
Section 1.47 - Trust Fund 16
Section 1.48 - Trustee 16
Section 1.49 - Vested 16
Section 1.50 - Years of Vesting Service 16
ARTICLE II - ELIGIBILITY
Section 2.1 - Requirements for Participation 16
Section 2.2 - Notice of Participation 17
Section 2.3 - Enrollment Form 17
Section 2.4 - Inactive Status 17
ARTICLE III - CONTRIBUTIONS OF THE COMPANY 18
Section 3.1 - Determination of Annual Contribution 18
Section 3.2 - Maximum Annual Contribution 18
Section 3.3 - Contribution Date 18
Section 3.4 - Form of Contributions 19
Section 3.5 - Application of Company Contributions 19
ARTICLE IV - PARTICIPATION IN COMPANY CONTRIBUTIONS AND FORFEITURES 19
Section 4.1 - Accounts 19
Section 4.2 - Allocation of Company Contributions 19
Section 4.3 - Allocation of Forfeitures 20
ARTICLE V - ACCOUNTING 20
Section 5.1 - Accounting for Company Contributions 20
Section 5.2 - Accounting for Forfeitures 21
Section 5.3 - Allocation of Cash Dividends 21
Section 5.4 - Allocation of Stock Dividends 21
Section 5.5 - Allocation of Stock Rights, Warrants and Options 21
Section 5.6 - Suspense Account 22
Section 5.7 - Release and Allocation of Leveraged Company Stock 22
Section 5.8 - Limitations on Allocations to Certain Participant 24
Section 5.9 - Diversification 24
ii
<PAGE> 4
Page
ARTICLE VI - VALUATION OF THE TRUST FUND AND ACCOUNTS 25
Section 6.1 - Valuation of Company Stock 25
Section 6.2 - Valuation of Plan Assets Other than Company Stock 26
Section 6.3 - Allocation of Values for Cash Accounts 27
Section 6.4 - Applicability of Account Values 27
ARTICLE VII - VESTING OF INTERESTS 27
Section 7.1 - Vesting of Accounts 27
Section 7.2 - Additional Vesting of Accounts 27
ARTICLE VIII - EMPLOYMENT AFTER NORMAL RETIREMENT DATE 28
Section 8.1 - Continuation of Employment 28
Section 8.2 - Continuation of Participation 28
Section 8.3 - Mandatory In-Service Distributions 28
ARTICLE IX - BENEFITS UPON RETIREMENT 28
Section 9.1 - Normal or Disability Retirement 28
Section 9.2 - Rights Upon Normal or Disability Retirement 28
Section 9.3 - Distribution of Accounts 29
Section 9.4 - Determination of Value of Accounts 30
ARTICLE X - BENEFITS UPON DEATH 31
Section 10.1 - Designation of Beneficiary 31
Section 10.2 - Distribution on Death 31
Section 10.3 - Determination of Value of Accounts 32
ARTICLE XI - BENEFITS UPON RESIGNATION OR DISCHARGE 32
Section 11.1 - Distributions on Resignation or Discharge 32
Section 11.2 - Determination of Value of Accounts 33
Section 11.3 - Forfeitures 34
Section 11.4 - Restoration of Forfeitures 34
ARTICLE XII - TOP-HEAVY PROVISIONS 35
Section 12.1 - Top-Heavy Determination 35
Section 12.2 - Minimum Benefits 38
Section 12.3 - Limitation on Benefits 38
ARTICLE XIII - ADMINISTRATIVE PROVISIONS 39
Section 13.1 - Duties and Powers of the Administrator 39
iii
<PAGE> 5
Page
Section 13.2 - Expenses of Administration 40
Section 13.3 - Payments 40
Section 13.4 - Statement to Participants 40
Section 13.5 - Inspection of Records 40
Section 13.6 - Claims Procedure 41
Section 13.7 - Conflicting Claims 42
Section 13.8 - Effect of Delay or Failure to Ascertain Amount
Distributable or to Locate Distributee 42
Section 13.9 - Service of Process 43
Section 13.10 - Limitations Upon Powers of the Administrator 43
Section 13.11 - Effect of Administrator Action 43
Section 13.12 - Assignments, etc., Prohibited; Distributions
Pursuant to Qualified Domestic Relations Orders 43
Section 13.13 - Correction of Administrative Error; Special
Contribution 44
Section 13.14 - Direct Rollovers 44
ARTICLE XIV - SALE OF COMPANY STOCK 44
Section 14.1 - Option to Sell Shares of Company Stock 44
ARTICLE XV - TERMINATION, DISCONTINUANCE, AMENDMENT, MERGER,
ADOPTION OF PLAN 46
Section 15.1 - Termination of Plan; Discontinuance of Contributions 46
Section 15.2 - Amendment of Plan 47
Section 15.3 - Retroactive Effect of Plan Amendment 48
Section 15.4 - Consolidation or Merger; Adoption of Plan by Other
Companies 48
ARTICLE XVI - MISCELLANEOUS PROVISIONS 49
Section 16.1 - Identification of Fiduciaries 49
Section 16.2 - Allocation of Fiduciary Responsibilities 49
Section 16.3 - Limitation on Rights of Employees 50
Section 16.4 - Limitation on Annual Additions; Treatment of
Otherwise Excessive Allocations 51
Section 16.5 - Voting Rights 52
Section 16.6 - Governing Law 54
Section 16.7 - Genders and Plurals 54
Section 16.8 - Titles 54
Section 16.9 - References 54
Section 16.10 - Use of Trust Funds 54
iv
<PAGE> 6
THE EMPLOYEE STOCK OWNERSHIP PLAN
FOR EMPLOYEES OF GETTY PETROLEUM MARKETING INC.
Getty Petroleum Marketing Inc., a corporation organized under the laws
of the State of Delaware, by resolution of its Board of Directors adopted on
_________________, 1997, adopted The Employee Stock Ownership Plan for Employees
of Getty Petroleum Marketing Inc. for the exclusive benefit of its eligible
Employees, effective as of _______________, 1997.
The purposes of the Plan are:
(1) To permit Participants to share in the Company's success.
(2) To stimulate and maintain among Participants a sense of
responsibility, cooperative effort and a sincere interest in the
progress and success of the Company.
(3) To increase the efficiency of Participants and to encourage
them to remain with the Company until retirement from active service.
(4) To provide security for Participants by establishing a plan
under which each Participant's share of Company contributions and the
earnings thereon will be invested and accumulated to create a fund to
benefit him in the event of his disability or other termination of
employment.
The Plan is a stock bonus plan which is intended to be an employee
stock ownership plan within the meaning of ERISA Section 407(d)(6)(A) and Code
Section 4975(e)(7). The Plan is designed to invest primarily in qualifying
employer securities and is intended to comply with the provisions of Code
Sections 401, 402(a), 404(a)(3) and other applicable provisions of the Code,
similar provisions of state law and ERISA, as amended.
In implementing the purposes of the Plan, the Trust may, but need not,
borrow money or receive other extensions of credit to acquire Company Stock,
including borrowing or otherwise obtaining credit from the Company and/or other
parties constituting "disqualified persons" within the meaning of Code Section
4975(e)(2).
For purposes of Code Section 401(a)(28) and Section 5.9 of the Plan,
the ten-year participation period shall commence on the date the Plan is adopted
or the Employee becomes a Participant, whichever is later.
<PAGE> 7
ARTICLE I
DEFINITIONS
Section 1.1 - General
Whenever any of the following terms is used in the Plan with the first
letter or letters capitalized, it shall have the meaning specified below unless
the context clearly indicates to the contrary.
Section 1.2 - Accounts
"Accounts" of a Participant or former Participant shall mean his Cash
Account and Stock Account, in the Trust Fund established in accordance with
Section 4.1.
Section 1.3 - Active Participant
"Active Participant" shall mean a Participant who is an Employee and is not
in a Bargaining Unit.
Section 1.4 - Administrator
"Administrator" shall mean the Company, acting through its chief executive
officer or his delegate.
Section 1.5 - Annual Addition
"Annual Addition" of a Participant for the Plan Year in question shall mean
(a) the sum of
(i) Company contributions and forfeitures
allocated to his Accounts for that Plan Year,
(ii) Company contributions and forfeitures
allocated to his accounts under all other qualified
defined contribution plans, if any, of the Company and
any Company Affiliate for that Plan Year,
(iii) his personal contributions under all
qualified defined contribution
plans, if any, of the Company and any Company
Affiliate for that Plan Year, and
(iv) except for purposes of Section 16.4 (a)(i)
the sum of
a. Company contributions allocated after March
2
<PAGE> 8
31, 1984 to an individual medical account as
defined in Code Section 415(l)(1), if any,
which is maintained under a qualified pension
or annuity plan, and
b. Company contributions paid or
accrued for Plan Years ending after
December 31, 1985, if any, and allocated
to the separate account of a Key Employee
(as defined in Section 12.1(b)(iv)) for
the purpose of providing post-retirement
medical benefits,
(b) Provided however that, for any Plan Year for which no
more than one-third of the Company contributions under Section
3.1, (which are deductible under Code Section 404(a)(9)) are
allocated to Accounts of Highly Compensated Employees, the Annual
Addition of a Participant shall not include
(i) his share of Company contributions for such
Plan Year which are deductible under Code Section
404(a)(9)(B), or
(ii) his share of forfeitures of Company Stock
acquired with the proceeds of a loan or installment
obligation described in Code Section 404(a)(9)(A).
If, in a particular Plan Year, the Company contributes an amount to a
Participant's Accounts because of an erroneous forfeiture in a prior Plan Year,
or because of an erroneous failure to allocate amounts in a prior Plan Year, the
contribution shall not be considered an Annual Addition with respect to the
Participant for that particular Plan Year, but shall be considered an Annual
Addition for the Plan Year to which it relates. If the amount so contributed in
the particular Plan Year takes into account actual investment gains attributable
to the period subsequent to the Plan year to which the contribution relates, the
portion of the total contribution which consists of such gains shall not be
considered as an Annual Addition for any Plan Year.
Section 1.6 - Bargaining Unit
"Bargaining Unit" shall mean a bargaining unit covered by a collective
bargaining agreement with the Company
3
<PAGE> 9
(a) if retirement benefits were the subject of good faith
bargaining with respect to such agreement, and
(b) if such agreement does not provide for the coverage under
the Plan of Employees in such unit.
Section 1.7 - Beneficiary
"Beneficiary" shall mean a person or trust properly designated by a
Participant or former Participant to receive benefits, or such Participant's
Spouse or heirs at law, as provided in Article X.
Section 1.8 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.9 - Break in Service Year
"Break in Service Year" of an Employee or former Employee shall mean the
three hundred and sixty-five day period
(a) which begins on the later of
(i) the date of his last Separation from the
Service, or
(ii) if the Employee furnishes to the
Administrator such timely information as the
Administrator may reasonably require to establish that
the Employee's absence from work is for any of the
following reasons or purposes, the second anniversary
of the first day of his absence from work
a. by reason of pregnancy of the
Employee,
b. by reason of the birth of a child
of the Employee,
c. by reason of the placement of a
child with the Employee in connection with
the adoption of such child by the
Employee, or
d. for purposes of caring for such
child for a period beginning immediately
following such birth or placement, and
4
<PAGE> 10
(b) during no part of which he was an Employee or employed by
a Company Affiliate.
Section 1.10 - Cash Account
"Cash Account" shall mean a sub-account established and maintained for
each Participant under Section 4.1 for purposes of holding and accounting for
assets other than Company Stock held in the Trust Fund and allocated to
Participants.
Section 1.11 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.12 - Company; Company Affiliate
(a) "Company" shall mean Getty Petroleum Marketing Inc., any other company
which subsequently adopts the Plan as a whole or as to any one or more
divisions, in accordance with Section 15.4(c), and any successor company which
continues the Plan under Section 15.4(a).
(b) "Company Affiliate" shall mean any employer which, at the time of
reference, was, with the Company, a member of a controlled group of
corporations or trades or businesses under common control, or a member of an
affiliated service group, as determined under regulations issued by the
Secretary of the Treasury or his delegate under Code Sections 414(b), (c), (m)
and 415(h) and any other entity required to be aggregated with the Company
pursuant to regulations issued under Code Section 414(o).
Section 1.13 - Company Stock
"Company Stock" shall mean
(a) in the event the Company has only one authorized class of
capital stock, such class of stock, or
(b) in the event the Company (and any corporation which is in
the same controlled group (as defined in Code Section 409(1)(4)))
at any time has more than one authorized class of capital stock,
any class which constitutes "employer securities" as that term is
defined in Code Section 409(1).
