<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number 1-13175
----------
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1828067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Valero Place
San Antonio, Texas
(Address of principal executive offices)
78212
(Zip Code)
(210) 370-2000
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicated below is the number of shares outstanding of the registrant's
only class of common stock, as of May 1, 2000.
<TABLE>
<CAPTION>
Number of
Shares
Title of Class Outstanding
-------------- -----------
<S> <C>
Common Stock, $.01 Par Value 55,987,730
</TABLE>
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<PAGE> 2
VALERO ENERGY CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999.................................... 3
Consolidated Statements of Income - For the Three Months Ended
March 31, 2000 and 1999........................................................................... 4
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 2000 and 1999........................................................................... 5
Notes to Consolidated Financial Statements............................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................................. 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 24
PART II. OTHER INFORMATION................................................................................. 27
Item 1. Legal Proceedings................................................................................ 27
Item 6. Exhibits and Reports on Form 8-K................................................................. 27
SIGNATURE................................................................................................... 28
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments .............................. $ 8,509 $ 60,087
Receivables, less allowance for doubtful accounts of
$3,221 (2000) and $3,038 (1999) ................................ 403,557 372,542
Inventories ...................................................... 436,197 303,388
Current deferred income tax assets ............................... 89,477 79,307
Prepaid expenses and other ....................................... 22,591 13,534
----------- -----------
960,331 828,858
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - including
construction in progress of $128,860 (2000)
and $114,747 (1999), at cost ..................................... 2,711,907 2,686,684
Less: Accumulated depreciation ................................. 726,723 702,170
----------- -----------
1,985,184 1,984,514
----------- -----------
DEFERRED CHARGES AND OTHER ASSETS .................................. 175,659 165,900
----------- -----------
$ 3,121,174 $ 2,979,272
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt .................................................. $ 126,500 $ --
Accounts payable ................................................. 732,561 616,895
Accrued expenses ................................................. 96,213 102,087
----------- -----------
955,274 718,982
----------- -----------
LONG-TERM DEBT ..................................................... 645,155 785,472
----------- -----------
DEFERRED INCOME TAXES .............................................. 296,628 275,521
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES ............................. 115,413 114,528
----------- -----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - 150,000,000 shares authorized;
issued 56,331,166 (2000 and 1999) shares ....................... 563 563
Additional paid-in capital ....................................... 1,088,829 1,092,348
Retained earnings (accumulated deficit) .......................... 27,408 (3,331)
Treasury stock, 398,632 (2000) and 264,464 (1999) shares,
at cost ........................................................ (8,096) (4,811)
----------- -----------
1,108,704 1,084,769
----------- -----------
$ 3,121,174 $ 2,979,272
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING REVENUES ................................................. $ 2,928,617 $ 1,337,103
----------- -----------
COSTS AND EXPENSES:
Cost of sales and operating expenses ............................. 2,827,341 1,287,347
Selling and administrative expenses .............................. 19,669 18,188
Depreciation expense ............................................. 24,555 23,048
----------- -----------
Total .......................................................... 2,871,565 1,328,583
----------- -----------
OPERATING INCOME ................................................... 57,052 8,520
OTHER INCOME (EXPENSE), NET ........................................ 2,647 (79)
INTEREST AND DEBT EXPENSE:
Incurred ......................................................... (14,147) (14,288)
Capitalized ...................................................... 1,387 1,831
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .................................. 46,939 (4,016)
INCOME TAX EXPENSE (BENEFIT) ....................................... 16,200 (1,300)
----------- -----------
NET INCOME (LOSS) .................................................. $ 30,739 $ (2,716)
=========== ===========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK .......................... $ .55 $ (.05)
Weighted average common shares outstanding (in thousands) ...... 55,874 56,057
EARNINGS (LOSS) PER SHARE OF COMMON STOCK -
ASSUMING DILUTION .............................................. $ .54 $ (.05)
Weighted average common shares outstanding (in thousands) ...... 57,234 56,057
DIVIDENDS PER SHARE OF COMMON STOCK ................................ $ .08 $ .08
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................ $ 30,739 $ (2,716)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense ......................................... 24,555 23,048
Amortization of deferred charges and other, net .............. 8,043 13,827
Changes in current assets and current liabilities ............ (63,089) 113,981
Deferred income tax expense (benefit) ........................ 11,200 (1,300)
Changes in deferred items and other, net ..................... (271) 1,579
----------- -----------
Net cash provided by operating activities .................. 11,177 148,419
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................. (25,229) (38,871)
Deferred turnaround and catalyst costs ........................... (16,741) (30,053)
Other, net ....................................................... 4 (150)
----------- -----------
Net cash used in investing activities .......................... (41,966) (69,074)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt, net ...................... 126,500 (97,000)
Long-term borrowings ............................................. 60,000 448,323
Long-term debt reduction ......................................... (200,000) (426,000)
Common stock dividends ........................................... (4,469) (4,486)
Issuance of common stock ......................................... 5,912 2,586
Purchase of treasury stock ....................................... (8,732) (624)
----------- -----------
Net cash used in financing activities .......................... (20,789) (77,201)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS ................................................. (51,578) 2,144
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD .............................................. 60,087 11,199
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD .................................................... $ 8,509 $ 13,343
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
As used in this report, the term "Valero" may, depending upon the
context, refer to Valero Energy Corporation, one or more of its consolidated
subsidiaries, or all of them taken as a whole.
The consolidated financial statements included in this report have been
prepared by Valero without audit, in accordance with the rules and regulations
of the Securities and Exchange Commission, or SEC. However, all adjustments have
been made to these financial statements which are, in the opinion of Valero's
management, necessary for a fair presentation of Valero's results of operations
for the periods covered. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as permitted under the
SEC's rules and regulations, although Valero believes that the disclosures are
adequate to make the information presented not misleading.
2. PROPOSED ACQUISITION OF CALIFORNIA REFINING AND MARKETING ASSETS
On March 2, 2000, Valero and Exxon Mobil Corporation executed a sale
and purchase agreement under which Valero agreed to acquire ExxonMobil's
Benicia, California refinery (the "Benicia Refinery") and Exxon-branded
California retail assets, which consist of approximately 80 service stations
(the "Service Station Assets") and branded supplier relationships with
approximately 260 Exxon-branded service stations (the "Distribution Assets")
(collectively, the "Benicia Acquisition"). The agreement provides for Valero to
acquire the Benicia Refinery, the Distribution Assets and the Service Station
Assets for a purchase price of $895 million plus an amount for refinery
inventories acquired in the transaction based on market-related prices at the
time of closing. ExxonMobil agreed to sell these assets as a result of consent
decrees issued by the Federal Trade Commission and the State of California
providing that certain assets be divested by ExxonMobil to satisfy
anticompetitive issues in connection with the recent merger of Exxon Corporation
and Mobil Corporation. The consummation of the Benicia Acquisition has been
approved by the Federal Trade Commission and the Office of the Attorney General
of the State of California. There are expected to be two closings for the
Benicia Acquisition. The acquisition of the Benicia Refinery and the
Distribution Assets is expected to close on or about May 15, 2000, and the
acquisition of the Service Station Assets is expected to close on or about June
15, 2000.
In connection with the Benicia Acquisition, Valero will assume the
environmental liabilities of ExxonMobil with certain exceptions. ExxonMobil will
retain liability for (i) pending penalties assessed for violations relating to
the Benicia Refinery, (ii) pending lawsuits, (iii) all costs associated with
compliance with a variance issued in connection with control of nitrogen oxides,
(iv) claims in connection with offsite transportation and disposal of wastes
prior to closing that are asserted within three years of closing or asserted
with
6
<PAGE> 7
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
respect to abandoned disposal sites, (v) the capital costs incurred within five
years of closing for specified corrective action of groundwater and soil
contamination, (vi) all covered contamination at the Service Station Assets
caused by ExxonMobil or its lessees that is reflected in baseline reports
prepared prior to closing and (vii) the repair or replacement of any underground
storage tanks at the Service Station Assets found to be leaking prior to
closing. ExxonMobil has agreed to indemnify Valero for all losses related to
these retained liabilities, provided that ExxonMobil will indemnify Valero
for losses related to covered contamination at the Service Station Assets for a
period of five years from the date of closing. In addition, ExxonMobil will
indemnify Valero for breaches of its representations and warranties to the
extent that the aggregate amount of Valero's losses resulting from such
breaches exceeds $1 million and ExxonMobil receives notice of such losses
within one year after the closing date.
The Benicia Refinery is located on the Carquinez Straits of the San
Francisco Bay. It is considered a highly complex refinery and has a total
throughput capacity of 160,000 barrels per day, or "BPD." The Benicia Refinery
produces a high percentage of light products, with limited production of other
products. It can produce approximately 110,000 BPD of gasoline, 14,000 BPD of
jet fuel, 11,000 BPD of diesel and 8,000 BPD of natural gas liquids. Over 95%
of the gasoline produced by the Benicia Refinery meets the California Air
Resources Board ("CARB") II specifications for gasoline sold in California.
Valero believes that the Benicia Refinery could be modified to produce gasoline
meeting the CARB III specifications which become effective January 2003 with a
capital investment of approximately $20 million. The refinery has significant
liquid storage capacity including storage for crude oil and other feedstocks.
Also included with the refinery assets are a deepwater dock located offsite on
the Carquinez Straits which is capable of berthing large crude carriers,
petroleum coke storage silos located on an adjacent dock, a 20-inch crude
pipeline connecting the refinery to a southern California crude delivery
system, and an adjacent truck terminal for regional truck rack sales. Under the
consent decrees, ExxonMobil was required to offer the buyer of the divested
assets a crude oil supply contract. As a consequence, the sale and purchase
agreement provides for a ten-year term contract for ExxonMobil to supply and
for Valero to purchase 100,000 BPD of Alaska North Slope ("ANS") crude oil at
market-related prices, to be reduced to 65,000 BPD on January 1, 2001. Prior to
January 1, 2001, Valero will have an option to reduce the volume of ANS crude
to 65,000 BPD with 90 days prior notice. After January 1, 2001, Valero will
have an option to reduce the required volumes by an additional 20,000 BPD once
per year.
The Service Station Assets include 10 company-owned and operated
service stations and 70 company- owned lessee-dealer service stations, 75 of
which are in the San Francisco Bay area. Under the consent decrees, the Federal
Trade Commission and the State of California ordered that ExxonMobil withdraw
the "Exxon" brand name from the San Francisco Bay area. As a result, ExxonMobil
has notified the dealers in this market area that their franchise right to
market "Exxon" branded products is being terminated effective June 15, 2000.