Section 1.14 - Compensation
(a) "Compensation" of a Participant for any Plan Year shall mean his
Statutory Compensation for such Plan Year
5
<PAGE> 11
(i) and including amounts not includable in gross income by
reason of Code Sections 125 (cafeteria plans), 402(e)(3)(401(k)
plans), 402(h) or 403(b),
(ii) and excluding all reimbursements or other expense
allowances, fringe benefits (cash and noncash), moving expenses,
deferred compensation, and welfare benefits (including severance
benefits) (even if includable in gross income),
but in no event greater than $150,000 (adjusted for increases in the cost of
living described in Code Section 401(a)(17) and, if the Plan Year is less than
twelve months, such limit shall be reduced to an amount equal to such limit
multiplied by a fraction, the numerator representing the number of months in
the Plan Year and the denominator of which is twelve).
(b) With respect to applicable family members of Participants described in
Section 1.25(c)(ii), the provisions of Code Section 414(q)(6), as modified by
Code Section 401(a)(17) shall apply.
Section 1.15 - Current Obligations
"Current Obligations" shall mean obligations of the Trust arising from
extensions of credit to the Trust, in connection with the purchase by the Trust
of Leveraged Company Stock, and either
(a) payable in cash within one year from the date of
reference pursuant to the terms of the applicable credit
agreement, or
(b) specified by the Company as subject to current payment
with Trust assets available therefor pursuant to the terms of this
Plan.
Section 1.16 - Direct Rollover
"Direct Rollover" shall mean a payment by the Plan to an Eligible
Retirement Plan designated by a Distributee.
Section 1.17 - Disability Retirement
"Disability Retirement" of a Participant shall mean his Separation from
the Service authorized by the Administrator upon its finding, based on
competent medical evidence, that the Participant, as a result of mental or
physical disease or condition, will be permanently unable to discharge his
assigned duties and is eligible to receive disability benefits under the Social
Security Act.
6
<PAGE> 12
Section 1.18 - Disability Retirement Date
"Disability Retirement Date" of a Participant shall mean the date (prior
to his Normal Retirement Date) fixed by the Administrator for his Disability
Retirement.
Section 1.19 - Distributee
"Distributee" shall mean a Participant or former Participant, Surviving
Spouse of a Participant or former Participant, or a Spouse or former Spouse of
a Participant or former Participant who is an alternate payee under a
"qualified domestic relations order," as defined in Code Section 414(p).
Section 1.20 - Eligible Retirement Plan
"Eligible Retirement Plan" shall mean an individual retirement account
(described in Code Section 408(a)), an individual retirement annuity (described
in Code Section 408(b)), an annuity plan (described in Code Section 403(a)), or
a qualified trust (described in Code Section 401(a)), that will accept a
Distributee's Eligible Rollover Distribution; provided, however, that in the
case of an Eligible Rollover Distribution to a Distributee who is a Surviving
Spouse of a Participant or former Participant, an "Eligible Retirement Plan"
shall mean only an individual retirement account or an individual retirement
annuity.
Section 1.21 - Eligible Rollover Distribution
(a) Except as provided in subsection (b), "Eligible Rollover Distribution"
shall mean any distribution of all or any portion of a Participant's or former
Participant's Accounts to a Distributee.
(b) "Eligible Rollover Distribution" shall not mean any distribution
(i) that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint
life expectancies) of the Distributee and the Distributee's
Beneficiary,
(ii) that is paid for a specific period of ten years or more,
(iii) that is part of a series of distributions during a
calendar year to the extent that such distributions are expected
to total less than $200 or a total lump sum distribution which is
equal to less than $200, as described in Temp. Reg. Section
1.401(a)(31)-1T A-11,
7
<PAGE> 13
(iv) to the extent such distribution is required under Code
Section 401(a)(9), or
(v) to the extent such distribution is not includable in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
Section 1.22 - Employee
"Employee" shall mean any person who renders services to the Company in
the status of an employee as the term is defined in Code Section 3121(d).
Except as provided in subsection 1.25(d) and Section 1.26, "Employee" shall not
include leased Employees treated as Employees of the Company pursuant to Code
Sections 414(n) and 414(o) or employees of a Company Affiliate.
Section 1.23 - ERISA
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
Section 1.24 - Freely Tradeable Stock
"Freely Tradeable Stock" shall mean Company Stock that, at the time of
reference
(a) is "publicly traded" as that term is defined under
Treasury Regulation Section 54.4975-7(b)(1)(iv) or any successor
regulation thereto, and
(b) is not subject to a "trading limitation" as that term is
defined under Treasury Regulation Section 54.4975-7(b)(10) or any
successor regulation thereto.
Section 1.25 - Highly Compensated Employee
(a) For any current Plan Year, a "Highly Compensated Employee," shall mean
any Employee who
(i) was a five percent owner of the Company or a Company
Affiliate (within the meaning of Code Section 414(q)(3)),
(ii) had Statutory Compensation in excess of $75,000
(adjusted as described in Temp. Reg. Section 1.414(q)-1T A-3(c)),
(iii) had Statutory Compensation in excess of $50,000
(adjusted as described in Temp. Reg. Section 1.414(q)-1T A-3(c))
and was in the group consisting of the top twenty percent of
Employees (excluding for
8
<PAGE> 14
such purpose such Employees described in Code Section 414(q)(8) and Temp.
Reg. Section 1.414(q)-1T A-9(b) as are excluded under the Rules of the
Plan) when ranked by Statutory Compensation for the Plan Year in
question, or
(iv) was an officer (within the meaning of Code Sections
414(q)(1)(D) and 414(q)(5)) of the Company or a Company Affiliate
(not more than fifty Employees or, if lesser, the greater of three
Employees or ten percent of the Employees shall be treated as
officers) and
a. had Statutory Compensation in excess of $45,000
(adjusted as described in Code Section 414(q)(1)(D)),
or
b. had the greatest Statutory Compensation of any
officer,
and any former Employee, who during the Plan Year in which he Separated from
the Service, or during any Plan Year ending on or after his fifty-fifth
birthday, was described in subsection (a).
(b) For purposes of subsection (a), the Company has made the "calendar
year calculation election" pursuant to Temp. Reg. Section 1.414(q)-1T
Q&A-14(b).
(c) (i) For purposes of Section 1.14(a), any Employee who is,
during the previous or current Plan Year, a Spouse or lineal
descendant who has not attained age nineteen before the close of the
Plan Year of any person described in paragraph (ii), shall not be treated
as a separate Employee and any Statutory Compensation paid to such
Employee shall be treated as if paid to the person described in paragraph
(ii).
(ii) A person is described in this paragraph in a Plan Year
if he is
a. an Employee or former Employee who is or was a
five percent owner of the Company or a Company
Affiliate (within the meaning of Code Section
414(q)(3)), or
b. one of the ten Employees with the greatest
Statutory Compensation for such Plan Year. (The
determination of which Employees are among the ten
with the greatest Statutory Compensation shall be made
prior to the application of this subsection (c)).
(d) For purposes of this Section, "Statutory Compensation" shall include
Compensation deferral amounts and
9
<PAGE> 15
other amounts required to be taken into account pursuant to Code Section
414(q)(7)(B), and "Employee" shall include leased Employees treated as Employees
of the Company pursuant to Code Section 414(n) or 414(o) and shall include
Employees of a Company Affiliate, but shall not include Employees on a leave of
absence throughout the Plan Year, or Employees who receive Statutory
Compensation for the Plan Year in an amount less than 50% of such Employee's
average annual compensation for the three consecutive calendar years preceding
the Plan Year during which such Employee received the greatest amount of
Statutory Compensation.
Section 1.26 - Hour of Service
(a) "Hour of Service" of an Employee (including a leased Employee
pursuant to Code Sections 414(n) and (o)) shall mean the following:
(i) Each hour for which he is paid or entitled to payment by the
Company or a Company Affiliate, and with respect to periods prior to
___________________, 1997, Getty Petroleum Corp., Getty Terminals Corp.,
Kingston Oil Supply Corp. or PT Petro Corp., for the performance of
services.
(ii) Each hour in or attributable to a period of time during
which he performs no duties (irrespective of whether he has had a
Separation from the Service) due to a vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or a
leave of absence for which he is so paid or so entitled to payment by the
Company or a Company Affiliate and, with respect to periods prior to
________________, 1997, Getty Petroleum Corp., Getty Terminals Corp.,
Kingston Oil Supply Corp. or PT Petro Corp., whether direct or indirect;
provided, however, that no such hours shall be credited to an Employee if
attributable to payments made or due under a plan maintained solely for the
purpose of complying with applicable workers' compensation, unemployment
compensation or disability insurance laws or to a payment which solely
reimburses the Employee for medical or medically related expenses incurred
by him.
(iii) Each hour for which he is entitled to back pay,
irrespective of mitigation of damages, whether awarded or agreed to by the
Company or a Company Affiliate and, with respect to periods prior to
________________, 1997, Getty Petroleum Corp., Getty Terminals Corp.,
Kingston Oil Supply Corp. or PT Petro Corp.
(b) Hours of Service under subsections (a)(ii) and (a)(iii) shall be
calculated in accordance with 29 C.F.R. Section 2530.200b-2(b). Each Hour of
Service shall be attributed to
10
<PAGE> 16
the initial eligibility year in which it occurs except to the extent that the
Company, in accordance with 29 C.F.R. Section 2530.200b-2(c), credits such Hour
to another computation period under a reasonable method consistently applied.
(c) The Hours of Service of an Employee occurring prior to
____________________, 1997 shall be determined by the Administrator from
reasonably accessible records by means of appropriate calculations and
approximations or, if such records are insufficient to make an appropriate
determination, by reasonable estimation.
Section 1.27 - Leveraged Company Stock
"Leveraged Company Stock" shall mean any Company Stock that is
acquired by the Trustee with the proceeds of a loan made or guaranteed by the
Company or any other party constituting a disqualified person within the meaning
of Code Section 4975(e)(2), or any successor statute, as amended from time to
time.
Section 1.28 - Military Leave
Any Employee who leaves the Company or a Company Affiliate directly to
perform service in the Armed Forces of the United States or in the United States
Public Health Service under conditions entitling him to reemployment rights, as
provided in the laws of the United States, shall, solely for purposes of the
Plan and irrespective of whether he is compensated by the Company or a Company
Affiliate during such period of service, be on Military Leave. An Employee's
Military Leave shall expire if such Employee voluntarily resigns from the
Company or such Company Affiliate during such period of service or if he fails
to make application for reemployment within the period specified by such laws
for the preservation of his reemployment rights. For purposes of computing an
Employee's Service, no more than 365 days of Service shall be credited for any
Military Leave except as required by Treas. Reg. Section 1.410(a)-7(b)(6)(iii).
Section 1.29 - Normal Retirement
"Normal Retirement" of a Participant shall mean his Separation from
the Service upon his Normal Retirement Date, or after such date (except by
death) as permitted under Article IX.
Section 1.30 - Normal Retirement Date
"Normal Retirement Date" of a Participant shall mean the later of
(a) the first day of the calendar month coincident with or next
following his sixty-fifth birthday, or
11
<PAGE> 17
(b) the fifth anniversary of the date he commences participation
in the Plan.
Section 1.31 - Option Stock
"Option Stock" shall mean Company Stock that is distributed to a
Qualified Holder if, at the time of distribution, such Company Stock is not
Freely Tradeable Stock.
Section 1.32 - Participant
"Participant" shall mean any person included in the Plan as provided
in Article II.
Section 1.33 - Plan
"Plan" shall mean The Employee Stock Ownership Plan for Employees of
Getty Petroleum Marketing Inc.
Section 1.34 - Plan Representative
"Plan Representative" shall mean any person or persons designated by
the Administrator to function in accordance with the Rules of the Plan.
Section 1.35 - Plan Year
"Plan Year" shall be the calendar year including all such years prior
to the adoption of the Plan.
Section 1.36 - Qualified Holder
"Qualified Holder" shall mean the Participant or Beneficiary receiving
a distribution of Company Stock, any other party to whom such stock is
transferred by gift or by reason of death and any trustee of an individual
retirement account (as defined in Code Section 408) to which all or any portion
of such distributed Company Stock is transferred pursuant to a tax-free
"rollover" transaction satisfying the requirements of Code Section 402.
Section 1.37 - Rules of the Plan
"Rules of the Plan" shall mean the rules adopted by the Administrator
pursuant to Section 13.1(a)(ii) for the administration, interpretation or
application of the Plan.
Section 1.38 - Separation from the Service
(a) "Separation from the Service" of an Employee shall mean his
resignation from or discharge by the Company or a Company Affiliate, or his
death, Normal or Disability Retirement but not his transfer among the Company
and Company Affiliates.
12
<PAGE> 18
(b) A leave of absence or sick leave authorized by the Company or a
Company Affiliate in accordance with established policies, a vacation period, a
temporary layoff for lack of work or a Military Leave shall not constitute a
Separation from the Service; provided, however, that
(i) continuation upon a temporary layoff for lack of work for a
period in excess of three months shall be considered a discharge effective
as of the commencement of the third month of such period, and
(ii) failure to return to work upon expiration of any leave of
absence, sick leave, Military Leave or vacation or within three days after
recall from a temporary layoff for lack of work shall be considered a
resignation effective as of the commencement of any such leave of absence,
sick leave, Military Leave, vacation or temporary layoff or the expiration
of the third day after recall from any such temporary layoff.
Section 1.39 - Service
"Service" of an Employee, expressed in days, shall mean his period of
elapsed time which, or the sum of such periods each of which, is measured from
(a) his first Hour of Service, or his first Hour of Service
following a Break in Service Year, as the case may be, to
(b) (i) the first day of his first subsequent Break in Service
Year, or
(ii) the first day of the twelve month period immediately
preceding the first day of his first subsequent Break in Service Year if
the Break in Service Year occurs for the reasons described in Section
1.9(a)(ii).
Section 1.40 - Spousal Consent
"Spousal Consent" to an election, designation or other action of a
Participant, shall mean the written consent thereto of the Spouse of the
Participant, witnessed by a Plan Representative or a notary public, which
acknowledges the effect of such election on the rights of the Spouse, and, in
the case of consent to a Beneficiary designation, with such designation not
being changeable without further Spousal Consent unless the prior Spousal
Consent expressly permits such changes without the necessity of further Consent.
Spousal Consent shall be deemed to have been obtained if it is established to
the satisfaction of the Plan Representative that it cannot actually be obtained
because there is no Spouse, or because the Spouse could not be
13
<PAGE> 19
located, or because of such other circumstances as the Secretary of the Treasury
by regulation may prescribe. Any Spousal Consent shall be effective only with
respect to the Spouse in question.
Section 1.41 - Spouse; Surviving Spouse
"Spouse" or "Surviving Spouse" of a Participant or former Participant
shall mean the spouse to whom he was married on the date of his death; provided,
however, that to the extent required by a qualified domestic relations order
issued in accordance with Code Section 414(p), a former Spouse shall be treated
as a Surviving Spouse.
Section 1.42 - Statutory Compensation
"Statutory Compensation" of a Participant for any Plan Year shall mean
his total taxable remuneration received from the Company and all Company
Affiliates in that Plan Year for services rendered as an Employee (including
those items not reported on Form W-2 as determined under Treas. Reg. Section
1.415-2(d)(2)(iii)-(vi)), exclusive of
(a) Company and Company Affiliate contributions to a deferred
compensation plan (to the extent includable in the Participant's gross
income solely by reason of Code Section 415) or to a simplified employee
pension plan (to the extent deductible by the Participant) and any
distribution from a deferred compensation plan (other than an unfunded,
non-qualified plan),
(b) amounts realized from the exercise of a non-qualified stock
option or taxable by reason of restricted property becoming freely tradable
or free of a substantial risk of forfeiture, as described in Code Section
83,
(c) amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option and
(d) other amounts which receive special tax benefits such as
Company or Company Affiliate contributions toward the purchase of an
annuity contract described in Code Section 403(b) (whether or not
excludable from the Participant's gross income).
Section 1.43 - Stock Account
"Stock Account" shall mean the account established and maintained for
each Participant under Section 4.1 for purposes of holding and accounting for
Company Stock held in the Trust Fund and allocated to Participants.
14
<PAGE> 20
Section 1.44 - Suspense Account
"Suspense Account" shall mean the special account in the Trust Fund
established and maintained pursuant to the provisions of Sections 5.6 and 5.7
for the purpose of holding Leveraged Company Stock and cash, as necessary, until
such stock is released and allocated in accordance with the applicable
provisions of the Plan.
Section 1.45 - Trust
"Trust" shall mean the trust established pursuant to the Trust
Agreement.
Section 1.46 - Trust Agreement
"Trust Agreement" shall mean that certain Trust Agreement Pursuant to
The Employee Stock Ownership Plan for Employees of Getty Petroleum Marketing
Inc., providing for the investment and administration of the Trust Fund. By
this reference, the Trust Agreement is incorporated herein.
Section 1.47 - Trust Fund
"Trust Fund" shall mean the fund established under the Trust Agreement
by contributions made by the Company pursuant to the Plan and from which any
distributions under the Plan are to be made.
Section 1.48 - Trustee
"Trustee" shall mean the Trustee under the Trust Agreement.
Section 1.49 - Vested
"Vested," when used with reference to a Participant's Accounts, shall
mean non-forfeitable.
Section 1.50 - Years of Vesting Service
"Years of Vesting Service" of an Employee, measured in years and
determined as of the point in time in question, shall mean 1/365th of his days
of Service (ignoring any fraction in the result), excluding any days of Service
(a) before any portion of his Accounts have become Vested and
before five consecutive Break in Service Years, and
(b) before his Separation from the Service occurring before one
or more Break in Service Years until he completes one Year of Vesting
Service after such Break in Service Year(s), and
15
<PAGE> 21
(c) before _______________, 1997.
ARTICLE II
ELIGIBILITY
Section 2.1 - Requirements for Participation
(a) Except as provided in subsections (b) and (c), any person who on
___________ ___, 1997 or on any subsequent January 1, April 1, July 1 or October
1
(i) is an Employee,
(ii) has completed 365 days of Service,
(iii) is not employed in a Bargaining Unit, and
(iv) has attained his twenty-first birthday,
shall become a Participant on such day.
(b) Any Participant whose participation terminates shall again become
a Participant effective as of his first subsequent Hour of Service as an
Employee in a position or classification which is not within a Bargaining Unit.
(c) A former Employee who was not an Employee on the first January 1,
April 1, July 1 or October 1 on which he first met all other eligibility
requirements shall become a Participant effective as of his first subsequent
Hour of Service as an Employee in a position or classification which is not
within a Bargaining Unit.
Section 2.2 - Notice of Participation
On or before the date on which an Employee becomes a Participant, the
Administrator shall give him written notice thereof.
Section 2.3 - Enrollment Form
The Administrator shall provide an enrollment form on which the
Participant should set forth
(a) his name, date of birth, name of Spouse and other such
relevant information, and
(b) his consent that he, his successors in interest and assigns
and all persons claiming under him shall, to the extent consistent with
applicable law, be bound by the statements contained therein and the
16
<PAGE> 22
provisions of the Plan and Trust Agreement as they now exist and as they
may be amended from time to time.
Section 2.4 - Inactive Status
(a) A Participant who is transferred directly to a Company Affiliate
or to a position or classification which is within a Bargaining Unit shall
thereupon cease to be an Active Participant.
(b) All provisions of the Plan shall otherwise continue to apply to
such Participant, except that he shall not share in allocations under Articles
IV and V and Section 16.4 while he is not an Active Participant.
(c) If such a Participant is retransferred to a position or
classification with the Company which is not within a Bargaining Unit, he shall
thereupon again be an Active Participant and shall share in allocations under
Articles IV and V and Section 16.4.
ARTICLE III
CONTRIBUTIONS OF THE COMPANY
Section 3.1 - Determination of Annual Contribution
(a) It is the intention of the Company to make recurring and
substantial contributions to the Trust. However, the Company in its sole and
absolute discretion reserves the right to fix the amount, if any, of its
contribution.
(b) Notwithstanding the foregoing, the Company shall be obligated to
contribute such amounts, and at such times, as shall be necessary to provide the
Trust with funds sufficient to pay any Current Obligations (including principal,
interest and any acquisition charges) incurred for the purpose of acquiring
Company Stock to be held in the Trust Fund; provided, however, if a default
under any Company guaranteed loan used to acquire Leveraged Company Stock
results in the payment by the Company (pursuant to its guarantee) of any amounts
due under such loan, then to the extent of such payments, the Company shall be
relieved of its contribution obligation under this Section.
Section 3.2 - Maximum Annual Contribution
Except for contributions described in Section 13.13, the Company's
contribution for any Plan Year shall not exceed the maximum amount deductible by
the Company for such Plan Year under Code Sections 404(a)(3)(A) and 404(a)(9)
and in any event shall be less than that amount which would initially result in
an Annual Addition of any Participant which exceeds the maximum permissible
amount under Section 16.4(a).
17
<PAGE> 23
Section 3.3 - Contribution Date
The Company's contribution for any Plan Year shall be made on or
before the date upon which the Company's federal income tax return is due
(including extensions thereof) for its applicable taxable year and shall be held
by the Trustee in the Trust Fund. If the Company makes such contribution after
the end of the Plan Year for which the contribution is made,
(a) the Company shall notify the Trustee in writing that the
contribution is made for such Plan Year,
(b) the Company shall claim such payment as a deduction on its
federal income tax return for its taxable year coinciding with such Plan
Year, and
(c) the Administrator and the Trustee shall treat the payment as
a contribution by the Company to the Trust actually made on the last day of
such taxable year.
Section 3.4 - Form of Contributions
The Company's contributions to the Trust Fund shall be paid in
cash, Company Stock or such other property as the Board may from time to
time determine; provided, however, that Company contributions shall be paid
in cash to the Trust Fund to the extent necessary to discharge the Current
Obligations of the Trust.
Section 3.5 - Application of Company Contributions
(a) All contributions of Company Stock to the Trust Fund, together
with any Company Stock acquired for the Trust Fund with cash contributions
thereto, shall be allocated among Participants' Accounts as provided in Section
4.2 or 5.7, as applicable.
(b) All cash contributions to the Trust Fund shall first be applied
toward the payment of Current Obligations of the Trust (as they become due)
incurred for the purpose of acquiring Company Stock, and any excess remaining
after such application shall be allocated among Participants' Accounts as
provided in Section 4.2.
18
<PAGE> 24
ARTICLE IV
PARTICIPATION IN COMPANY CONTRIBUTIONS AND FORFEITURES
Section 4.1 - Accounts
The Administrator shall maintain a Cash Account and Stock Account for
each Participant to which shall be credited the amounts allocated thereto under
Sections 4.2, 4.3, 5.3, 5.4, 5.5, 5.7 and 16.4 and to which shall be debited or
credited amounts determined under Section 6.3.
Section 4.2 - Allocation of Company Contributions
Except as provided in Section 16.4(a), Participants who are Employees
at the end of the Plan Year in question and who completed at least one thousand
Hours of Service during such Plan Year shall share in such part of the Company's
contribution to the Plan for such Plan Year as is not applied toward the payment
of Current Obligations under Section 5.7(b)(i), in proportion to their
Compensation received in such Plan Year while Active Participants. The amount
so allocated to each Participant shall then be credited to his Cash Account
and/or Stock Account in accordance with Section 5.1.
Section 4.3 - Allocation of Forfeitures
Amounts forfeited in any Plan Year under Sections 10.2(b)(iii), 11.3
and 13.8 shall be applied under Section 3.1 to reduce the Company's contribution
for such Plan Year and shall be allocated under Section 4.2 as if part of such
contribution for such Plan Year.
ARTICLE V
ACCOUNTING
Section 5.1 - Accounting for Company Contributions
(a) Cash contributions made by the Company pursuant to Section 3.1 not
used to purchase shares of Company Stock and not applied towards the payment of
Current Obligations of the Trust in accordance with Section 3.5(b) shall be
credited to Participants' Cash Accounts.
(b) Shares of Company Stock contributed by the Company pursuant to
Section 3.1 shall be credited to Participants' Stock Accounts in shares and
fractional shares.
(c) Shares of Company Stock purchased by the Trustee with cash
contributions made by the Company pursuant to Section 3.1 shall be credited to
Participants' Stock Accounts in shares and fractional shares.
19
<PAGE> 25
(d) Shares of Company Stock released from the Suspense Account under
Section 5.7 upon the application of cash contributions made by the Company
pursuant to Section 3.1 in accordance with Section 3.5(b) shall be credited to
Participants' Stock Accounts as provided in Section 5.7(c).
Section 5.2 - Accounting for Forfeitures
(a) The aggregate shares of Company Stock forfeited under Sections
10.2(b)(iii), 11.3 and 13.8 from Stock Accounts shall be reallocated under
Section 4.3 in shares and fractional shares and credited to Participants' Stock
Accounts.