Valero plans to introduce its own brand of retail petroleum products in the San
Francisco Bay area and
7
<PAGE> 8
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
has offered to the dealers at these locations a franchise right to market
products under the new Valero brand. Due to the timing requirements of
ExxonMobil's franchise termination notice to the Bay-area dealers as described
above, ExxonMobil cannot close the acquisition of the Service Station Assets
until (i) all of the dealers agree to terminate their franchise agreements or
(ii) June 15, 2000, whichever comes first. Subsequent to the anticipated June
15, 2000 closing date, Valero plans to offer those dealers who accept Valero's
franchise offering an option to purchase the stations that they are currently
leasing. As part of the purchase option, the dealers must enter into a fuels
purchase agreement with Valero for a term of 15 years. The dealers will have 90
days to exercise or reject their purchase option.
The Distribution Assets include up to 260 independently-owned and
operated distributor facilities which are located outside of the San Francisco
Bay area. The distributor locations will retain the right to use the Exxon
brand, continue to accept the Exxon proprietary credit card and receive Exxon
brand support, while Valero will receive the exclusive rights to offer the Exxon
brand throughout the state (except for the San Francisco Bay area) for a
ten-year period. In connection with the Benicia Acquisition, ExxonMobil will
assign to Valero all of the existing Exxon California distributor contracts
under which the distributors will purchase Exxon-branded products from Valero
after the acquisition.
Valero established with a group of banks a $600 million bridge loan
facility to provide interim financing in connection with the Benicia
Acquisition. The bridge facility has a term of one year, and Valero has an
option to extend the term for an additional two years. The bridge facility has
covenants similar to those contained in Valero's $835 million revolving bank
credit and letter of credit facility. Any amounts borrowed under the bridge
facility bear interest at LIBOR plus an applicable margin. Additionally, Valero
has amended its existing bank credit and letter of credit facility to provide
for, among other things, higher debt-to- capitalization limits necessary to
complete the Benicia Acquisition. These amendments, which become effective upon
closing of the acquisition of the Benicia Refinery and the Distribution Assets,
increase the total debt-to-capitalization limit from 50% to 65%. This ratio will
decrease to 60% at the earlier of March 31, 2001 or upon the issuance of $300
million of certain equity securities, and will further decrease to 55% on
September 30, 2001.
The acquisition of the Benicia Refinery and the Distribution Assets
will be initially funded through interim financing consisting of (i) the $600
million bank bridge facility described above, (ii) borrowings under Valero's
existing bank credit facilities and (iii) an interim lease arrangement to
accommodate the acquisition of the Benicia Refinery's dock facility. It is
expected that this interim financing will be repaid and the acquisition of the
Service Station Assets will be funded through a mix of debt, equity and
structured lease financing.
8
<PAGE> 9
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Although Valero anticipates that the acquisition will be completed as
described above, there can be no assurance that the transaction will close on
the above-noted dates, that it will be funded as described, or that all of the
conditions required to close the transaction will be met. If completed, this
acquisition will be accounted for under the purchase method of accounting.
Accordingly, the results of operations of the acquired refining and retail
assets will be included in the consolidated financial statements of Valero
beginning on the respective effective dates of the transaction.
On March 31, 2000, Valero filed a $1.3 billion universal shelf
registration statement on Form S-3 with the SEC, which has not yet been declared
effective, to register various securities including common stock, preferred
stock, warrants, debt securities and trust preferred securities.
3. INVENTORIES
Refinery feedstocks and refined products and blendstocks are carried at
the lower of cost or market, with the cost of feedstocks purchased for
processing and produced products determined primarily under the last-in,
first-out ("LIFO") method of inventory pricing, and the cost of feedstocks and
products purchased for resale determined under the weighted average cost method.
At March 31, 2000, the replacement cost of Valero's LIFO inventories exceeded
their LIFO carrying values by approximately $194 million. Materials and supplies
are carried principally at weighted average cost not in excess of market.
Inventories as of March 31, 2000 and December 31, 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Refinery feedstocks .................... $ 115,790 $ 61,649
Refined products and blendstocks ....... 264,417 183,519
Materials and supplies ................. 55,990 58,220
------------ ------------
$ 436,197 $ 303,388
============ ============
</TABLE>
4. STATEMENTS OF CASH FLOWS
In order to determine net cash provided by operating activities, net
income (loss) has been adjusted by, among other things, changes in current
assets and current liabilities. The changes in Valero's current assets and
current liabilities are shown in the following table as an (increase)/decrease
in current assets and an increase/(decrease) in current liabilities (in
thousands). These amounts exclude changes in "Cash and temporary cash
investments," "Current deferred income tax assets" and "Short-term debt."
9
<PAGE> 10
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Receivables, net .................. $ (31,015) $ (13,463)
Inventories ....................... (132,809) 16,060
Prepaid expenses and other ........ (9,057) (1,543)
Accounts payable .................. 115,666 121,961
Accrued expenses .................. (5,874) (9,034)
------------ ------------
Total .......................... $ (63,089) $ 113,981
============ ============
</TABLE>
Cash flows related to interest and income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Interest paid (net of amount capitalized) ........ $ 13,621 $ 6,989
Income tax refunds received ...................... -- 7,212
Income taxes paid ................................ 3,051 5
</TABLE>
5. EARNINGS PER SHARE
The computation of basic and diluted per-share amounts, as required by
the Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 128, is as follows (dollars and shares in
thousands, except per-share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
Per- Per-
Net Share Net Share
Income Shares Amt. (Loss) Shares Amt.
------- -------- ------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)......................... $30,739 $(2,716)
======= =======
BASIC EARNINGS PER SHARE:
Net income (loss) available to
common stockholders..................... $30,739 55,874 $.55 $(2,716) 56,057 $(.05)
==== =====
EFFECT OF DILUTIVE SECURITIES:
Stock options............................. -- 838 -- --
Performance awards........................ -- 522 -- --
------- ------ ------- ------
DILUTED EARNINGS PER SHARE:
Net income (loss) available to
common stockholders
plus assumed conversions................ $30,739 57,234 $.54 $(2,716) 56,057 $(.05)
======= ====== ==== ======= ====== =====
</TABLE>
10
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VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Because Valero reported a net loss for the three months ended March 31,
1999, various stock options and performance awards which were granted to
employees in connection with Valero's stock compensation plans and were
outstanding during such period were not included in the computation of diluted
earnings per share because the effect would have been antidilutive. At March 31,
1999, options to purchase approximately 6.4 million common shares and
performance awards totaling approximately 317,000 common shares were
outstanding.
6. NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation." This interpretation
clarifies the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," for certain issues including, among
other things, (i) the definition of employee for purposes of applying Opinion
25, (ii) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (iii) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (iv) the
accounting for an exchange of stock compensation awards in a business
combination. This interpretation will become effective for Valero's financial
statements beginning July 1, 2000, including the effects of applying this
interpretation to certain specific events that occur after either December 15,
1998 or January 12, 2000. The adoption of this interpretation is not expected to
have a material effect on Valero's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. As issued, this statement was to
become effective for Valero's financial statements beginning January 1, 2000.
However, in June 1999, the FASB issued SFAS No. 137 which delayed for one year
the effective date of SFAS No. 133. As a result, SFAS No. 133 will become
effective for Valero's financial statements beginning January 1, 2001 and is not
allowed to be applied retroactively to financial statements of prior periods. At
this effective date, SFAS No. 133 must be applied to (i) all freestanding
derivative instruments and (ii) all embedded derivative instruments required by
the statement to be separated from their host contracts (or, at Valero's
election, only those derivatives embedded in hybrid instruments issued, acquired
or substantively modified on or after either January 1, 1998 or January 1,
1999). Valero is currently evaluating the impact on its financial statements of
adopting this statement. Adoption of this statement could result in increased
volatility in Valero's earnings and other comprehensive income.
11
<PAGE> 12
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. LITIGATION AND CONTINGENCIES
Prior to July 31, 1997, Valero was a wholly owned subsidiary of Valero
Energy Corporation, referred to as Old Valero. Old Valero was engaged in both
the refining and marketing business and the natural gas related services
business. On July 31, 1997, Old Valero spun off Valero to Old Valero's
stockholders and, with its remaining natural gas related services business,
merged with a wholly owned subsidiary of PG&E Corporation (the "Restructuring").
Old Valero and certain of its natural gas related subsidiaries, and Valero, have
been sued by Teco Pipeline Company regarding the operation of the 340-mile West
Texas Pipeline in which a subsidiary of Old Valero holds a 50% undivided
interest. In 1985, a subsidiary of Old Valero sold a 50% undivided interest in
the pipeline and entered into a joint venture with the purchaser of the 50%
interest through an ownership agreement and an operating agreement. In 1988,
Teco succeeded to that purchaser's 50% interest. A subsidiary of Old Valero has
at all times been the operator of the pipeline. Despite the written ownership
and operating agreements, the plaintiff contends that a separate, unwritten
partnership agreement exists, and that the defendants have exercised improper
control over this alleged partnership's affairs. The plaintiff also contends
that the defendants acted in bad faith by negatively affecting the economics of
the joint venture in order to provide financial advantages to facilities or
entities owned by the defendants, and by allegedly taking for the defendants'
own benefit certain opportunities available to the joint venture. The plaintiff
asserts causes of action for breach of fiduciary duty, fraud, tortious
interference with business relationships, professional malpractice and other
claims, and seeks unquantified actual and punitive damages. Old Valero's motion
to require arbitration of the case as required in the written agreements was
denied by the trial court, but Old Valero appealed, and in August 1999, the
court of appeals ruled in Old Valero's favor and ordered arbitration of the
entire dispute. Teco has since waived efforts to further appeal this ruling, and
an arbitration panel has been selected. Valero has been formally added to this
proceeding. The arbitration panel has scheduled the arbitration hearing for
October 2000. Although PG&E acquired Teco and now owns both Teco and Old Valero,
PG&E's Teco acquisition agreement purports to assign the benefit or detriment of
this lawsuit to the former shareholders of Teco. In connection with the
Restructuring, Valero has agreed to indemnify Old Valero with respect to this
lawsuit for 50% of any final judgment or settlement amount up to $30 million,
and 100% of that part of any final judgment or settlement amount over $30
million.
In 1986, Valero filed suit against M.W. Kellogg Company for damages
arising from certain alleged design and construction defects in connection with
a major construction project at the Corpus Christi Refinery. Ingersoll-Rand
Company was added as a defendant in 1989. In 1991, the trial court granted
summary judgment against Valero based in part on certain exculpatory provisions
in various agreements connected with the project. In 1993, the court of appeals
affirmed the summary judgment and the Texas Supreme Court denied review.