(b) The aggregate amounts forfeited under Sections 10.2(b)(iii), 11.3
and 13.8 from Cash Accounts shall be reallocated under Section 4.3 and credited
to Participants' Cash Accounts.
Section 5.3 - Allocation of Cash Dividends
Any cash dividends received by the Trustee on Company Stock shall, at
the direction of the Administrator and in its sole discretion,
(a) with respect to cash dividends received on shares of Company Stock
allocated to Stock Accounts,
(i) be used to make payments on any installment contract or loan
used to acquire Leveraged Company Stock in accordance with Code Section
404(k)(2)(C); provided, however, that such dividends shall not be so used
unless the requirement of Section 5.7(d) is satisfied,
(ii) be allocated to Participants' Cash Accounts, or
(iii) be distributed to Participants not later than ninety days
after the last day of the Plan Year in which paid in accordance with Code
Section 404(k)(2)(B), and
(b) with respect to cash dividends received on shares of Company Stock
allocated to the Suspense Account,
(i) be used to make payments on any installment contract or loan
used to acquire Leveraged Company Stock in accordance with Code Section
404(k)(2)(C), or
(ii) be allocated to the Suspense Account.
Section 5.4 - Allocation of Stock Dividends
20
<PAGE> 26
Stock dividends received by the Trustee on Company Stock shall be
credited to Stock Accounts and to the Suspense Account in proportion to the
shares of Company Stock therein. Any cash received by the Trustee (in
connection with such a stock dividend) in lieu of fractional shares shall be
allocated under Section 5.3.
Section 5.5 - Allocation of Stock Rights,
Warrants and Options
In the event any rights, warrants or options are issued with respect
to Company Stock, as directed by the Administrator
(a) the Trustee shall exercise any or all of such rights,
warrants or options received on Company Stock in the Suspense Account using
contributions, if any, made for such purpose; Company Stock so acquired
shall be credited to the Suspense Account pending release therefrom under
Section 5.7.
(b) the Trustee shall exercise such rights, warrants or options
received on Company Stock in the Stock Accounts to acquire for such Stock
Accounts whole and fractional shares of Company Stock to the extent of the
amount in the Cash Accounts of the Participants, respectively. When the
balance in a Participant's Cash Account is not sufficient for the full
exercise of such rights, warrants or options, the Administrator shall
notify the Participant, giving him a reasonable time, not less than five
days prior to the expiration date of the rights, to pay, at his option, to
the Trustee the amount necessary to exercise the remaining rights, warrants
or options for whole shares attributable to his Stock Account.
(c) the Trustee shall exercise in the manner set forth in
subsection (a) any or all of such rights, warrants or options received on
Company Stock in the Trust Fund which remain unexercised after completion
of the procedures required under subsection (b).
(d) any rights, warrants, or options on Company Stock which
cannot be exercised for lack of cash may, as directed by the Administrator,
be sold by the Trustee and the proceeds allocated in accordance with the
source of the Company Stock with respect to which such rights, warrants or
options were issued.
Section 5.6 - Suspense Account
At such time as any Leveraged Company Stock is acquired for the Trust
Fund, the Administrator shall open and maintain a Suspense Account for the
purpose of holding unallocated Leveraged
21
<PAGE> 27
Company Stock until such Company Stock is released and allocated in accordance
with the provisions of Section 5.7.
Section 5.7 - Release and Allocation of
Leveraged Company Stock
(a) All Leveraged Company Stock acquired for the Trust Fund shall be
held in the Suspense Account until released and allocated in accordance with the
provisions of this Section. Leveraged Company Stock acquired in a particular
transaction shall be released from the Suspense Account as follows:
(i) Subject to the requirements of Treasury Regulation Section
54.4975-7(b)(8)(ii) and subsection (ii) below, for each Plan Year until the
loan or installment obligation is fully repaid, the number of shares of
Leveraged Company Stock released from the Suspense Account shall equal the
number of unreleased shares immediately before such release for the then
current Plan Year multiplied by a fraction, the numerator of which is the
amount of principal paid on such loan during such current Plan Year and the
denominator of which is the sum of said numerator plus the principal to be
paid on such loan in all future years during the duration of the term of
such loan (determined without reference to any possible extensions or
renewals thereof). Notwithstanding the foregoing, in the event such loan or
obligation shall be repaid with the proceeds of a subsequent loan, such
repayment shall not operate to release all such Leveraged Company Stock but
rather such release shall be effected pursuant to the foregoing provisions
of this Section on the basis of payments of principal on such substitute
loan.
(ii) To the extent that paragraph (i) is not applicable by its
terms by reason of Treasury Regulation Section 54.4975(b)(8)(ii), or if the
Administrator irrevocably so elects at the time of the first payment on the
loan, then paragraph (i) shall be applied with respect to all payments on
such loan by deeming all references to "principal" therein to be references
to "principal and interest."
(b) The Company shall specify, and advise the Trustee with respect to
(i) the amount (if any) of each Company contribution (together
with the earnings thereon) that is to be applied towards the payment of
Current Obligations,
22
<PAGE> 28
(ii) the amount (if any) of cash dividends on Company Stock held
in the Stock Accounts that is to be applied towards the payment of Current
Obligations, and
(iii) the amount (if any) of cash dividends on Company Stock held
in the Suspense Account that is to be applied towards the payment of
Current Obligations.
(c) As of the end of each Plan Year, the value of all Leveraged
Company Stock (if any) released from the Suspense Account for such Plan Year
(i) upon application of Company contributions (together with the
earnings thereon) or cash dividends on Company Stock held in the Suspense
Account towards payment of Current Obligations shall be allocated among the
Stock Accounts of persons who are Employees at the end of such Plan Year
and who completed at least 1,000 Hours of Service in such Plan Year in
proportion to their Compensation received in such Plan Year while Active
Participants, and
(ii) upon application of cash dividends on Company Stock held in
the Stock Accounts towards payment of Current Obligations shall be
allocated among the Stock Accounts in which the Company Stock on which such
dividends were paid is held in proportion to such dividends.
(d) Cash dividends paid on Company Stock held in Stock Accounts may be
applied towards the payment of any installment contract or loan used to acquire
Leveraged Company Stock; provided, however, that such dividends shall be so
applied only if Leveraged Company Stock with an aggregate fair market value
equal to or greater than the amount of such cash dividends is allocated to
Participant's Stock Accounts; provided, further, that such allocation shall be
made with respect to the Plan Year in which such cash dividends would have been
allocated to Participants' Cash Accounts.
Section 5.8 - Limitations on Allocations to
Certain Participants
Notwithstanding the foregoing provisions of this article:
(a) If more than one-third of the total allocations (derived from
Company contributions which are deductible under Code Section 404(a)(9)) to
Accounts with respect to a Plan Year would otherwise be allocated in the
aggregate to the Accounts of Participants who are Highly Compensated
Employees, then the allocations to such Accounts shall be reduced pro-rata
in amounts sufficient to reduce the amounts
23
<PAGE> 29
otherwise to be allocated to such Accounts to amounts not in
excess of one-third of the total allocations to all Participants
with respect to such Plan Year; and
(b) Any shares of Company Stock which are prevented from
being allocated due to the restriction contained in subsection (a)
shall be allocated for such Plan Year pursuant to Sections 4.2,
4.3 and 5.7 as if the Participants who are Highly Compensated
Employees were not Participants.
Section 5.9 - Diversification
(a) During the first ninety days following each Plan Year in the
Qualified Election Period, a Qualified Participant may elect to have
the following number of shares of Company Stock which are credited to his Stock
Account distributed to him:
(i) during the first five Plan Years of the Qualified
Election Period, an aggregate number of shares not to exceed
twenty-five percent of the number of shares allocated to his Stock
Account, and
(ii) during the last Plan Year of the Qualified Election
Period, the excess of fifty percent of the number of shares
allocated to his Stock Account over the aggregate number of shares
distributed under paragraph (i).
Such elections shall be made on such forms as are prescribed by the
Administrator. A Qualified Participant may revoke or make a new election at
any time during each such ninety day period.
(b) Distributions pursuant to subsection (a) shall be made within
ninety days following the ninety-day period during which the Qualified
Participant makes the election.
(c) (i) For purposes of this Section, a "Qualified
Participant" is a Participant who has attained age fifty-five and
completed ten years of participation in the Plan. A Participant
shall be treated as having completed ten years of participation in
the Plan upon the tenth anniversary of the day such Participant
first became a Participant pursuant to Section 2.1.
(ii) For purposes of this Section, a Participant's "Qualified
Election Period" begins with the first Plan Year in which the
Participant becomes a Qualified Participant and ends with the
sixth Plan Year in which the Participant becomes a Qualified
Participant.
24
<PAGE> 30
(d) Notwithstanding the foregoing provisions of this Section, no Qualified
Participant shall make an election pursuant to subsection (a) if the value of
his Accounts is $500 or less.
ARTICLE VI
VALUATION OF THE TRUST FUND AND ACCOUNTS
Section 6.1 - Valuation of Company Stock
(a) Subject to the special valuation rules set forth in subsections (b)
and (c), Company Stock contributed by the Company to the Trust Fund initially
shall be valued at its fair market value as of the date of contribution. Any
Company Stock acquired by the Trust Fund with cash shall be initially valued at
the purchase price paid by the Trust. Thereafter, such Company Stock shall be
valued at its fair market value as of the end of each Plan Year; provided,
however, that Company Stock shall be valued on each day on which such Company
Stock is publicly traded on a stock exchange or NASDAQ (or any successor
quotation system).
(b) In the case of Leveraged Company Stock, the following special
valuation rules shall apply:
(i) For purposes of valuing such Leveraged Company Stock in
any transaction between the Plan and any "disqualified person" as
that term is defined in Code Section 4975(e)(2), fair market value
shall be determined in good faith by the Administrator in
accordance with Section 3(18) of ERISA.
(ii) For purposes of a Participant's exercise of his put
option rights (if applicable) under Article XIV, such Leveraged
Company Stock shall be valued as of the end of the most recent
Plan Year.
(c) Notwithstanding the foregoing provisions, in all cases the valuation
provisions of this Section, including the selection of a valuation date for any
purpose under this Plan, shall be interpreted and applied in a manner
consistent with the applicable requirements under Code Sections 409 and
4975(e)(7), the Treasury Regulations issued thereunder, and any related or
successor statutes or regulations, that must be satisfied in order to qualify
for the prohibited transaction exemption under Code Section 4975(d)(3). In
this connection, all valuations of Company Stock contributed to or acquired by
the Plan which at the time of such valuation is not readily tradable on an
established securities market within the meaning of Code Section 401(a)(28)
shall be made by an independent appraiser (within the meaning of Code Section
170(a)(1)), whose name shall be reported to the Internal Revenue Service.
Section 6.2 - Valuation of Plan Assets
25
<PAGE> 31
Other than Company Stock
As of the end of the Plan Year, the Administrator shall determine the fair
market value of each asset in the Trust Fund other than Company Stock in
compliance with the principles of Section 3(26) of ERISA and regulations issued
pursuant thereto, based upon information reasonably available to it including
data from, but not limited to, newspapers and financial publications of general
circulation, statistical and valuation services, records of securities
exchanges, appraisals by qualified persons, transactions and bona fide offers
in assets of the type in question and other information customarily used in the
valuation of property for purposes of the Code. With respect to securities
other than Company Stock for which there is a generally recognized market, the
published selling prices on or nearest to such valuation date shall establish
the fair market value of such security. Fair market value so determined shall
be conclusive for all purposes of the Plan and Trust.
Section 6.3 - Allocation of Values for Cash Accounts
The difference between the total value of the assets of the Trust Fund not
invested in Company Stock, as determined under Section 6.2, and the total of
the Cash Accounts, as determined before allocation of any forfeitures or
Company contributions under Articles IV and V for the Plan Year, shall be
allocated by the Administrator among the Cash Accounts (considering unallocated
forfeitures from Cash Accounts as a Cash Account for this sole purpose) in
proportion to their respective stated values as of such valuation date;
provided, however, that gains and losses shall not be allocated with respect to
amounts being held in suspense under Section 16.4(b).
Section 6.4 - Applicability of Account Values
The value of an Account, as determined as of a given date under this
Article, plus any amounts subsequently credited thereto under Sections 4.2,
4.3, 5.3, 5.4, 5.5, 5.7, 10.2(b)(iii), 11.4, 13.8 and 16.4 and less any amounts
transferred to suspense under Section 16.4(b), shall remain the
value thereof for all purposes of the Plan and Trust until revalued hereunder.