Subsequent to the summary judgment, Kellogg and Ingersoll-Rand brought indemnity
claims against Valero for attorneys' fees and expenses incurred in defending the
original action. In 1996, the trial court rendered summary judgment against
Kellogg and Ingersoll-Rand based on procedural grounds, and the court of appeals
12
<PAGE> 13
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
affirmed that ruling in 1997. However, in 1999, the Texas Supreme Court reversed
the court of appeals and remanded Kellogg's and Ingersoll-Rand's claims for
attorneys' fees and expenses to the trial court.
Valero is also a party to additional claims and legal proceedings
arising in the ordinary course of business. Valero believes it is unlikely that
the final outcome of any of the claims or proceedings to which it is a party
would have a material adverse effect on its financial statements; however, due
to the inherent uncertainty of litigation, the range of possible loss, if any,
cannot be estimated with a reasonable degree of precision and there can be no
assurance that the resolution of any particular claim or proceeding would not
have an adverse effect on Valero's results of operations or financial condition.
8. SUBSEQUENT EVENTS
On May 4, 2000, Valero's Board of Directors declared a regular
quarterly cash dividend of $.08 per common share payable June 14, 2000, to
holders of record at the close of business on May 30, 2000.
Valero disclosed in its Annual Report on Form 10-K for the year ended
December 31, 1999, that it had received two New Jersey Department of
Environmental Protection ("NJDEP") Administrative Orders and Notices of Civil
Administrative Penalty Assessment related to particulate emissions from the
fluid catalytic cracking unit ("FCC Unit") at Valero's Paulsboro Refinery. These
orders and assessments related to emissions from the FCC Unit that occurred
after Valero's acquisition of the refinery, but that related to conditions
existing prior to the acquisition. On May 5, 2000, Valero entered into a
comprehensive administrative consent order with the NJDEP to resolve all pending
enforcement actions and related but unasserted claims regarding particulate
emissions from the refinery. The order authorizes an expansion of the refinery
allowing for production of reformulated gasoline ("RFG"), provides for interim
emissions limits, and requires a penalty payment of $600,000 on the particulate
emissions issues. Under the order, Valero also agreed to install a wet- gas
scrubber on the refinery's FCC Unit by December 31, 2003. Valero believes that
the terms of the foregoing settlement will not have a material adverse effect on
its operations or financial condition.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain estimates, predictions, projections and
other "forward-looking statements" (as defined in Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934) that involve
various risks and uncertainties. While these forward-looking statements, and any
assumptions upon which they are based, are made in good faith and reflect
Valero's current judgment regarding the direction of its business, actual
results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions, or other future performance suggested
herein. These forward- looking statements can generally be identified by the
words "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "budget," "forecast," "will," "could," "should," "may" and similar
expressions. These forward-looking statements include, among other things,
statements regarding:
o the Benicia Acquisition and Valero's results of operations following the
Benicia Acquisition;
o future refining margins, including gasoline and heating oil margins;
o the expected cost of feedstocks, including crude oil discounts, and
refining products;
o anticipated levels of crude oil and refined product inventories;
o Valero's anticipated level of capital investments, including deferred
turnaround and catalyst costs and capital expenditures for environmental
and other purposes, and the effect of these capital investments on Valero's
results of operations;
o refinery utilization rates;
o anticipated trends in the supply and demand for crude oil feedstocks and
refined products in the United States and elsewhere;
o expectations regarding environmental and other regulatory initiatives; and
o the effect of general economic and other conditions on refining industry
fundamentals.
Valero's forward-looking statements are based on its beliefs and
assumptions derived from information available at the time the statements are
made. Differences between actual results and any future performance suggested in
these forward-looking statements could result from a variety of factors,
including the following:
o the domestic and foreign supplies of refined products such as gasoline,
diesel, heating oil and petrochemicals;
o the domestic and foreign supplies of crude oil and other feedstocks;
o the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
o the level of consumer demand, including seasonal fluctuations;
o refinery overcapacity or undercapacity;
o the actions taken by competitors, including both pricing and the expansion
and retirement of refining capacity in response to market conditions;
o environmental and other regulations at both the state and federal levels
and in foreign countries;
o political conditions in oil producing regions, including the Middle East;
14
<PAGE> 15
o the level of foreign imports;
o accidents or other unscheduled shutdowns affecting Valero's plants,
machinery, pipelines or equipment, or those of Valero's suppliers or
customers;
o changes in the cost or availability of transportation for feedstocks and
refined products;
o the price, availability and acceptance of alternative fuels;
o cancellation of or failure to implement planned capital projects and
realize the various assumptions and benefits projected for such projects;
o irregular weather, which can unforeseeably affect the price or availability
of feedstocks and refined products;
o rulings, judgments, or settlements in litigation or other legal matters,
including unexpected environmental remediation costs in excess of any
reserves;
o the introduction or enactment of federal or state legislation which may
adversely affect Valero's business or operations;
o changes in the credit ratings assigned to Valero's debt securities and
trade credit; and
o overall economic conditions.
Any one of these factors, or a combination of these factors, could
materially affect Valero's future results of operations and whether any
forward-looking statements ultimately prove to be accurate. Forward- looking
statements are not guarantees of future performance, and actual results and
future performance may differ materially from those suggested in any
forward-looking statement. Valero does not intend to update these statements
unless it is required by the securities laws to do so.
All subsequent written and oral forward-looking statements attributable
to Valero or persons acting on its behalf are expressly qualified in their
entirety by the foregoing. Valero undertakes no obligation to publicly release
the result of any revisions to any such forward-looking statements that may be
made to reflect events or circumstances after the date of this report or to
reflect the occurrence of unanticipated events.
15
<PAGE> 16
RESULTS OF OPERATIONS
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
FINANCIAL HIGHLIGHTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------
Change
-------------------------
2000 1999 Amount %
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Operating revenues................................... $ 2,928,617 $ 1,337,103 $ 1,591,514 119%
Cost of sales........................................ (2,683,680) (1,154,960) (1,528,720) (132)
Operating costs:
Cash (fixed and variable)........................ (132,371) (119,442) (12,929) (11)
Depreciation and amortization.................... (34,477) (35,127) 650 2
Selling and administrative expenses (including
related depreciation expense).................... (21,037) (19,054) (1,983) (10)
----------- ------------ ------------
Total operating income....................... $ 57,052 $ 8,520 $ 48,532 570
=========== ============ ============
Other income (expense), net.......................... $ 2,647 $ (79) $ 2,726 -- (1)
Interest and debt expense, net....................... $ (12,760) $ (12,457) $ (303) (2)
Income tax (expense) benefit......................... $ (16,200) $ 1,300 $ (17,500) -- (1)
Net income (loss).................................... $ 30,739 $ (2,716) $ 33,455 -- (1)
Earnings (loss) per share of common stock -
assuming dilution................................ $ .54 $ (.05) $ .59 -- (1)
Earnings before interest, taxes, depreciation
and amortization ("EBITDA")...................... $ 95,950 $ 45,111 $ 50,839 113
Ratio of EBITDA to interest incurred................. 6.8x 3.2x 3.6x 113
</TABLE>
- ----------
(1) Percentage variance is not meaningful.
16
<PAGE> 17
OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------
Change
-----------------------
2000 1999 Amount %
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Sales volumes (Mbbls per day) .............................. 1,002 1,050 (48) (5)%
Throughput volumes (Mbbls per day) ......................... 744 698 46 7
Average throughput margin per barrel ....................... $ 3.62 $ 2.90 $ .72 25
Operating costs per barrel:
Cash (fixed and variable) .............................. $ 1.95 $ 1.90 $ .05 3
Depreciation and amortization .......................... .51 .56 (.05) (9)
-------- -------- --------
Total operating costs per barrel ................... $ 2.46 $ 2.46 $ -- --
======== ======== ========
Charges:
Crude oils:
Sour ............................................... 52% 51% 1% 2
Heavy sweet ........................................ 9 11 (2) (18)
Light sweet ........................................ 9 10 (1) (10)
-------- -------- --------
Total crude oils ............................... 70 72 (2) (3)
High-sulfur residual fuel oil, or "resid" .............. 4 3 1 33
Low-sulfur resid ....................................... 4 4 -- --
Other feedstocks and blendstocks ....................... 22 21 1 5
-------- -------- --------
Total charges ...................................... 100% 100% -- % --
======== ======== ========
Yields:
Gasolines and blendstocks .............................. 50% 51% (1)% (2)
Distillates ............................................ 30 31 (1) (3)
Petrochemicals ......................................... 5 4 1 25
Lubes and asphalts ..................................... 3 2 1 50
Other products ......................................... 12 12 -- --
-------- -------- --------
Total yields ....................................... 100% 100% -- % --
======== ======== ========
</TABLE>
AVERAGE MARKET REFERENCE PRICES AND DIFFERENTIALS (DOLLARS PER BARREL)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------
Change
-----------------------
2000 1999 Amount %
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Feedstocks:
West Texas Intermediate, or "WTI," crude oil........... $ 28.90 $ 13.05 $ 15.85 121%
WTI less sour crude oil (1) (3)........................ $ 2.38 $ 2.45 $ (.07) (3)
WTI less sweet crude oil (2) (3)....................... $ .45 $ .90 $ (.45) (50)
Products (U.S. Gulf Coast):
Conventional 87 gasoline less WTI...................... $ 4.27 $ 1.67 $ 2.60 156
No. 2 fuel oil less WTI................................ $ 1.84 $ .31 $ 1.53 494
Propylene less WTI..................................... $ 2.32 $ (.30) $ 2.62 873
</TABLE>
- ----------
(1) The market reference differential for sour crude oil is based on U.S. Gulf
Coast posted prices for 50% Arab medium and 50% Arab light.
(2) The market reference differential for sweet crude oil is based on Platt's
posted prices for 50% light Louisiana sweet, or "LLS," and 50% Cusiana.
(3) The market reference differential for the 1999 period has been restated
from the amount reported in Valero's March 31, 1999 Form 10-Q to conform to
the components used in the 2000 period.
17
<PAGE> 18
Valero reported net income for the first quarter of 2000 of $30.7
million, or $.54 per share, compared to a net loss of $2.7 million, or $.05 per
share, for the first quarter of 1999. The increase in first quarter results was
due primarily to dramatically improved refining industry fundamentals which
resulted in a significant increase in refined product margins. Also contributing
to higher first quarter results was a 46,000 barrel-per- day increase in
throughput volumes. This was due in large part to the effect of a major
maintenance turnaround of the heavy oil cracker and related units at Valero's
Corpus Christi refinery in the first quarter of 1999, as well as certain unit
expansions implemented during that downtime. Partially offsetting the increases
in income resulting from these factors were higher cash operating costs, lower
income from trading activities, the nonrecurrence in 2000 of a benefit to income
in 1999 related to a permanent reduction in LIFO inventories, and an increase in
income tax expense.
Operating revenues increased $1.6 billion, or 119%, to $2.9 billion
during the first quarter of 2000 compared to the same period in 1999 due to a
$17.97, or 127%, increase in the average sales price per barrel, partially
offset by a 5% decrease in average daily sales volumes. The increase in sales
prices was due to significantly higher refined product prices resulting from
reduced refined product inventories which reached historically low levels in the
first quarter of 2000. This decline in inventory levels was attributable
primarily to lower crude oil supplies resulting from OPEC's decision in March
1999 to significantly reduce production, and to lower refinery utilization
rates. During most of the first quarter of 1999, sales prices were extremely
depressed due to excess refined product inventories prior to the OPEC decision
to curtail crude oil production.
Operating income increased $48.5 million to $57.1 million during the
first quarter of 2000 compared to the first quarter of 1999 due primarily to an
approximate $63 million increase in total throughput margins (discussed below),
partially offset by an approximate $13 million increase in cash operating costs
and an approximate $2 million increase in selling and administrative expenses
(including related depreciation expense). Cash operating costs were higher due
primarily to increased catalyst costs associated with processing more lower-cost
feedstocks, and higher fuel costs attributable mainly to an increase in natural
gas prices. Selling and administrative expenses (including related depreciation
expense) increased primarily as a result of an increase in employee-related
costs.
Total throughput margins (operating revenues less cost of sales)
increased due to (i) significantly higher gasoline and distillate margins
resulting primarily from the improved industry conditions noted above, (ii) the
increase in throughput volumes discussed above, and (iii) higher petrochemical
margins resulting from improving worldwide demand, most particularly in Asia.
Partially offsetting the increases in total throughput margins resulting from
these factors were (i) a decrease in feedstock discounts relative to WTI, (ii)
lower lube, fuel oil and other margins resulting mainly from higher crude oil
prices, (iii) a decrease in gains from trading activities from $12.8 million in
the first quarter of 1999 to $1.8 million in the first quarter of 2000, and (iv)
the nonrecurrence in 2000 of a $10.5 million benefit in the first quarter of
1999 resulting from the liquidation of LIFO inventories. The 1999 trading
profits and LIFO benefit were attributable to a steep increase in prices at the
end of the 1999 first quarter.
Other income (expense), net, increased by $2.7 million during the first
quarter of 2000 compared to the same period in 1999 due primarily to improved
results from Valero's 20% equity interest in the Javelina
18
<PAGE> 19
off-gas processing plant in Corpus Christi attributable primarily to higher
ethylene and other product prices, partially offset by higher natural gas
feedstock costs.
Income taxes increased from an income tax benefit of $1.3 million in
the first quarter of 1999 to income tax expense of $16.2 million in the first
quarter of 2000 due primarily to a significant increase in pre- tax income.
OUTLOOK
This "Outlook" section shall supercede the "Outlook" section contained
in Valero's Annual Report on Form 10-K for the year ended December 31, 1999
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
During the last half of 1998 and throughout most of 1999, Valero
operated in an environment characterized by very weak refining industry
fundamentals. These weak industry fundamentals caused a significant increase in
refined product inventories and put extreme downward pressure on refined product
prices. OPEC's decision in March 1999 to curtail crude oil production resulted
in a reduced supply of the heavier crude oils which are Valero's primary
feedstocks, thus resulting in higher feedstock costs and lower discounts. These
conditions combined to create an exceptionally difficult period for refiners,
including Valero.
Beginning in late 1999, however, the weak refining industry
fundamentals that had prevailed during the latter half of 1998 and most of 1999
finally began to show signs of improvement. During the last several months of
1999 and into 2000, refined product inventories fell dramatically. According to
reports of the Department of Energy and other industry publications, the recent
decline in finished product inventory levels was attributable to the following
factors:
o Lower crude oil supplies resulting primarily from OPEC's decision in March
1999 to curtail production.
o Reduced refinery utilization rates in the U.S., to rates below 90% compared
to rates that were above 95% in early 1999.
o Colder weather in the Northeastern U.S. in early 2000.
o Strong economic growth in the U.S. and abroad.
Valero anticipates that refining industry margins for 2000 will benefit
from improved industry fundamentals. This expectation is based on several
assumptions, including the following:
o According to the International Energy Agency (April 2000 report), worldwide
crude oil demand for 2000 is projected to grow about 1.6 million barrels
per day, up from 1.2 million barrels per day growth in 1999. In March of
2000, OPEC met and agreed to increase crude oil production. Valero expects
that increased production resulting from the higher crude oil demand should
result in improved feedstock discounts, as the increased production is
expected to result in more production of heavy crude oils.
o The Department of Energy projects a growth in gasoline demand for 2000 of
over 1% as well as increased demand for low-sulfur diesel and jet fuel.
19
<PAGE> 20
o The International Energy Agency and the Department of Energy project a
stronger demand for light products in Europe and Asia, which in turn is
expected to result in reduced available volumes for imports into the U.S.
o More stringent fuel specifications in the U.S. and Europe became effective
at the beginning of 2000 and Valero expects that this should result in a
reduction in refinery light product yields.
o The Oil and Gas Journal (December 20, 1999 survey) projected a slowdown in
increases to industry refining capacity.
o Petrochemical margins have improved significantly in 2000 as a result of
the improving worldwide economy and increased demand for petrochemical
feedstocks, which are used in both the petrochemical industry and as
gasoline blendstocks.
Thus far in the second quarter of 2000, refining industry margins have
improved from the already strong conditions that existed during the first
quarter of 2000. Gasoline margins on average have increased from first quarter
levels, and are significantly in excess of second quarter 1999 margins, due to
low inventory levels and continued strong demand. Heating oil margins on average
have also dramatically improved from the negative margins experienced in the
second quarter of 1999 due to low inventories and cooler weather in the
Northeast. In addition, OPEC's agreement in March 2000 to increase crude oil
production has resulted in improved feedstock discounts and contributed, along
with improving supply and demand fundamentals, to higher petrochemical, lube oil
and other refined product margins.
During the second quarter of 2000, Valero incurred downtime in
connection with a scheduled maintenance turnaround of the fluid catalytic
cracking unit at its Paulsboro Refinery (approximately 43 days) and certain
unscheduled maintenance of the heavy oil cracker at its Corpus Christi Refinery
(approximately 11 days). Although this downtime will somewhat offset the
improvement in margins during the second quarter discussed above, Valero
believes that capacity expansions and operational improvements implemented
during this downtime will benefit future operations. As refining margins merit,
Valero expects to continue making capital improvements at its refinery
facilities to increase, among other things, throughput capacity, conversion
capability, operational efficiency and feedstock flexibility. The majority of
these capital improvements are expected to be performed during scheduled
maintenance turnarounds.
Valero expects demand, both domestically and worldwide, for
clean-burning fuels such as RFG to continue to increase as a result of the
worldwide movement to reduce lead and certain other pollutants and contaminants
in gasoline. Valero expects this increasing demand for clean-burning fuels to
sustain increased demand for oxygenates such as MTBE. However, certain
initiatives have been passed in California which would ban the use of MTBE as a
gasoline component by 2003. If MTBE were to be restricted or banned throughout
the U.S., Valero believes that its MTBE-producing facilities could be modified
to produce other gasoline blendstocks or other petrochemicals for a minimal
capital investment. Since the volume of alternative products that could be
produced would be less than the current production of MTBE and the price of such
alternative products is currently lower than the price of MTBE, Valero's results
of operations could potentially be adversely affected. Valero anticipates,
however, that if MTBE were to be restricted or banned, the resulting
industry-wide shortage in octane-enhancing components would cause a significant
change in the economics related to Valero's various alternative products, and as
a result, such an action would not be expected to have a material adverse effect
on Valero.
20
<PAGE> 21
Valero expects that various industry consolidations through mergers and
acquisitions will continue, making for a more competitive business environment
while providing Valero with potential opportunities to expand its operations.
With regard to the anticipated consummation of the acquisition of the Benicia
Refinery discussed in Note 2 of Notes to Consolidated Financial Statements,
Valero currently expects that the outlook for this refinery will be consistent
with the industry trends discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased $137.2 million
during the first quarter of 2000 compared to the same period in 1999 due
primarily to a $177.1 million increase in the amount of cash utilized for
working capital purposes, as detailed in Note 4 of Notes to Consolidated
Financial Statements, partially offset by the increase in earnings discussed
above under "Results of Operations." In the first quarter of 2000, amounts
needed by Valero to finance feedstock and refined product inventories increased
significantly due to higher inventory levels as well as an increase in commodity
prices from December 31, 1999 to March 31, 2000. Although this increase in
inventories was somewhat offset by an increase in accounts payable resulting
from the higher volume of inventory purchases, Valero incurred a net increase in
cash utilized for working capital purposes in the 2000 period of approximately
$63 million. Included in the changes in current assets and current liabilities
for the 1999 period was an increase in both accounts receivable and accounts
payable due primarily to a significant increase in commodity prices during that
quarter. However, concerted efforts by Valero to collect accounts receivable and
reduce inventory levels resulted in a net decrease in cash utilized for working
capital purposes of approximately $114 million in the first quarter of 1999.
During the first quarter of 2000, cash provided by operating activities of $11.2
million, existing cash balances of $51.6 million and issuances of common stock
related to Valero's benefit plans of $5.9 million were utilized to reduce bank
borrowings by $13.5 million, fund capital expenditures and deferred turnaround
and catalyst costs of $42 million, repurchase $8.7 million of shares of Company
common stock and pay $4.5 million of common stock dividends.
Valero currently maintains an unsecured $835 million revolving bank
credit and letter of credit facility that matures in November 2002 and is
available for general corporate purposes including working capital needs and
letters of credit. Borrowings under this facility bear interest at either LIBOR
plus a margin, a base rate or a money market rate. Valero is also charged
various fees and expenses in connection with this facility, including a facility
fee and various letter of credit fees. The interest rate and fees under this
credit facility are subject to adjustment based upon the credit ratings assigned
to Valero's long-term debt. The credit facility includes certain restrictive
covenants including a coverage ratio, a capitalization ratio, and a minimum net
worth test. In connection with Valero's interim financing plan for the proposed
Benicia Acquisition, in April 2000, this credit facility was amended to, among
other things, increase the total debt-to-capitalization limit from 50% to 65%.