26
<PAGE> 32
ARTICLE VII
VESTING OF INTERESTS
Section 7.1 - Vesting of Accounts
Except as provided in Section 7.2, the Vested portion of a Participant's
Accounts shall be the percentage of such Accounts shown on the following table:
<TABLE>
<CAPTION>
Years of Vesting Vested
Service Percentage
-------------------------- ----------
<S> <C>
less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 (or more) 100%
</TABLE>
Section 7.2 - Additional Vesting of Accounts
The interest of a Participant in his Accounts shall become fully Vested
upon the earliest to occur of
(a) his death,
(b) the later of his sixty-fifth birthday or the fifth
anniversary of the date he commences participation in the Plan,
(c) his Disability Retirement Date, or
(d) the termination or discontinuation of the Plan under
Section 15.1,
if he is then an affected Employee or employed by a Company Affiliate.
ARTICLE VIII
EMPLOYMENT AFTER NORMAL RETIREMENT DATE
Section 8.1 - Continuation of Employment
(a) A Participant may, subject to subsection (b) and Section 16.3, remain
in the employ of the Company or a Company Affiliate after attaining his Normal
Retirement Date.
(b) Notwithstanding subsection (a), the Company reserves the right to
require a Participant to retire in accordance with Section 12(c) of the Age
Discrimination in Employment Act of 1967, as amended and applicable state law.
27
<PAGE> 33
Section 8.2 - Continuation of Participation
A Participant retained in the employ of the Company after his Normal
Retirement Date under Section 8.1 shall continue as an Active Participant
herein.
Section 8.3 - Mandatory In-Service Distributions
A Participant shall receive or commence the receipt of the entire amount
credited to his Accounts in accordance with Section 9.3(a), (b), (c), (d) and
(e) (ii) on the April 1 following the end of the calendar year in which he
attains age seventy and one half, except as provided in Section 9.3(f).
ARTICLE IX
BENEFITS UPON RETIREMENT
Section 9.1 - Normal or Disability Retirement
Subject to the provisions of Section 8.1, a Participant shall retire upon
his Normal or Disability Retirement Date.
Section 9.2 - Rights Upon Normal or Disability
Retirement
Upon a Participant's Normal or Disability Retirement, he shall be entitled
to receive the entire amount credited to his Accounts in accordance with
Section 9.3.
Section 9.3 - Distribution of Accounts
(a) Subject to subsection (c), if the entire amount credited to a
Participant's Accounts does not exceed $3,500 (and did not exceed such amount
at the time of a prior distribution under Sections 5.9 and 8.3), such
Participant shall receive such amount in one lump sum distribution of cash from
his Cash Account and whole shares of Company Stock from his Stock Account
(except that the equivalent of any fractional share shall be distributed in
cash at fair market value as most recently determined under Article VI).
(b) Subject to subsection (c), if the entire amount credited to a
Participant's Accounts exceeds $3,500 (or exceeded such amount at the time of a
prior distribution under Sections 5.9 and 8.3), such Participant may elect to
receive such amount under one of the following options:
(i) Payment of such amount in one lump sum distribution of
cash from his Cash Account and whole shares of Company Stock from
his Stock Account (except that the equivalent of any fractional
share shall be distributed in cash at fair market value as most
recently determined under Article VI);
28
<PAGE> 34
(ii) Payment of such amount in cash in one lump sum; or
(iii) Payment of such amount in cash directly from the Trust
Fund (as adjusted for gains and losses), in uniform annual or more
frequent installments of at least $100 (as to which the
Participant (or his Spouse, if applicable) may elect whether the
recalculation rule of Code Section 401(a)(9)(D) shall apply and
provided, however, that the first installment may be larger than
the remaining installments) to such Participant over a period not
longer than the joint and last survivor expectancy of him and his
Spouse, if any, reasonably determined from the expected return
multiples prescribed in Treas. Reg. Section 1.72-9, or, if he is
not married, over a period not longer than the lesser of
a. the joint and last survivor expectancy of him
and his Beneficiary, reasonably determined from the
expected return multiples prescribed in Treas. Reg.
Section 1.72-9, or
b. the period determined under Proposed Treas.
Reg. Section 1.401(a)(9)-2 A-4 which satisfies the
minimum distribution incidental benefit requirement of
Code Section 401(a)(9)(G),
provided, however, if such Participant fails to make such an election, his
Accounts shall be distributed as provided in paragraph (i).
(c) At any time before distribution under subsection (a) or (b) is
made, the Participant may elect in accordance with the Rules of the Plan to
receive the amount credited to his Cash Account in whole shares of Company
Stock (and to the extent of any fractional share, cash) valued as determined
under Article VI.
(d) At any time before a distribution under subsection (b) is made
or commences, the Participant may elect to defer such distribution until such
later date as he shall then or subsequently specify; provided, however,
(i) such date shall be no later than the date referred to in
subsection (e)(ii), and
(ii) if no such date is specified, such amount shall be
distributed in one lump sum on the date specified in subsection (e)(ii).
(e) Distribution under subsection (a) or (b) shall be made or
commence not later than the earliest to occur of
29
<PAGE> 35
(i) sixty days after the end of the Plan Year in which such
Normal Retirement or Disability Retirement occurs, or
(ii) the April 1 following the calendar year in which he
attains age seventy and one half,
except as provided in subsection (d).
Section 9.4 - Determination of Value of Accounts
(a) If a distribution is made under Section 9.3(e), the value of the
Participant's Accounts shall be determined as of the valuation dates under
Sections 6.1 and 6.2 coincident with or next following the Participant's
retirement; provided, however, if the distribution is made under Section
9.3(e)(ii), the value of the Participant's Accounts shall be determined as of
the valuation dates under Sections 6.1 and 6.2 which precede the date specified
in Section 9.3(e)(ii) by a period of not less than 30 days or such longer
period as is administratively necessary (except that the value of publicly
traded Company Stock shall be determined as of the date which is closest to the
date specified in Section 9.3(e)(ii) as is administratively necessary).
(b) If a distribution is made under Section 9.3(d), the value of the
Participant's Accounts shall be determined as of the valuation dates under
Sections 6.1 and 6.2 coincident with or next following the date elected by him
under Section 9.3(d); provided, however, if the distribution is made under
Section 9.3(d)(i), the value of the Participant's Accounts shall be determined
as of the valuation dates under Sections 6.1 and 6.2 which precede the date
specified in Section 9.3(d)(i) by a period of not less than 30 days or such
longer period as is administratively necessary (except that the value of
publicly traded Company Stock shall be determined as of the date which is
closest to the date specified in Section 9.3(d)(i) as is administratively
necessary).
ARTICLE X
BENEFITS UPON DEATH
Section 10.1 - Designation of Beneficiary
(a) Each Participant or former Participant shall have the right to
designate, revoke and redesignate Beneficiaries hereunder and to direct payment
of the Vested amount credited to his Accounts to such Beneficiaries.
(b) Designation, revocation and redesignation of Beneficiaries must be
made in writing in accordance with the Rules of the Plan on a form provided by
the Administrator and shall be effective upon delivery to the Administrator.
30
<PAGE> 36
(c) A married Participant may not designate any Beneficiary other
than his Spouse without obtaining Spousal Consent thereto.
Section 10.2 - Distribution on Death
(a) Upon the death of a Participant or former Participant, the
Vested amount credited to his Accounts (as determined under Section 7.2) shall
be paid in one lump sum distribution of cash from his Cash Account and whole
shares of Company Stock from his Stock Account (except that the equivalent of
any fractional share shall be distributed in cash at fair market value as most
recent by determined under Article VI); provided, however, that the person or
persons designated under subsection (b) may elect in accordance with the Rules
of the Plan to receive the amount credited to his Cash Account in whole shares
of Company Stock (and to the extent of any fractional share, cash) valued as
determined under Article VI.
(b) Distribution under subsection (a) shall be made not later than
ninety days following the Participant's death (or such longer reasonable
period as permitted under Treas. Reg. Section 1.401(a)-20 A-3(b)(1)) to his
then Surviving Spouse, if any, except to the extent, if any, to which such
Surviving Spouse has consented under Section 10.1(c) to the designation of other
beneficiaries and otherwise, to the person or persons of highest priority who
survive him by at least thirty days determined as follows:
(i) First, to his then surviving highest priority Beneficiary
or Beneficiaries, if any.
(ii) Second, to his then surviving heirs at law, if any, as
determined in the reasonable judgment of the Administrator under
the laws governing succession to personal property of the last
jurisdiction in which the Participant was a resident.
(iii) Third, to the Plan to be applied to reduce the
Company's contribution under Section 3.1.
(c) Members of a class shall cease to be entitled to benefits upon the
earlier of the Administrator's determination that no members of such class
exist or the Administrator's failure to locate any members of such class, after
making reasonable efforts to do so, within one year after the members of that
class became entitled to benefits hereunder had members existed.
(d) If payment has commenced prior to the Participant's death,
payment of the Participant's Accounts shall be made in such manner that the
remaining interest is distributed at least as rapidly as under the method being
used as of the date of the Participant's death.
31
<PAGE> 37
Section 10.3 - Determination of Value of Accounts
For purposes of this Article, the value of a Participant's Accounts shall
be that determined as of the valuation dates under Sections 6.1 and 6.2 next
preceding the date of the death of the Participant (except that the value of
publicly traded Company Stock shall be determined as of the date of the
Participant's death).
ARTICLE XI
BENEFITS UPON RESIGNATION OR DISCHARGE
Section 11.1 - Distributions on Resignation or Discharge
(a) Subject to subsection (b), if a Participant has a Separation
from the Service due to resignation or discharge,
(i) he shall, if the Vested amount credited to his Accounts
does not exceed $3,500 (and did not exceed such amount at the time
of a prior distribution under Section 5.9), receive such amount in
one lump sum distribution in cash from his Cash Account and whole
shares of Company Stock from his Stock Account (except that the
equivalent of any fractional share shall be distributed in cash at
fair market value as most recently determined under Article VI),
with such distribution to be made not later than six months after the
end of the Plan Year in which such Separation from the Service occurs,
or, if earlier, within sixty days after the end of the Plan Year
in which his sixty-fifth birthday occurs, or
(ii) he shall, if the Vested amount credited to his Accounts
exceeds $3,500 (or exceeded such amount at the time of a prior
distribution under Section 5.9), receive such amount in one lump
sum distribution in cash from his Cash Account and whole shares of
Company Stock from his Stock Account (except that the equivalent
of any fractional share shall be distributed in cash at fair
market value as most recently determined under Article VI), with
such distribution to be made on such date as he shall at any time
elect in writing in accordance with Code Section 411(a)(11) but
not earlier than the earliest date described in subsection (a) and
not later than the April 1 following the calendar year of his
attainment of age seventy and one-half.
(b) At any time before distribution under subsection (a) is made, the
Participant may elect in accordance with the Rules of the Plan to receive the
amount credited to his Cash Account in whole shares of Company Stock (and to
the extent of
32
<PAGE> 38
any fractional share, cash) valued as determined under Article
VI.
Section 11.2 - Determination of Value of Accounts
(a) If a distribution is made under Section 11.1(a)(i), the value of the
Participant's Accounts shall be determined as of the valuation dates under
Sections 6.1 and 6.2 coincident with or next following the Participant's
Separation from the Service.
(b) If a distribution is made under Section 11.1(a)(ii), the value of the
Participant's Accounts shall be determined as of the valuation dates under
Sections 6.1 and 6.2 coincident with or next following the date elected by him
under Section 11.1(a)(ii); provided, however, if the date elected by the
Participant is the April 1 following the calendar year of his attainment of age
seventy and one half, the value of his Accounts shall be determined as of the
valuation dates under Sections 6.1 and 6.2 which precede such date by a period
of not less than 30 days or such longer period as is administratively necessary
(except that the value of publicly traded Company Stock shall be determined as
of the date which is closest to the April 1 following the calendar year of his
attainment of age seventy and one half as is administratively necessary).
Section 11.3 - Forfeitures
(a) If a Participant has a Separation from the Service due to resignation
or discharge, the portion of his Accounts which is not Vested shall be
forfeited upon the earlier of his receipt of his distribution under this
Article or his completion of five consecutive Break in Service Years. Pending
application under Section 4.3, forfeitures shall be held in suspense and shall
not be commingled with amounts held in suspense under Section 16.4(b).