This ratio will decrease to 60% at the earlier of March 31, 2001 or upon the
issuance of $300 million of certain equity securities, and will further decrease
to 55% on September 30, 2001. These amendments to the credit facility become
effective upon closing of the acquisition of the Benicia Refinery and the
Distribution Assets. As of March 31, 2000, there were no outstanding borrowings
under this committed facility, while letters of credit outstanding were
approximately $115 million. Valero also has various uncommitted short-term bank
credit facilities under which amounts up
21
<PAGE> 22
to $235 million may be borrowed, along with uncommitted bank letter of credit
facilities totaling $285 million. As of March 31, 2000, $126.5 million was
outstanding under the short-term bank credit facilities, and letters of credit
totaling approximately $119 million were outstanding under the uncommitted
letter of credit facilities. As of March 31, 2000, Valero's debt to
capitalization ratio was 41%.
In connection with the funding of the proposed Benicia Acquisition as
discussed in Note 2 of Notes to Consolidated Financial Statements, Valero has
established a $600 million bridge loan facility. The bridge facility has a term
of one year with an option to extend for an additional two years, and has
covenants similar to the $835 million bank credit and letter of credit facility.
Any amounts borrowed under the bridge facility bear interest at LIBOR plus an
applicable margin. Borrowings under this facility, along with borrowings under
Valero's existing $835 million revolving bank credit and letter of credit
facility and an interim lease arrangement, will provide interim financing for
the acquisition of the Benicia Refinery and the Distribution Assets. Valero
expects that this interim financing will be repaid and the acquisition of the
Service Station Assets will be funded though a mix of debt, equity and
structured lease financing.
During the first quarter of 2000, Valero expended approximately $42
million for capital investments, including capital expenditures of $25 million
and deferred turnaround and catalyst costs of $17 million. For total year 2000,
Valero currently expects to incur approximately $235 million for capital
investments, including approximately $155 million for capital expenditures and
approximately $80 million for deferred turnaround and catalyst costs. The
capital expenditure estimate includes approximately $15 million for computer
system projects and approximately $5 million for projects related to
environmental control and protection. In addition to the above, subsequent to
the proposed Benicia Acquisition, Valero expects to incur approximately $40
million for the year 2000 for capital expenditures and deferred turnaround and
catalyst costs related to the Benicia Refinery and the Service Station Assets.
Any major upgrades in any of Valero's refineries could require additional
expenditures to comply with environmental laws and regulations. However, because
environmental laws and regulations are increasingly becoming more stringent and
new environmental laws and regulations are continuously being enacted or
proposed, Valero cannot predict with certainty the level of future expenditures
that will be required for environmental matters.
During the first quarter of 2000, Valero repurchased shares of its
common stock at a cost of approximately $7 million under a common stock
repurchase program approved by Valero's Board of Directors in the third quarter
of 1998 allowing repurchase of up to $100 million of common stock. The shares
repurchased will be used primarily to meet requirements under Valero's employee
benefit plans.
On March 31, 2000, Valero filed a $1.3 billion universal shelf
registration statement on Form S-3 with the SEC, which has not yet been declared
effective, to register various securities including common stock, preferred
stock, warrants, debt securities and trust preferred securities.
Valero believes it has sufficient funds from operations, and to the
extent necessary, from the public and private capital markets and bank markets,
to fund its ongoing operating requirements. Valero expects that, to the extent
necessary, it can raise additional funds from time to time through equity or
debt financings. However, there can be no assurances regarding the availability
of any future financings or whether such financings can be made available on
terms acceptable to Valero.
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<PAGE> 23
NEW ACCOUNTING PRONOUNCEMENTS
As discussed in Note 6 of Notes to Consolidated Financial Statements,
certain new financial accounting pronouncements have been issued by the FASB
which will become effective for Valero's financial statements beginning in
either July 2000 or January 2001. Except for SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," for which the impact has not yet
been determined, the adoption of these pronouncements is not expected to have a
material effect on Valero's consolidated financial statements.
23
<PAGE> 24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
Valero is exposed to market risks related to the volatility of crude
oil and refined product prices, as well as volatility in the price of natural
gas used in Valero's refining operations. In order to reduce the risks of these
price fluctuations, Valero uses derivative commodity instruments to hedge
certain refinery feedstock and refined product inventories. Valero also uses
derivative commodity instruments to hedge the price risk of anticipated
transactions such as anticipated feedstock, product and natural gas purchases,
product sales and refining operating margins. In addition, Valero uses
derivative commodity instruments for trading purposes using its fundamental and
technical analysis of market conditions to earn additional income.
The types of instruments used in Valero's hedging and trading
activities described above include futures contracts, options, and price swaps
with third parties. Valero's positions in derivative commodity instruments are
monitored and managed on a daily basis by a risk control group to ensure
compliance with Valero's stated risk management policy which has been approved
by Valero's Board of Directors.
In the tables below detailing Valero's open derivative commodity
instruments as of March 31, 2000, the total gain or (loss) on price swaps is the
net of the fixed price payor and receiver fair value amounts, while the total
gain or (loss) on futures is (i) the excess of the fair value amount over the
contract amount for fixed price payor positions, combined with (ii) the excess
of the contract amount over the fair value amount for fixed price receiver
positions. Gains and losses on hedging activities are deferred and recognized
when the hedged transaction occurs while gains and losses on trading activities
are recognized currently.
HEDGING ACTIVITIES
The following table provides information about Valero's derivative
commodity instruments held to hedge refining inventories as of March 31, 2000
(which mature in 2000) (dollars in thousands, except amounts per barrel, or
bbl).
<TABLE>
<CAPTION>
Mature in 2000
-------------------------------
Fixed Price
-------------------------------
Payor Receiver
------------ ------------
<S> <C> <C>
Futures:
Volumes (Mbbls) .............................. 9,384 12,686
Weighted average price (per bbl) ............. $ 27.76 $ 29.16
Contract amount .............................. $ 260,463 $ 369,916
Fair value ................................... $ 254,485 $ 364,368
</TABLE>
24
<PAGE> 25
The following table provides information about Valero's derivative
commodity instruments held to hedge anticipated feedstock and product purchases,
product sales and refining margins as of March 31, 2000 (which mature in 2000)
(dollars in thousands, except amounts per barrel). Volumes shown for swaps
represent notional volumes which are used to calculate amounts due under the
agreements.
<TABLE>
<CAPTION>
Mature in 2000
-------------------------------
Fixed Price
-------------------------------
Payor Receiver
------------ ------------
<S> <C> <C>
Swaps:
Notional volumes (Mbbls) ................... 1,275 2,275
Weighted average pay price (per bbl) ....... $ 4.01 $ 3.46
Weighted average receive price (per bbl) ... $ 3.77 $ 2.94
Fair value ................................. $ (301) $ (1,181)
Futures:
Volumes (Mbbls) ............................ 5 --
Weighted average price (per bbl) ........... $ 30.91 --
Contract amount ............................ $ 155 --
Fair value ................................. $ 155 --
</TABLE>
In addition to the above, as of March 31, 2000, Valero was the fixed
price payor under certain swap contracts held to hedge anticipated purchases of
refinery feedstocks and refined products that mature in 2002, have notional
volumes totaling approximately 7.5 million barrels, and have a weighted average
pay price of $20.11 per barrel. As of March 31, 2000, these swaps had a weighted
average receive price of $20.69 per barrel and a net unrecognized fair value of
approximately $27.4 million.
TRADING ACTIVITIES
The following table provides information about Valero's derivative
commodity instruments held or issued for trading purposes as of March 31, 2000
(which mature in 2000 or 2001) (dollars in thousands, except amounts per
barrel). Volumes shown for swaps represent notional volumes which are used to
calculate amounts due under the agreements.
<TABLE>
<CAPTION>
Mature in 2000 Mature in 2001
---------------------------- ----------------------------
Fixed Price Fixed Price
---------------------------- ----------------------------
Payor Receiver Payor Receiver
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Swaps:
Notional volumes (Mbbls) ..................... 28,500 23,700 2,550 2,100
Weighted average pay price (per bbl) ......... $ 2.55 $ 2.53 $ 2.36 $ 2.13
Weighted average receive price (per bbl) ..... $ 2.49 $ 2.69 $ 2.14 $ 2.28
Fair value ................................... $ (1,697) $ 3,810 $ (555) $ 309
Futures:
Volumes (Mbbls) .............................. 24,299 24,374 3,700 3,625
Weighted average price (per bbl) ............. $ 24.07 $ 24.21 $ 19.48 $ 18.92
Contract amount .............................. $ 584,811 $ 590,004 $ 72,074 $ 68,595
Fair value ................................... $ 677,474 $ 680,288 $ 86,696 $ 84,875
</TABLE>
25
<PAGE> 26
INTEREST RATE RISK
Valero's primary market risk exposure for changes in interest rates
relates to its long-term debt obligations. Valero manages its exposure to
changing interest rates principally through the use of a combination of fixed
and floating rate debt and currently does not use derivative financial
instruments to manage such risk.
26
<PAGE> 27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Valero disclosed in its Annual Report on Form 10-K for the year ended
December 31, 1999, that it had received two New Jersey Department of
Environmental Protection ("NJDEP") Administrative Orders and Notices of Civil
Administrative Penalty Assessment related to particulate emissions from the
fluid catalytic cracking unit ("FCC Unit") at Valero's Paulsboro Refinery. These
orders and assessments related to emissions from the FCC Unit that occurred
after Valero's acquisition of the refinery, but that related to conditions
existing prior to the acquisition. On May 5, 2000, Valero entered into a
comprehensive administrative consent order with the NJDEP to resolve all pending
enforcement actions and related but unasserted claims regarding particulate
emissions from the refinery. The order authorizes an expansion of the refinery
allowing for production of RFG, provides for interim emissions limits, and
requires a penalty payment of $600,000 on the particulate emissions issues.
Under the order, Valero also agreed to install a wet-gas scrubber on the
refinery's FCC Unit by December 31, 2003. Valero believes that the terms of the
foregoing settlement will not have a material adverse effect on its operations
or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2.7* Sale and Purchase Agreement For Exxon California Refining and
Marketing Assets, dated March 2, 2000, between Exxon Mobil
Corporation and Valero Refining Company-California.
27.1** Financial Data Schedule (reporting financial information as of
and for the three months ended March 31, 2000).
- ----------
* Filed herewith.
** The Financial Data Schedule shall not be deemed "filed" for purposes of
Section 11 of the Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934, and is included as an exhibit only to the electronic
filing of this Form 10-Q in accordance with Item 601(c) of Regulation S-K
and Section 401 of Regulation S-T.
(b) Reports on Form 8-K. A Current Report on Form 8-K, dated March 17,
2000, was filed with the SEC on March 20, 2000 reporting information related to
Valero's pending acquisition of Exxon Mobil Corporation's Benicia, California
refinery and associated retail assets.
27
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VALERO ENERGY CORPORATION
(Registrant)
By: /s/ John D. Gibbons
-----------------------------------
John D. Gibbons
Chief Financial Officer, Vice President -
Finance
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Date: May 15, 2000
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.7* Sale and Purchase Agreement For Exxon California Refining and
Marketing Assets, dated March 2, 2000, between Exxon Mobil
Corporation and Valero Refining Company-California.
27.1** Financial Data Schedule (reporting financial information as of
and for the three months ended March 31, 2000).
</TABLE>
- ----------
* Filed herewith.
** The Financial Data Schedule shall not be deemed "filed" for purposes of
Section 11 of the Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934, and is included as an exhibit only to the electronic
filing of this Form 10-Q in accordance with Item 601(c) of Regulation S-K
and Section 401 of Regulation S-T.
<PAGE> 1
EXHIBIT 2.7
SALE AND PURCHASE AGREEMENT
FOR
EXXON CALIFORNIA REFINING AND MARKETING ASSETS
BETWEEN
EXXON MOBIL CORPORATION AND
VALERO REFINING COMPANY-CALIFORNIA
MARCH 2, 2000
<PAGE> 2
SALE AND PURCHASE AGREEMENT
FOR EXXON CALIFORNIA REFINING AND MARKETING ASSETS
THIS SALE AND PURCHASE AGREEMENT FOR EXXON CALIFORNIA REFINING AND
MARKETING ASSETS (the "Agreement"), is made and entered into as of the 2nd day
of March , 2000 (the "Effective Date"), between EXXON MOBIL CORPORATION, a New
Jersey corporation, having a principal place of business in Irving, Texas
("Seller"), and VALERO REFINING COMPANY-CALIFORNIA, a Delaware Corporation,
having a principal place of business in San Antonio, Texas ("Purchaser").
PRELIMINARY STATEMENT
Seller owns a Refinery in Benicia, California (the "Refinery") on which
Seller conducts refining and other business activities and operations.
Seller also owns a truck terminal adjacent to the Refinery, with
related buildings, racks, aboveground and below ground storage tanks,
aboveground and underground piping, fixtures and related on and off-site
facilities, appurtenances and other assets (the "Terminal").
Seller also owns or leases retail assets in California at which
Exxon-branded fuel products are marketed to retail customers (the "California
Retail Assets").
Under the terms of consent decrees entered into with the U.S. Federal
Trade Commission ("FTC") and State of California on November 30, 1999 in
connection with the merger of Exxon Corporation and Mobil Corporation
(collectively, the "Consent Decrees" and individually the "FTC Consent Decree"
and the "California Consent Decree," respectively), Seller has agreed to divest
the Refinery, the Terminal, and the California Retail Assets (collectively, as
defined in the Consent Decrees and as more particularly described herein, the
"Exxon California Refining and Marketing Assets"). The Exxon California Refining
and Marketing Assets and certain related assets are specifically defined in
Article II and, as so defined, are herein referred to as the "Assets." Purchaser
is willing to purchase the Assets in accordance with the terms of this
Agreement.
As specified in the Consent Decrees, the purpose of the transactions
contemplated by this Agreement is to ensure the continued use of the Assets as
viable, on-going businesses, in the same businesses in which they were engaged
at the time of the announcement of the merger between Exxon Corporation and
Mobil Corporation, including the refining and marketing of CARB Gasoline and
other petroleum products, by a firm that has a sufficient ability, and an
equivalent incentive to invest and compete in the Assets and businesses as
Seller had before the merger, and to remedy the lessening of competition in the
refining and marketing of CARB Gasoline and other petroleum products resulting
from the merger.
<PAGE> 3
Purchaser recognizes the purpose of the Consent Decrees and
specifically affirms as follows: (i) it has the managerial, operational and
financial capability to compete effectively as a viable, ongoing refiner and
marketer of CARB Gasoline; (ii) it intends to use the Assets for the purpose of
competing effectively in the refining and marketing of CARB Gasoline; and (iii)
its purchase of the Assets will not adversely affect competition.
Purchaser's execution and delivery of this Agreement to Seller shall
constitute a binding and irrevocable offer to purchase the Assets on the terms
and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the matters set forth in the
Preliminary Statement, the mutual promises and covenants herein set forth, and
subject to the terms and conditions hereof, the parties intending to be legally
bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the meanings set forth below for all
purposes of this Agreement:
"AFFILIATE" means, with respect to a party, any individual or
legal business entity that, directly or indirectly, controls, is controlled by,
or is under common control with, such party. The term "control" (including the
terms "controlled by" and "under common control with") as used in the preceding
sentence means the possession, directly or indirectly, of the power to direct or
cause the direction of management and policies.
"AGREEMENT" means this Sale and Purchase Agreement for Exxon
California Refining and Marketing Assets.
"ALTA" has the meaning specified in Section 12.1.1.
"ANS CRUDE SUPPLY AGREEMENT" has the meaning specified in Section
5.4.
"ASSETS" has the meaning specified in the Preliminary Statement to
this Agreement.
"BASELINE REPORT" has the meaning specified in Section 11.4.3.1.
"BOOKS AND RECORDS" has the meaning specified in Section 2.1.4.
"BRANDED MARKETER AGREEMENT" has the meaning specified in Section
5.2.2.
"CALIFORNIA-NORTH MARKETING ASSETS" has the meaning specified in
Section 2.2.2.
"CALIFORNIA-SOUTH MARKETING ASSETS" has the meaning specified in
Section 2.2.2.
2
<PAGE> 4
"CARB GASOLINE" means gasoline that meets the standards of the
California Air Resources Board as of the Effective Date.
"CASUALTY" has the meaning specified in Section 13.1.1.
"CERCLA" has the meaning specified in Section 11.1.
"CLOSING" has the meaning specified in Section 6.1.
"CLOSING DATE" has the meaning specified in Section 6.1.
"CLOSURE" has the meaning specified in Section 11.4.4.2.3.
"COBRA COVERAGE" has the meaning specified in Section 4.1.2.
"COMPANY OPERATED MARKETING SITES" has the meaning specified in
Section 2.2.2.1.
"CONSENT" has the meaning specified in Sections 9.3.
"CONSENT DECREES" has the meaning specified in the Preliminary
Statement.
"CONTRACTS" means Refinery and Terminal Contracts and Marketing
Contracts.
"CORRECTIVE ACTION" means any investigation, sampling, analysis,
monitoring, abatement, removal, decontamination, remediation, cleanup,
management, treatment, storage or disposal related to Releases of Hazardous
Materials or Petroleum Products.
"COVERED CONTAMINATION" has the meaning specified in Section
11.4.1.
"DEFAULT" has the meaning specified in Sections 14.1 and 14.2.
"DISTRIBUTORS" has the meaning specified in Section 2.2.2.2.
"DISTRIBUTOR SALES AGREEMENTS" has the meaning specified in
Section 2.2.2.2.
"EARNEST MONEY DEPOSIT" has the meaning specified in Section 3.2.
"EFFECTIVE DATE" has the meaning specified in the introductory
paragraph of this Agreement.
"ELECTIVE WORK" has the meaning specified in Section 11.4.14.
"ENVIRONMENTAL CLAIMS" means any known, unknown, contingent or
non-contingent loss, liability, claim (including, without limitation, tort
claims, claims for personal injury, claims
3
<PAGE> 5
for property damage, natural resource damage claims, claims for diminution in
property value, claims for injunctive relief, and claims for Corrective Action),
action, proceeding (including, without limitation, any notice of non-compliance
or violation, charge, directive, demand, and request for information),
obligation (including, without limitation, any obligation to investigate,
monitor, test, report to Governmental Authorities, remediate and perform
Corrective Action in connection with any onsite or offsite Release of Hazardous
Materials or Petroleum Products), suit, judgment, decree, order (including,
without limitation, any compliance order, consent order, cleanup and abatement
order and cease-and-desist order) lien, fine, penalty, damage (including,
without limitation, consequential damages, natural resource damages and punitive
damages), expense, cost and fee (including, without limitation, reasonable
attorney and consultant fees and costs for investigation and defense) arising
out of or related to Environmental Laws.
"ENVIRONMENTAL LAWS" shall mean all applicable federal, state, and
local laws, statutes, ordinances, regulations, common law, standards,
prohibitions, restrictions, directives, interpretations, Orders, guidelines,
permits, licenses, approvals and entitlements that relate to the protection of
human health, safety and/or the environment or create rights or obligations in
connection with the presence or Release of Hazardous Materials or Petroleum
Products.
"ERISA" has the meaning specified in Section 4.1.2.
"EXCLUDED PROPERTY" has the meaning specified in Section 2.3.
"EXISTING CASE DATA" has the meaning specified in Section
11.4.3.1.
"FEE & LEASE DEALERS" has the meaning specified in Section
2.2.2.1.
"FEE & LEASE DEALER AGREEMENTS" has the meaning specified in
Section 2.2.2.1.
"FEE & LEASE DEALER MARKETING SITES" has the meaning specified in
Section 2.2.2.1.
"FEE & LEASE DEALER TERMS AND CONDITIONS OF SALE" has the meaning
specified in Section 2.2.12.
"FEE MARKETING SITES" has the meaning specified in Section 2.2.2.
"FTC" has the meaning specified in the Preliminary Statement.
"GOVERNMENTAL AUTHORITY" means any federal, state or local
governmental authority, agency, board, commission, judicial body or other body
having jurisdiction over the matter.
"GUARANTOR" has the meaning specified in Article XXV.
"HAZARDOUS MATERIALS" means any substance which is listed,
regulated or defined as a hazardous substance, hazardous material, toxic
substance, hazardous waste, hazardous chemical, hazardous air pollutant,
contaminant or pollutant under any Environmental Laws,
4
<PAGE> 6
including, without limitation, (i) radioactive substances, (ii) asbestos, (iii)
radon, (iv) mercury, (v) lead-based paint and (vi) polychlorinated biphenyls
("PCBs"), but excluding Petroleum Products.