(b) In the case of a forfeiture by a Participant whose Accounts are
partially Vested, such forfeiture shall be applied first to his Cash Account,
if any, and then, as necessary, to his Stock Account which was not Leveraged
Company Stock, and then to Company Stock which was Leveraged Company Stock.
(c) If a Participant has a Separation from the Service prior to becoming
Vested in any portion of his Accounts under Section 7.1, a distribution shall
be deemed to have occurred upon such Separation from the Service for purposes
of subsection (a).
Section 11.4 - Restoration of Forfeitures
If a Participant whose Accounts are not then fully Vested
(a) has a Separation from the Service,
33
<PAGE> 39
(b) suffers a forfeiture of the portions of such Accounts
which are not Vested,
(c) again becomes an Employee or employed by a Company
Affiliate before he has five consecutive Break in Service Years,
and
(d) repays to the Plan the full amount, if any, distributed
to him from such Accounts before the end of five consecutive Break
in Service Years commencing after his distribution, or, if
earlier, the fifth anniversary of his reemployment,
then the amount forfeited under Section 11.3 by such Participant shall be
restored to his Accounts, applying forfeitures pending reallocation and Company
contributions, in that order, as necessary.
ARTICLE XII
TOP-HEAVY PROVISIONS
Section 12.1 - Top-Heavy Determination
(a) Solely in the event that this Plan ever becomes Top Heavy, as defined
herein, the provisions of this Article shall apply.
(b) Solely for the purposes of this Article, the following definitions
shall be used:
(i) "Aggregation Group" shall mean
a. each plan of the Company or a Company Affiliate
in which a Key Employee is a Participant (including
any such plan which has been terminated if such plan
was maintained by the Company or Company Affiliate
within the last five years ending on the Determination
Date for the Plan Year in question), and
b. each other plan of the Company or a Company
Affiliate which enables any plan described in
paragraph a to meet the requirements of Code Section
401(a)(4) or 410.
(ii) "Determination Date" shall mean, with respect to any
Plan Year, the last day of the preceding Plan Year, or in the case
of the first Plan Year, the last day of such Plan Year.
34
<PAGE> 40
(iii) "Controlled Group Employee" shall mean any person who
renders services to the Company or a Company Affiliate in the
status of an employee as the term is defined in Code Section
3121(d).
(iv) "Key Employee" shall mean a Controlled Group Employee, a
former Controlled Group Employee or the Beneficiary of a former
Controlled Group Employee, if, in the Plan Year containing the
Determination Date or in any of the four preceding Plan Years,
such Controlled Group Employee or former Controlled Group Employee
is or was
a. an officer of the Company or a Company
Affiliate whose Statutory Compensation for the Plan
Year in question exceeds fifty percent of the amount
in effect under Code Section 415(b)(1)(A) (not more
than fifty Controlled Group Employees or, if
less, the greater of three Controlled Group Employees
or ten percent of the Controlled Group Employees shall
be treated as officers),
b. one of the ten Controlled Group Employees
owning (or considered as owning within the meaning of
Code Section 318) both the largest interest in the
Company or a Company Affiliate and more than one-half
of one percent interest therein and whose Statutory
Compensation for the Plan Year in question equals or
exceeds the amount in effect under Code Section
415(c)(1)(A); provided, however, if two Controlled
Group Employees have the same interest in the Company
or a Company Affiliate, the Controlled Group Employee
with the greater Statutory Compensation for such Plan
Year shall be treated as having the larger interest,
c. a five percent owner (within the meaning of
Code Section 416(i)(1)(B) and (C)) of the Company or a
Company Affiliate or a one percent owner (within the
meaning of Code Section 416(i)(1)(B) and (C)) of the
Company or a Company Affiliate whose Statutory
Compensation for the Plan Year in question exceeds
$150,000.
(v) "Non-Key Employee" shall mean any Controlled Group
Employee who is not a Key Employee.
35
<PAGE> 41
(vi) The Plan shall be Top Heavy if, as of any Determination
Date, the aggregate of the Accounts of Key Employees under all
plans in the Aggregation Group (or under this Plan and such other
plans as the Company elects to take into account under Code
Section 416(g)(2)(A)(ii)) exceeds sixty percent of the aggregate
of the Accounts for all Key Employees and Non-Key Employees. In
making this calculation as of a Determination Date,
a. each Account balance as of the most recent
valuation date occurring within the Plan Year which
includes the Determination Date shall be determined,
b. an adjustment for contributions due as of the
Determination Date shall be determined,
c. the Account balance of any Controlled Group
Employee or former Controlled Group Employee shall be
increased by the aggregate distributions made during
the five-year period ending on the Determination Date
with respect to such Controlled Group Employee or
former Controlled Group Employee,
d. the Account balance of
1. any Non-Key Employee who was a Key
Employee for any prior Plan Year, and
2. any former Controlled Group
Employee who performed no services for the
Company or a Company Affiliate during the
five-year period ending on the
Determination Date
shall be ignored, and
e. if there have been any rollovers to or from any
Account, the balance of such Account shall be
adjusted, as required by Code Section 416(g)(4)(A).
Notwithstanding the foregoing, this Plan shall be Top Heavy if, as
of any Determination Date, it is required by Code Section 416(g)
to be included in an Aggregation Group which is determined to be a
Top Heavy Group.
36
<PAGE> 42
(vii) "Top Heavy Group" shall mean any Aggregation Group if,
as of the Determination Date, the sum of
a. the present value of the cumulative accrued
benefits for all Key Employees under all defined
benefit plans in such Aggregation Group, and
b. the aggregate of the accounts of all Key
Employees under all defined contribution plans in such
Aggregation Group
exceeds sixty percent of a similar sum determined for all Key
Employees and Non-Key Employees.
(viii) "Statutory Compensation" shall have the meaning set
forth in Section 1.25(d).
Section 12.2 - Minimum Benefits
(a) For any Plan Year in which the Plan is Top-Heavy, the total
allocation to the Accounts of any Employee who is a Non-Key Employee at
the end of such Plan Year and is
(i) entitled to an allocation to such Account under Sections
4.2 and 4.3, or
(ii) not entitled to an allocation under such Sections solely
because he failed to complete one thousand Hours of Service during
such Plan Year,
shall not be less than that determined under subsection (b).
(b) The allocation determined under this subsection shall be a
percentage of the Statutory Compensation of such Non-Key Employee which is
not less than the lesser of
(i) three percent, or
(ii) that percentage reflecting the ratio of
a. the allocations under Sections 4.2 and 4.3 to
b. Statutory Compensation (not in excess of the
limit set forth in Code Section 401(a)(17) as adjusted
for the cost of living),
for the Key Employee with respect to whom such ratio is highest for such Plan
Year.
37
<PAGE> 43
(c) An Employee described in subsection (a)(ii) shall be treated as a
Participant hereunder.
Section 12.3 - Limitation on Benefits
For any Plan Year in which the Plan is Top-Heavy,
(a) the denominator of both the defined benefit plan fraction
and the defined contribution plan fraction set forth in Code
Sections 415(e)(2)(B) and 415(e)(3)(B), respectively, shall be adjusted
by substituting 1.0 for 1.25, and
(b) the numerator of the "transition fraction" described in
Code Section 415(e)(6)(B)(i) shall be calculated by substituting
$41,500 for $51,875,
but only to the extent required by Code Section 416(h).
ARTICLE XIII
ADMINISTRATIVE PROVISIONS
Section 13.1 - Duties and Powers of the Administrator
(a) The Administrator shall administer the Plan in accordance with the
Plan and ERISA and shall have full discretionary power and authority:
(i) to engage actuaries, attorneys, accountants, appraisers,
brokers, consultants, administrators, physicians or other firms or
persons and (with its officers, directors and Employees) to rely
upon the reports, advice, opinions or valuations of any such
persons except as required by law;
(ii) to adopt Rules of the Plan that are not inconsistent
with the Plan or applicable law and to amend or revoke any such
rules;
(iii) to construe the Plan and the Rules of the Plan;
(iv) to determine questions of eligibility and vesting of
Participants;
(v) to determine entitlement to allocations of contributions
and forfeitures and to distributions of Participants, former
Participants, Beneficiaries, and all other persons;
38
<PAGE> 44
(vi) to make findings of fact as necessary to make any
determinations and decisions in the exercise of such discretionary
power and authority;
(vii) to appoint claims and review officials to conduct
claims procedures as provided in Section 13.6; and
(viii) to delegate any power or duty to any firm or person
engaged under paragraph (i) or to any other person or persons.
(b) Every finding, decision, and determination made by the Administrator
shall, to the full extent permitted by law, be final and binding upon all
parties, except to the extent found by a court of competent jurisdiction to
constitute an abuse of discretion.
Section 13.2 - Expenses of Administration
(a) The Company shall indemnify and hold each Employee functioning under
Section 13.1(a) or person serving on an investment committee established in
accordance with the Trust Agreement harmless from all claims, liabilities and
costs (including reasonable attorneys' fees) arising out of the good faith
performance of his functions hereunder.
(b) The Company may obtain and provide for any such Employee and
investment committee member described in subsection (a), at the Company's
expense, liability insurance against liabilities imposed on him by law.
(c) The Plan shall pay reasonable administrative expenses of the Plan,
including but not limited to, expenses of any such Employee and investment
committee member described in subsection (a) and legal fees incurred for
services related to the administration of the Plan (including the amending of
the Plan); provided, however, that the Company may elect, in its sole and
absolute discretion, to pay such administrative expenses from its own assets.
Section 13.3 - Payments
In the event any amount becomes payable under the Plan to a minor or a
person who, in the sole judgment of the Administrator, is considered by reason
of physical or mental condition to be unable to give a valid receipt therefor,
the Administrator may direct that such payment be made to any person found by
the Administrator, in its sole judgment, to have assumed the care of such minor
or other person. Any payment made pursuant to such determination shall
constitute a full release and discharge of the Trustee, the Administrator and
the Company and their officers, directors, employees, owners, agents and
representatives.
39
<PAGE> 45
Section 13.4 - Statement to Participants
Within one hundred eighty days after the end of each Plan Year, the
Administrator shall furnish to each Participant a statement setting forth
the value and Vested percentage of his Accounts and such other information as
the Administrator shall deem advisable to furnish.
Section 13.5 - Inspection of Records
Copies of the Plan and any other documents and records which a Participant
is entitled by law to inspect shall be open to inspection by such Participant
or such Participant's duly authorized representatives at any reasonable
business hour at the principal office of the Company, any Company work site at
which at least fifty Employees regularly perform services and such other
locations as the Secretary of Labor may require.
Section 13.6 - Claims Procedure
(a) A claim by a Participant, former Participant, Beneficiary or any
other person shall be presented to the claims official appointed by the
Administrator in writing within the maximum time permitted by law or under the
regulations promulgated by the Secretary of Labor or his delegate pertaining to
claims procedures.
(b) The claims official shall, within a reasonable time, consider the
claim and shall issue his determination thereon in writing.
(c) If the claim is granted, the appropriate distribution or payment
shall be made from the Trust Fund or by the Company.
(d) If the claim is wholly or partially denied, the claims official
shall, within ninety days (or such longer period as may be reasonably
necessary), provide the claimant with written notice of such denial, setting
forth, in a manner calculated to be understood by the claimant
(i) the specific reason or reasons for such denial,
(ii) specific references to pertinent Plan provisions on
which the denial is based,
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary, and
(iv) an explanation of the Plan's claim review procedure.
40
<PAGE> 46
(e) The Administrator shall provide each claimant with a reasonable
opportunity to appeal the claims official's denial of a claim to a review
official (appointed by the Administrator in writing) for a full and fair
review. The claimant or his duly authorized representative
(i) may request a review upon written application to the
review official (which shall be filed with it),
(ii) may review pertinent documents, and
(iii) may submit issues and comments in writing.
(f) The review official may establish such time limits within which a
claimant may request review of a denied claim as are reasonable in relation to
the nature of the benefit which is the subject of the claim and to other
attendant circumstances but which, in no event, shall be less than sixty days
after receipt by the claimant of written notice of denial of his claim.
(g) The decision by the review official upon review of a claim shall be
made not later than sixty days after his receipt of the request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later than
one hundred twenty days after receipt of such request for review.
(h) The decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be understood by the
claimant with specific references to the pertinent Plan provisions on which the
decision is based.
(i) The claims official and the review official shall have full
discretionary power and authority to construe the Plan and the Rules of the
Plan, to determine questions of eligibility, vesting and entitlements and to
make findings of fact as under Section 13.1 and, to the extent permitted by
law, the decision of the claims official (if no review is properly requested)
or the decision of the review official on review, as the case may be, shall be
final and binding on all parties except to the extent found by a court of
competent jurisdiction to constitute an abuse of discretion.
Section 13.7 - Conflicting Claims
If the Administrator is confronted with conflicting claims concerning a
Participant's Accounts, the Administrator may interplead the claimants in an
action at law, or in an arbitration conducted in accordance with the
rules of the American Arbitration Association, as the Administrator shall elect
in its sole discretion, and in either case, the attorneys'
41
<PAGE> 47
fees, expenses and costs reasonably incurred by the Administrator in such
proceeding shall be paid from the Participant's Accounts.
Section 13.8 - Effect of Delay or Failure to Ascertain
Amount Distributable or to Locate Distributee
(a) If an amount payable under Article IX, X or XI cannot be ascertained
or the person to whom it is payable has not been ascertained or located within
the stated time limits and reasonable efforts to do so have been made, then
distribution shall be made not later than sixty days after such amount is
determined or such person is ascertained or located, or as prescribed in
subsection (b).
(b) If, within one year after a Participant has a Separation from the
Service, the Administrator, in the exercise of due diligence, has failed to
locate him (or if such Separation from the Service is by reason of his death,
has failed to locate the person entitled to his Vested Accounts under Section
10.2), his entire distributable interest in the Plan shall be forfeited and
applied to reduce the Company contribution under Section 4.2; provided,
however, that if the Participant (or in the case of his death, the person
entitled thereto under Section 10.2) makes proper claim therefor, the amount so
forfeited shall be restored to the Participant's Account or Accounts, as the
case may be, applying forfeitures pending application, Company contributions
and unallocated earnings and gains of the Trust Fund, in that order, as
necessary.
Section 13.9 - Service of Process
The Secretary of the Company is hereby designated as agent of the Plan for
the service of legal process.
Section 13.10 - Limitations Upon Powers of the Administrator
The Plan shall not be operated so as to discriminate in favor of Highly
Compensated Employees. The Plan shall be uniformly and consistently
interpreted and applied with regard to all Participants in similar
circumstances. The Plan shall be administered, interpreted and applied fairly
and equitably and in accordance with the specified purposes of the Plan.
Section 13.11 - Effect of Administrator Action
Except as provided in Section 13.6, all actions taken and all
determinations made by the Administrator in good faith shall be final
and binding upon all Participants, the Trustee and any person interested in the
Plan or Trust Fund.
42
<PAGE> 48
Section 13.12 - Assignments, etc., Prohibited;
Distributions Pursuant to
Qualified Domestic Relations Orders
(a) Except as provided in subsection (b), no part of the Trust Fund shall
be liable for the debts, contracts or engagements of any Participant, his
Beneficiaries or successors in interest, or be taken in execution by levy,
attachment or garnishment or by any other legal or equitable proceeding, while
in the hands of the Trustee, nor shall any such person have any right to
alienate, anticipate, commute, pledge, encumber or assign any benefits or
payments hereunder in any manner whatsoever, except to designate a Beneficiary
as provided in the Plan.
(b) Notwithstanding subsection (a) or any other provision of the Plan to
the contrary, upon receipt by the Administrator of a domestic relations order,
as defined in Code Section 414(p), which, but for the time of required payment
to the alternate payee, would be a qualified domestic relations order as
defined in Code Section 414(p), the amount awarded to the alternate payee shall
promptly be paid in the manner specified in such order; provided, however, that
no such distribution shall be made prior to the Participant's Separation from
the Service if such distribution could adversely affect the qualified status of
the Plan.
Section 13.13 - Correction of Administrative Error;
Special Contribution
Notwithstanding anything to the contrary herein contained, if the
Administrator determines that an error has been made in crediting contributions
or earnings to the Accounts of any Participant, the Company may make a special
contribution to the Accounts of said Participant and the Administrator may take
any other administrative action which it deems necessary or appropriate to
correct such error.
Section 13.14 - Direct Rollovers
Notwithstanding any provision of the Plan to the contrary, a Distributee
may elect, at the time and in the manner prescribed by the Administrator under
the Rules of the Plan, to have all or any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan designated by the
Distributee in a Direct Rollover.
43
<PAGE> 49
ARTICLE XIV
SALE OF COMPANY STOCK
Section 14.1 - Option to Sell Shares of Company Stock
Solely in the event that a Participant receives a distribution consisting
in whole or in part of Company Stock that at the time of distribution thereof
is not Freely Tradeable Stock, then such distributed Company Stock shall be
made subject to a put option in the hands of a Qualified Holder, with such put
option to be subject to the following provisions:
(a) During the sixty day period following any distribution of
such Company Stock, a Qualified Holder shall have the right to
require the Company to purchase all or any portion of said
distributed Company Stock held by said Qualified Holder. A
Qualified Holder shall exercise such right by giving written
notice, within the aforesaid sixty day period, to the Company of
the number of shares of distributed Company Stock that such
Qualified Holder intends to sell to the Company. The purchase
price to be paid for any such Company Stock shall be its fair
market value determined as of the most recent valuation in
accordance with the valuation rules specified in Section 6.1.
(b) If a Qualified Holder shall fail to exercise his put
option right under subsection (a), he shall have the right to
exercise such option in the first sixty day period of the next
following Plan Year. If a Qualified Holder shall fail to exercise
his put option in the next succeeding Plan Year, such option right
shall expire and the Qualified Holder shall have no further right
to require the Company to purchase such distributed Company Stock.
(c) In the application of subsections (a) and (b), the period
during which a put option is exercisable does not include any time
when a distributee is unable to exercise it because the party
bound by the put option is prohibited from honoring it by
applicable federal or state law.
(d) In the event that a Qualified Holder shall exercise a put
option under this Section, then the Company shall have the option
of paying the purchase price of the Option Stock under either of
the following methods:
(i) A lump sum payment of the purchase price
within ninety days after the date upon which such put option is
exercised (the "Exercise Date") or
44
<PAGE> 50
(ii) A series of six or less equal installment
payments, with the first such payment to be made
within thirty days after the Exercise Date and the
five or correspondingly less remaining payments to be
made on the five or less anniversary dates of the
Exercise Date, so that the full amount shall be paid
as of the fifth or earlier anniversary of such
Exercise Date. If the Company elects to pay the
purchase price of the Option Stock under the
installment method provided in this paragraph (ii),
then the Company shall, within 30 days after the
Exercise Date, give the Qualified Holder who is
exercising the put option the Company's promissory
note for the full unpaid balance of the option price.
Such note shall, at a minimum, state a reasonable rate
of interest and provide that the full amount of such
note shall accelerate and become due immediately in
the event that the Company defaults in the payment of
a scheduled installment payment.
(e) The protections and rights provided in this Section are
nonterminable and continue to exist notwithstanding the repayment
of any loan, the proceeds of which are used to purchase Leveraged
Company Stock and notwithstanding the cessation of the Plan's
status as an employee stock ownership plan.
(f) The foregoing put options under subsections (a) and (b)
shall be effective solely against the Company and shall not
obligate the Plan in any manner, provided, however, with the
Company's consent the Plan may elect to purchase any Company Stock
that otherwise must be purchased by the Company pursuant to a
Qualified Holder's exercise of any such option.
(g) Except as is expressly provided hereinabove with respect to any
distributed Leveraged Company Stock that is not Freely Tradeable Stock, no
such Leveraged Company Stock shall be subject to a put, call, or other
option, or buy-sell or similar arrangement while held by and when
distributed from the Plan, whether or not at such time the Plan
constitutes an employee stock ownership plan and whether or not the loan
used to acquire such Leveraged Company Stock shall have been repaid.
(h) At the time of distribution of Company Stock that is not
Freely Tradeable Stock to an Employee or Beneficiary, the Company
shall furnish to such Employee or Beneficiary the most recent
annual
45
<PAGE> 51
certificate of value prepared by the Company with respect
to such stock. In addition, the Company shall furnish to such
Participant or Beneficiary a copy of each subsequent annual
certificate of value until the put options provided for in this
Section with respect to such distributed Company Stock shall
expire.
ARTICLE XV
TERMINATION, DISCONTINUANCE, AMENDMENT, MERGER,
ADOPTION OF PLAN
Section 15.1 - Termination of Plan; Discontinuance
of Contributions
(a) The Plan is intended as a permanent program but the Board shall have
the right at any time to declare the Plan terminated completely as to the
Company or as to any division, facility or other operational unit thereof.
Discharge or layoff of Employees of the Company or any unit thereof without
such a declaration shall not result in a termination or partial termination of
the Plan except to the extent required by law. In the event of any termination
or partial termination:
(i) An allocation of amounts being held under Section 16.4(b)
shall be made in accordance with Section 16.4(c).
(ii) For each Participant who is then an affected Employee or
employed by a Company Affiliate with respect to whom the Plan is
terminated or partially terminated, the interest in his Accounts,
including his interest in the forfeitures then held in suspense
under Section 11.3 (which shall be applied under Section 3.1),
shall become fully Vested.
(iii) Notwithstanding the first sentence of Code Section
409(d), the Administrator shall direct the Trustee to liquidate
the necessary portion of the Trust Fund and distribute it, less,
to the extent permitted by law, a proportionate share of the
expenses of termination, to the persons entitled thereto in
proportion to their Accounts.
(iv) Provided that the Company or a Company Affiliate does
not maintain another defined contribution plan other than an
employee stock ownership plan (as defined in Code Section
4975(e)(7)), such distributions shall be made in the manner
prescribed by paragraph 11.1(a)(i), assuming for such purpose that
each person entitled to a distribution under the Plan is a
Participant who has had a Separation from the Service due to
resignation or discharge on the date of termination.
46
<PAGE> 52
(b) The Board shall have the right at any time to discontinue
contributions to the Plan completely as to the Company or as to any division,
facility or other operational unit thereof. Failure of the Company to make one
or more substantial contributions to the Plan for any period of three
consecutive Plan Years in each of which the Company realized substantial
current earnings, as shown on its financial reports, shall automatically become
a complete discontinuance of contributions at the end of the third such
consecutive Plan Year. In the event of complete discontinuance of
contributions to the Plan, the Plan and Trust shall otherwise remain in full
force and effect except that all Accounts shall thereupon become fully Vested.
Section 15.2 - Amendment of Plan
As limited in Section 15.1 of the Plan and Section 7.02 of the Trust
Agreement, complete or partial amendments or modifications to the Plan
(including retroactive amendments to meet governmental requirements or
prerequisites for tax qualification) may be made from time to time by the
Board; provided, however, that no amendment shall decrease the Vested
percentage any Participant has in his Accounts or his accrued benefit.
Section 15.3 - Retroactive Effect of Plan Amendment
(a) No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the Vested percentage of a Participant whose
Separation from the Service preceded the date such amendment became effective
unless and until he again becomes a Participant and additional contributions
are allocated to him.
(b) No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the amount of service credited to any person
for purposes of Plan participation, vesting or any other Plan purpose with
respect to his participation or employment before the date such amendment
became effective.
(c) Except as provided in subsections (a) and (b), all rights under the
Plan shall be determined under the terms of the Plan as in effect at the time
the determination is made.
Section 15.4 - Consolidation or Merger; Adoption
of Plan by Other Companies
(a) In the event of the consolidation or merger of the Company with or
into any other business entity, or the sale by the Company or its owner of its
assets, the successor may continue the Plan by adopting the same by resolution
of its board of directors or agreement of its partners or proprietor and, if
deemed appropriate, by executing a proper supplemental agreement to the Trust
Agreement with the Trustee. If, within ninety days
47
<PAGE> 53
from the effective date of such consolidation, merger or sale of assets, such
new corporation, partnership or proprietorship does not adopt the Plan, the Plan
shall be terminated in accordance with Section 15.1.
(b) The Plan shall not be merged or consolidated with any other plan, nor
shall its assets or liabilities be transferred to any other plan, unless each
Participant in this Plan would have immediately after the merger, consolidation
or transfer (if the plan in question were then terminated) accounts which are
equal to or greater in amount than his corresponding Accounts under this Plan
had the Plan been terminated immediately before the merger, consolidation or
transfer.
(c) Any Company Affiliate may, with the approval of the Board, adopt the
Plan as a whole company or as to any one or more divisions effective as of the
first day of any Plan Year by resolution of its own board of directors or
agreement of its partners. Such Company Affiliate shall give written notice of
such adoption to the Administrator and to the Trustee by its duly authorized
officers.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 - Identification of Fiduciaries
(a) The Administrator, any investment committee and, for the purposes of
Section 16.2(a)(iv), each Participant, shall be named fiduciaries within the
meaning of ERISA and, as permitted or required by law, shall have exclusive
authority and discretion to control and manage the operation and administration
of the Plan within the limits set forth in the Trust Agreement, subject to
proper delegation.