"IMPROVEMENTS" has the meaning specified in Section 2.1.2.
"INDEMNITEE" has the meaning specified in Section 16.1.
"INDEMNITOR" has the meaning specified in Section 16.1.
"LATEST TAX RATE" shall mean for property tax purposes 1.132%
which is the applicable property tax rate in effect for the tax year July 1,
1999 to June 30, 2000 in which Closing is set to occur.
"LATEST TAX VALUATION" shall mean the valuation for property tax
purposes in effect on January 1, 2000.
"LEASED MARKETING SITES" has the meaning specified in Section
2.2.2.
"LOSS" shall mean any loss, liability, claim, action, proceeding,
obligation, suit, judgment, decree, lien, fine, penalty, damages (including
special, consequential, indirect and loss of profit damages, except as noted),
expense, cost and fee. "Loss" shall include, but is not limited to Environmental
Claims and, in each instance, shall include all reasonable costs of
investigating and defending any claim.
"MAJOR EQUIPMENT" has the meaning specified in Section 19.2.
"MARKETING ASSETS" has the meaning specified in Section 2.2.1.
"MARKETING CONTRACTS" has the meaning specified in Section 2.2.4
"MARKETING INVENTORY" has the meaning specified in Section 6.4.2.
"MARKETING PERMITS" has the meaning specified in Section 2.2.8.
"MARKETING SITE" or "MARKETING SITES" have the meanings specified
in Section 2.2.2.
"MARKETING SITES ACQUIRED FROM OTHER RESPONSIBLE PARTIES" has the
meaning specified in Sections 11.4.15 and 11.4.16.
"MERCHANDISE" has the meaning specified in Section 6.4.2.
"NEW CONTAMINATION" has the meaning specified in Section 11.4.4.3.
5
<PAGE> 7
"OPERATIONS" means the business activities and operations
conducted on each of the Assets.
"ORDER" means any judgment, order, writ, injunction or decree of
any Governmental Authority having jurisdiction over the matter.
"OTHER RESPONSIBLE PARTY" has the meaning specified in Sections
11.4.15 and 11.4.16.
"PAYROLL PRACTICES/EMPLOYEE ARRANGEMENTS" has the meaning
specified in Section 22.12.
"PERMITS" means Refinery and Terminal Permits and Marketing
Permits.
"PERMITTED ENCUMBRANCES" has the meaning specified in Section
12.1.1.
"PERSONAL PROPERTY" has the meaning specified in Section 2.1.3.
"PETROLEUM PRODUCT" means petroleum hydrocarbons, including crude
oil and any fraction thereof, and any product made from petroleum hydrocarbons,
together with any additives to such products, including, without limitation,
MTBE.
"PMPA" has the meaning specified in Section 2.2.2.1.
"PMPA CLAIM" has the meaning specified in Section 8.1.2.
"PMPA FRANCHISE AGREEMENTS" has the meaning specified in Section
2.2.2.2.
"PHYSICAL INVENTORY PROCEDURE" has the meaning specified in
Section 6.4.1.
"PURCHASE PRICE" has the meaning specified in Section 3.1.
"PURCHASER" has the meaning specified in the introductory
paragraph.
"PURCHASER'S KNOWLEDGE" means the actual knowledge of any of the
employees of Purchaser listed on Schedule 1-P as of the date a particular
representation or warranty is made, without any review of files or other due
diligence on the part of such employees.
"QUALIFIED INTERMEDIARY" has the meaning specified in Article
XXVIII.
"RCRA" has the meaning specified in Section 11.3.2.
"REAL PROPERTY" means all real property interests included in the
Assets, including real property owned in fee or leased which is part of the
Assets.
6
<PAGE> 8
"REFINERY" has the meaning specified in the Preliminary Statement.
"REFINERY AND TERMINAL CONTRACTS" has the meaning specified in
Section 2.1.5.
"REFINERY AND TERMINAL INVENTORY" has the meaning specified in
Section 2.1.7.
"REFINERY AND TERMINAL INVENTORY SALE PRICE" has the meaning
specified in Section 6.4.1.
"REFINERY AND TERMINAL PERMITS" has the meaning specified in
Section 2.1.6.
"RELEASE" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposing
or release of Hazardous Materials or Petroleum Products into or upon the
environment (including without limitation the air, soil, surface water, and
groundwater).
"REMEDIATION COMPLETION DATE" has the meaning specified in Section
11.4.4.3.
"REMEDIATION COST" has the meaning specified in Section 11.4.4.6.
"REMEDIATION EASEMENT" means the easement retained by Seller that
reserves access to and use of the premises in order to effect remediation, as
further defined in Section 11.5.
"RESTRICTION" has the meaning specified in Section 11.3.5.
"RETAINED LIABILITIES" has the meaning specified in Section 4.1.
"RETURNS" means all federal, state, local, foreign or other
governmental income and franchise returns and all sales, use, payroll,
withholding and other Tax returns.
"SELLER" has the meaning specified in the introductory paragraph.
"SELLER CAPTIVE INSURER" has the meaning specified in Section
2.4.1.
"SELLER POLICIES" has the meaning specified in Section 2.4.1.
"SELLER SERVICES" has the meaning specified in Section 5.5.
"TRANSITION SERVICES AGREEMENT(S)" has the meaning specified in
Section 5.5.
"SELLER'S CAPITAL COSTS FOR GROUNDWATER REMEDIATION" has the
meaning specified in Section 11.3.1.2.
7
<PAGE> 9
"SELLER'S KNOWLEDGE" means the actual knowledge of any of the
employees of Seller listed on Schedule 1-S as of the date a particular
representation or warranty is made without any review of files or other due
diligence on the part of such employees.
"SELLER'S RETAINED ENVIRONMENTAL LIABILITIES" has the meaning
specified in Section 11.3.1.1.
"SELLER'S OBLIGATIONS" has the meaning specified in Section
11.4.10.
"SUPPLY AGREEMENT" has the meaning specified in Section 5.2.1.
"SURVEY" has the meaning specified in Section 12.1.3.
"TAKING" has the meaning specified in Section 13.1.1.
"TAXES" shall mean any and all federal, State, local and foreign
taxes, charges, fees, levies, imposts, assessments, withholdings, impositions,
or other similar governmental charges and any interest, liens, additions to tax
or penalties thereon.
"TERMINAL" has the meaning specified in the Preliminary Statement.
"TITLE COMPANY" has the meaning specified in Section 12.1.1.
"TITLE COMMITMENT" has the meaning specified in Section 12.1.1.
"WARN ACT" has the meaning specified in Section 4.1.2.
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 REFINERY AND TERMINAL. In compliance with the Consent Decrees and
on the terms and subject to the conditions of this Agreement and for the
consideration stated herein, at the Closing, Purchaser shall purchase and
receive from Seller, and Seller shall sell and deliver to Purchaser all of
Seller's right, title and interest in and to the following properties and
assets:
2.1.1 The Real Property, as more particularly described in
Attachments I-R and I-T hereto;
2.1.2 The improvements located on the Real Property, including,
but not limited to, buildings, facilities, fixtures, aboveground and underground
piping and storage tanks (including tank bottoms and linefill in the Refinery or
Terminal) and appurtenances, and also including, but not limited to the
improvements described on Attachments II-R and II-T hereto (the "Improvements");
8
<PAGE> 10
2.1.3 (a) All supplies, spare parts, tools, drawings, plats,
files, equipment manuals, and furniture which are located at the Refinery or
Terminal at the Closing Date and used in the operation of the Refinery and
Terminal, and (b) the equipment described in Attachments III-R and III-T hereto,
and (c) any other asset primarily used in connection with, or necessary to, the
conduct of the Operations and located at the Refinery or Terminal on the Closing
Date. The items covered by this Section 2.1.3 are herein referred to as the
"Personal Property";
2.1.4 Subject to Section 17.1 the historical books and records
relating to the Refinery and Terminal (the "Books and Records"), including, but
not limited to, any documents that are stored or maintained in electronic
storage format, such as computer disks or tapes;
2.1.5 Subject to Article XXIII, all contracts, including all of
Seller's rights and obligations thereunder, used in the Operations of the
Refinery or the Terminal, including related warranties and indemnities (the
"Refinery and Terminal Contracts"), which will be assigned and assumed pursuant
to the Assignment and Assumption of Permits and Contracts to be executed by the
parties at Closing (the form of which is attached as Exhibits F-R and F-T), as
described in Attachments V-R and V-T hereto;
2.1.6 Subject to Article XXIII, the permits, licenses,
registrations, certificates, consents, orders, notices, approvals or similar
rights from any Governmental Authority that are necessary to the Operations or
ownership of the Refinery and Terminal in the manner in which they have been
owned and operated prior to the date hereof (the "Refinery and Terminal
Permits"), as described on Attachments VI-R and VI-T;
2.1.7 The inventory of the Refinery and Terminal as described in
Section 6.4.1 (the "Refinery and Terminal Inventory").
2.2 MARKETING ASSETS.
2.2.1 For purposes of this Agreement, "California-North Marketing
Assets" as defined in Section 2.2.2 means all right, title and interest of
Seller in and to Exxon-branded retail assets in the Oakland, San Francisco, San
Jose, and Santa Rosa primary metropolitan statistical areas as defined by the
U.S. Census Bureau as of September 30, 1999; "California-South Marketing Assets"
as defined in Section 2.2.2 means all right, title and interest of Seller in and
to all other Exxon-branded retail assets located in California; and "Marketing
Assets" means the California-North Marketing Assets and the California-South
Marketing Assets, collectively.
2.2.2 In connection with Seller's Marketing Assets, Seller owns
in fee certain operating service stations (the "Fee Marketing Sites"), and
leases certain other operating service stations (the "Leased Marketing Sites"),
all as more particularly described in Attachment "I-M-1" (the "California-North
Marketing Assets"), and in Attachment I-M-2 (the "California-South Marketing
Assets"). Each of the California-North Marketing Assets and the California-South
Marketing Assets is individually referred to in this Agreement as a "Marketing
Site", and collectively as "Marketing Sites."
9
<PAGE> 11
2.2.2.1 Some of the operating service stations on the Marketing
Sites are subject to a "franchise relationship," as that term is defined in the
Petroleum Marketing Practices Act, 15 U.S.C., Section 2801 et seq. ("PMPA"),
pursuant to lease or sublease agreements, franchise agreements, motor fuels
sales agreements and other agreements constituting the franchise relationship
(collectively, the "Fee & Lease Dealer Agreements") entered into between Seller
and the dealers listed on Exhibits "A-1" and "A-2" (the "Fee & Lease Dealers").