(b) Such named fiduciaries and every person who exercises any
discretionary authority or discretionary control respecting management of the
Trust Fund or Plan, or exercises any authority or control respecting the
management or disposition of the assets of the Trust Fund or Plan, or renders
investment advice for compensation, direct or indirect, with respect to any
moneys or other property of the Trust Fund or Plan or has authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of the Plan, and any person designated by
a named fiduciary to carry out fiduciary responsibilities under the Plan, shall
be a fiduciary and, as such, shall be subject to provisions of the Plan, the
Trust Agreement, ERISA and other applicable laws governing fiduciaries. Any
person may act in more than one fiduciary capacity.
48
<PAGE> 54
Section 16.2 - Allocation of Fiduciary Responsibilities
(a) Fiduciary responsibilities under the Plan are allocated as follows:
(i) The sole power and discretion to manage and control the
Plan's assets including, but not limited to, the power to acquire
and dispose of Plan assets, is allocated to the Trustee, except to
the extent that another fiduciary is appointed in accordance with
the Trust Agreement with the power to control or manage (including
the power to acquire and dispose of) assets of the Plan.
(ii) The sole duties, responsibilities and powers allocated
to the Board shall be those expressly retained under Sections
15.1, 15.2 and 15.4.
(iii) The sole duties, responsibilities and powers allocated
to the Company shall be those expressly retained under the Plan or
the Trust Agreement.
(iv) Each Participant shall be a named fiduciary for purposes
of Section 403(a) of ERISA but solely with respect to the issuance
of instructions to the Trustee
a. to tender or not to tender shares of Company
Stock credited to his Stock Account (and his pro-rata
amount of shares of Company Stock credited to the
Suspense Account) pursuant to Section 1.10 of the
Trust Agreement, and
b. to vote shares of Company Stock credited to his
Stock Account (and his pro-rata amount of shares of
Company Stock credited to the Suspense Account)
pursuant to Section 16.5.
(v) All fiduciary responsibilities not allocated to the
Trustee, the Board, the Company or any investment manager or
investment committee are hereby allocated to the Administrator,
subject to delegation in accordance with Section 13.1(a)(viii).
(b) Fiduciary responsibilities under the Plan (other than the power to
manage or control the Plan's assets) may be reallocated among those fiduciaries
identified as named fiduciaries in Section 16.1 by amending the Plan in the
manner prescribed in Section 15.2, followed by such fiduciaries' acceptance of,
or operation under, such amended Plan.
49
<PAGE> 55
(c) The duties of all fiduciaries under the Plan and Trust Agreement shall
be consistent with the sole purpose of the Plan, which is to acquire and hold
Company Stock for ultimate distribution to Participants or their Beneficiaries.
Section 16.3 - Limitation on Rights of Employees
The Plan is strictly a voluntary undertaking on the part of the Company and
shall not constitute a contract between the Company and any Employee, or
consideration for, or an inducement or condition of, the employment of an
Employee. Except as otherwise required by law, nothing contained in the Plan
shall give any Employee the right to be retained in the service of the Company
or to interfere with or restrict the right of the Company, which is hereby
expressly reserved, to discharge or retire any Employee at any time, without
notice and with or without cause. Except as otherwise required by law,
inclusion under the Plan will not give any Employee any right or claim to any
benefit hereunder except to the extent such right has specifically become fixed
under the terms of the Plan and there are funds available therefor in the hands
of the Trustee. The doctrine of substantial performance shall have no
application to Employees or Participants. Each condition and provision,
including numerical items, has been carefully considered and constitutes the
minimum limit on performance which will give rise to the applicable right.
Section 16.4 - Limitation on Annual Additions; Treatment of Otherwise Excessive
Allocations
(a) In any Plan Year (which shall be the Plan's "limitation year" within
the meaning of Treas. Reg. Section 1.415-2(b)), the Annual Addition of a
Participant shall not exceed the least of
(i) twenty-five percent of such Participant's Statutory Compensation
for such Plan Year,
(ii) $30,000.00 (or, if greater, one-quarter of the dollar limitation
in effect under Code Section 415(b)(1)(A)), or
(iii) the maximum allowed under Code Section 415 (utilizing the
adjustments to the "defined contribution fraction" allowed by Section
1106(i)(4) of the Tax Reform Act of 1986 and Code Section 415(e)).
(b) If the Annual Addition of a Participant would exceed the limits of
subsection (a) as a result of an allocation of forfeitures, a reasonable error
in estimating a Participant's Statutory Compensation or under other limited
facts and circumstances found justifiable by the Commissioner of Internal
Revenue, it shall be reduced until it comes within such limits.
50
<PAGE> 56
Such reduction shall be accomplished by debiting the necessary amount from
(i) his allocation of Company contributions for such Plan Year to his
Accounts, and
(ii) his allocation of forfeitures for such Plan Year
in such order. Such reduction shall be allocated to the Accounts of persons who
are Active Participants at the end of the Plan Year in proportion to their
Compensation received while Active Participants in such Plan Year. If any
Participant's Annual Addition would, due to such special allocation, exceed the
limit of subsection (a), the excess shall be reallocated by a second special
allocation, and so on as necessary to allocate such amounts within the limits of
subsection (a). Any amounts which cannot be so allocated because of the
limitations of subsection (a), shall be held in suspense and shall be allocated
and reallocated in succeeding Plan Years, in the order of time, prior to the
allocation of any Company contributions.
(c) In the event the Plan is terminated while excess amounts are then held
in suspense under subsection (b), such excess amounts shall be allocated and
reallocated as provided in subsection (b), as of the day before the date of the
termination as if such day were the last day of such Plan Year. Any amounts
which cannot then be so allocated because of the limits of subsection (a) shall
revert to the Company, as provided in the Trust Agreement.
Section 16.5 - Voting Rights
Except as otherwise required by ERISA, the Code and applicable Treasury
Regulations, all voting rights of shares of Company Stock held in the Trust Fund
shall be exercised by the Trustee only as directed by the Administrator, the
Participants or their Beneficiaries in accordance with the following provisions
of this Section 16.5:
(a) If the Company has a registration-type class of securities (as
defined in section 409(e)(4) of the Code or any successor statute thereto),
then, with respect to all corporate matters submitted to the Company's
shareholders, all shares of Company Stock allocated and credited to the
Accounts of Participants shall be voted in accordance with the directions
of such Participants as given to the Trustee. Each Participant shall be
entitled to direct the voting only of the shares of Company Stock
(including fractional interests in shares of Company Stock) allocated and
credited to his Account. If the Company does not have a registration-type
class of securities (as defined in Section 409(e)(4) of the Code or any
successor statute
51
<PAGE> 57
thereto), then, only with respect to corporate matters relating to a
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such other similar transaction that the applicable Treasury
Regulations may require, all shares of Company Stock allocated and credited
to the accounts of Participants shall be voted in accordance with the
directions of such Participants as given to the Trustee. Each Participant
shall be entitled to direct the voting only of the shares of Company Stock
(including fractional interests in shares) allocated to his Account. If
this Section 16.5(a) applies to shares of Company Stock allocated to the
account of a deceased Participant, such Participant's Beneficiary shall be
entitled to direct the voting with respect to such shares as if such
Beneficiary were the Participant.
(b) If Participants are entitled under Section 16.5(a) to direct the
vote with respect to allocated shares of Company Stock, then, at least
thirty days before each annual or special shareholders' meeting of the
Company (or, if such schedule cannot be met, as early as practicable before
such meeting), the Trustee shall furnish to each Participant a copy of the
proxy solicitation material sent generally to shareholders, together with a
form requesting confidential instructions on how the shares of Company
Stock allocated to such Participant's Account (including fractional shares
of Company Stock to 1/1000th of a share) are to be voted. Upon timely
receipt of such instructions, the Trustee (after combining votes of
fractional shares of Company stock to give effect to the greatest extent
possible to Participants' instructions) shall vote the shares of Company
Stock as instructed. The instructions received by the Trustee from
Participants shall be held by the Trustee in strict confidence and shall
not be divulged or released to any person including officers or Employees
of the Company, or of any other company. The Trustee and the Company shall
not make recommendations to Participants on whether to vote or how to vote,
other than recommendations contained in proxy and other materials that are
generally distributed to all shareholders of the Company with respect to
such vote. If voting instructions for shares of Company Stock allocated to
any Participant are not timely received for a particular shareholders'
meeting, such shares of Company Stock shall not be voted.
(c) (i) If voting instructions are not required to be solicited under
Section 16.5(a), the Trustee shall vote shares of Company Stock
52
<PAGE> 58
a. credited to the Suspense
Account, or
b. allocated to Stock Accounts,
only as the Administrator directs, in its sole discretion, after the
Administrator determines such action to be in the best interests of the
Participants and their Beneficiaries.
(ii) If voting instructions are required to be solicited under Section
16.5(a), the Trustee shall vote shares of Company Stock
a. allocated to the Suspense
Account, or
b. with respect to which voting
instructions are not received,
in the same proportion as Company Stock with respect to which voting
instructions are received is voted.
Section 16.6 - Governing Law
The Plan and Trust shall be interpreted, administered and enforced in
accordance with the Code and ERISA, and the rights of Participants, former
Participants, Beneficiaries and all other persons shall be determined in
accordance therewith; provided, however, that, to the extent that state law is
applicable, the laws of the state of the residence of the Participant in
question, or if none, the state in which the principal office of the
Administrator is located shall apply.
Section 16.7 - Genders and Plurals
Where the context so indicates, the masculine pronoun shall include the
feminine pronoun and the singular shall include the plural.
Section 16.8 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan or Trust Agreement.
Section 16.9. - References
Unless the context clearly indicates to the contrary, a reference to a
statute, regulation or document shall be construed as referring to any
subsequently amended, enacted, adopted or executed statute, regulation or
document.
53
<PAGE> 59
Section 16.10 - Use of Trust Funds
Under no circumstances shall any contributions to the Trust or any part of
the Trust Fund be recoverable by the Company from the Trustee or from any
Participant or former Participant, his Beneficiaries or any other person, or be
used for or diverted to purposes other than for the exclusive purposes of
providing benefits to Participants and their Beneficiaries; provided, however,
that
(a) upon termination of the Plan or complete discontinuance of
contributions thereto, any unallocated Company contributions or forfeitures
being held in suspense because of the limitations of Section 415 of the
Internal Revenue Code shall revert to the Company;
(b) the contributions of the Company to the Trust for all Plan Years
shall be returned by the Trustee to the Company within one year in the
event that the Commissioner of Internal Revenue initially fails to rule
that the Plan and Trust are qualified and tax-exempt within the meaning of
Code Sections 401 and 501, but only if such application for the
determination is made by the time prescribed by law for filing the
Company's return for the taxable year in which the Plan was adopted, or
such later date as the Secretary of the Treasury may prescribe;
(c) the contribution of the Company for any Plan Year is hereby
conditioned upon its being deductible by the Company for its fiscal year in
which such contribution was made and, to the extent disallowed as a
deduction under Code Section 404, such contribution shall be returned by
the Trustee to the Company within one year after the final disallowance of
the deduction by the Internal Revenue Service or the courts; and
(d) a contribution by the Company by a mistake of fact shall be
returned to the Company within one year after payment of the contribution
was made.
Executed at _____________, ________________ this ____ day of ___________,
1997.
GETTY PETROLEUM MARKETING INC.
By ____________________________
Officer
54
<PAGE> 1
EXHIBIT 99.1
I hereby consent to being named as a director in the Form 10 filed by
Getty Petroleum Marketing Inc. with the Securities and Exchange Commission on
November 19, 1996.
/s/ Milton Safenowitz
-------------------------------
Milton Safenowitz
Dated: November 19, 1996
<PAGE> 2
I hereby consent to being named as a director in the Form 10 filed by
Getty Petroleum Marketing Inc. with the Securities and Exchange Commission on
November 19, 1996.
/s/ Ronald E. Hall
-----------------------------
Ronald E. Hall
Dated: November 19, 1996
2
<PAGE> 3
I hereby consent to being named as a director in the Form 10 filed by
Getty Petroleum Marketing Inc. with the Securities and Exchange Commission on
November 19, 1996.
/s/ Richard E. Montag
-------------------------------
Richard E. Montag
Dated: November 19, 1996
3