Those Marketing Sites subject to Fee & Lease Dealer Agreements are noted on
Attachments "I-M-1" and I-M-2 (sometimes referred to herein as the "Fee & Lease
Dealer Marketing Sites"). The remainder of the operating service stations on the
Marketing Sites are company operated stations (sometimes referred to as the
"Company Operated Marketing Sites") and are similarly noted on Attachments
"I-M-1" and "I-M-2".
2.2.2.2 In addition, as part of its marketing operations in the
California-South area, Seller has entered into various distributor agreements
and other agreements constituting the distributor franchise relationship
(collectively, the "Distributor Sales Agreements") between Seller and the
distributors listed on Exhibit "B" (the "Distributors"). The Fee & Lease Dealer
Agreements and the Distributor Sales Agreements sometimes are collectively
referred to as the "PMPA Franchise Agreements").
2.2.3 Subject to the provisions of this Agreement, (i) Seller
agrees to sell and convey to Purchaser and Purchaser agrees to purchase and pay
for, all of Seller's right, title and interest in and to the Fee Marketing
Sites, and (ii) Seller also agrees to assign to Purchaser and Purchaser agrees
to purchase and pay for, all of Seller's right, title and interest in the
leasehold for the Leased Marketing Sites.
2.2.4 Seller's conveyance and assignment of its interests in the
Marketing Sites shall include Seller's interest in: (i) all easements and rights
appurtenant to the Marketing Sites, all buildings and improvements thereon, and
subject to Article XXIII to the extent in effect on the Closing Date, all
associated contracts used in the Operation of the Marketing Assets, including
related warranties and indemnities (the "Marketing Contracts"), as identified on
Attachment V-M, and licenses, permits, and other forms of governmental consents,
(ii) all of Seller's tangible personal property located on the Marketing Sites,
whether known or unknown, operational or abandoned, as of the Effective Date;
and, (iii) for the California-South Marketing Assets only, subject to the terms
of the Branded Marketer Agreement (as defined in Section 5.2.2), the right to
use Seller's identification signs, trademarks, and other trade indicia.
2.2.5 With respect to the California-South Marketing Assets only,
on the Closing Date, subject to the provisions of Section 2.2.12, Seller will
assign to Purchaser, and Purchaser shall accept the assignment of and assume
Seller's obligations under the Fee & Lease Dealer Agreements with respect to the
Fee & Lease Dealer Marketing Sites.
2.2.6 With respect to the California-South area only, on the
Closing Date, Seller will assign to Purchaser, and Purchaser shall accept the
assignment of and assume Seller's obligations under, the Distributor Sales
Agreements. On the Closing Date, Seller will assign to
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Purchaser, and Purchaser shall accept the assignment of and assume the
obligations of Seller under, any loan agreements and/or reimbursement agreements
between Seller and the Distributors set forth on Exhibit "C", together with any
mortgages and security interests securing such loans. The current balances of
the Distributors' loans and/or reimbursement agreements are set forth on Exhibit
"C". The parties acknowledge and agree that the Purchase Price set forth in
Section 3.1 includes payment for certain unamortized balances due Seller by such
Distributors. At least seven (7) days before the Closing Date, Seller will
notify Purchaser of the amounts of the unamortized balances owed by each
Distributor, and no adjustment will be made in the Purchase Price on account of
any changes in such balances. Seller agrees that, between the Effective Date and
the Closing Date, Seller will not enter into, amend or otherwise modify its
practices with respect to Distributor loan and/or reimbursement agreements other
than in the ordinary course of business consistent with Seller's past practices.
2.2.7 Seller shall sell, deliver and transfer to Purchaser at the
Closing, the "Marketing Inventory" and "Merchandise", both as defined in Section
6.4.2.
2.2.8 On the Closing Date, subject to Article XXIII Seller will
assign and Purchaser shall accept all of Seller's interest in all licenses,
registrations, certificates, consents, orders, notices or similar rights from
any Governmental Authority that are necessary to the operation or ownership of
the Marketing Assets in the manner in which they have been operated or owned
prior to the date hereof, including beer and wine licenses to the extent owned
by Seller, where applicable, (the "Marketing Permits"), as described on
Attachment VIII-M. To the extent not assignable or transferable, prior to
Closing Seller will provide such assistance as Purchaser may reasonably request
in Purchaser's efforts to obtain comparable Permits.
2.2.9 With respect to the California-South Marketing Assets only,
to the extent that Seller is the holder of any preferential right to purchase
any of such Marketing Sites, all such rights will be assigned to Purchaser at
the Closing.
2.2.10 With respect to the California-South Marketing Assets
only, on the Closing Date, Seller will assign to Purchaser, and Purchaser shall
accept the assignment of and assume Seller's obligations under, all rent
abatement agreements, imaging rebate agreements and other brand program and
service agreements with the Fee & Lease Dealers and the Distributors, as
applicable, as described on Schedule 2.2.10.
2.2.11 With respect to the California-North Marketing Assets
only, Seller owns and operates methanol (M85) fuel delivery facilities at three
(3) Marketing Sites pursuant to an agreement with the California Energy
Commission ("CEC"). On the Closing Date, Seller will assign to Purchaser, and
Purchaser shall accept the assignment of and assume Seller's obligations under,
such agreement. The Marketing Sites are as follows:
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<TABLE>
<CAPTION>
- ---------- ------------------------ ------------------------- --------
Store # Address City State
- ---------- ------------------------ ------------------------- --------
<S> <C> <C> <C>
70103 12678 San Pablo Avenue Richmond CA
- ---------- ------------------------ ------------------------- --------
70109 890 Coleman Avenue San Jose CA
- ---------- ------------------------ ------------------------- --------
70285 696 West El Camino Real Sunnyvale CA
- ---------- ------------------------ ------------------------- --------
</TABLE>
Seller's transfer of its interest in the methanol (M85) facilities and
the agreement with the CEC requires the consent of the CEC which will be
promptly requested by Seller.
2.2.12 With respect to the California-South Marketing Assets
only, the parties acknowledge and agree that each of the Fee & Lease Dealer
Agreements constitutes a "franchise relationship," as that term is defined in
the PMPA, between Seller and the operator of the service station on each Fee &
Lease Dealer Marketing Site. Such operator constitutes a "franchisee" as that
term is defined in the PMPA and in Section 20999 of the California Business and
Professions Code. Within fifteen (15) days of the Effective Date, Seller shall
offer each Fee & Lease Dealer who operates a service station on a Fee Marketing
Site a bona fide offer to purchase that Fee Marketing Site pursuant to Section
20999.25 of the California Business and Professions Code, for a period of
forty-five (45) days after Seller delivers a copy, executed by Seller, of an
offer to sell the Fee Marketing Site to such Dealer (the "Fee & Lease Dealer
Terms and Conditions of Sale"). The Fee & Lease Dealer may purchase his or her
Marketing Site on the terms and conditions set forth in the Fee & Lease Dealer
Terms and Conditions of Sale. The Fee & Lease Dealer Terms and Conditions of
Sale will provide that the Fee & Lease Dealer may accept such Fee & Lease Dealer
Terms and Conditions of Sale by delivering to Seller a written acceptance of the
Fee & Lease Dealer Terms and Conditions of Sale within such forty-five (45) day
period. If any such Fee & Lease Dealer does not exercise the right of purchase
offered by Seller by delivering written acceptance to Seller within the stated
period, then on the Closing Date, Seller will sell such Marketing Site to
Purchaser and shall assign to Purchaser the Fee & Lease Dealer Agreements with
respect to such Marketing Site and Purchaser shall accept the assignment of same
and assume Seller's obligations thereunder. In the event that any Fee & Lease
Dealer elects to purchase his or her respective Marketing Site pursuant to the
right of purchase set forth in this Section 2.2.12, then for purposes of this
Agreement and notwithstanding anything contained in the Exhibits to the
contrary, the parties agree that such Marketing Site shall not be deemed a
"Marketing Site" for purposes of this Agreement, the Fee & Lease Dealer
purchasing such Marketing Site shall not be deemed a "Fee & Lease Dealer" and
the franchise agreement for such Fee & Lease Dealer shall not be deemed "a Fee &
Lease Dealer Agreement", and upon the sale of such Marketing Site to the Fee &
Lease Dealer, this Agreement shall no longer be deemed to apply to such
Marketing Site, Fee & Lease Dealer or Fee & Lease Dealer Agreement and the
Purchase Price will be reduced by the price paid by the Fee and Lease Dealer.
Seller will not provide any financing for the purchase of any Marketing Site by
a Fee & Lease Dealer. If any Fee & Lease Dealer requires financing, Seller's
obligation to sell such Fee & Lease Dealer Marketing Site to the Fee & Lease
Dealer will be contingent upon (i) such Fee & Lease Dealer making application to
a lending institution for such financing within fifteen (15) days after the Fee
& Lease Dealer receives the Fee & Lease Dealer Terms and Conditions of Sale, and
delivering a copy of such application to Seller, and (ii) providing Seller a
copy of a commitment for such financing within thirty (30) days after submission
of such loan application. The Fee & Lease Dealer Terms and Conditions of Sale
will provide that if any Fee
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& Lease Dealer exercises the right of purchase granted by Seller but fails to
close the transaction on the closing date specified in the Fee & Lease Dealer
Terms and Conditions of Sale, the Fee & Lease Dealer Terms and Conditions of
Sale will terminate, the Fee & Lease Dealer will have no further rights to
purchase the Property, Seller will sell the Property to Purchaser, and Purchaser
will purchase the Property, in accordance with this Section 2.2.12.
2.2.13 On or before the Closing date, Seller shall provide to
Purchaser any existing records relating to the Marketing Assets, including, but
not limited to, any documents that are stored or maintained in electronic
storage format, such as computer disks or tapes.
2.3 EXCLUDED PROPERTY.
Notwithstanding anything else in this Agreement, the Assets (and
any defined term for any property included in the Assets) exclude the following
(collectively, the "Excluded Property"):
2.3.1 Intra-company accounts and contracts of Seller;
2.3.2 Cash or bank accounts of Seller;
2.3.3 Defenses and claims that Seller has asserted or could
assert against third parties (except to the extent that such defenses and claims
relate to liabilities that Purchaser is assuming);
2.3.4 Accounts receivable, except those associated with the Distributor
Sales Agreements referred to in Section 2.2.6, and notes receivable;
2.3.5 Proprietary trade names, trademarks, service marks, logos,
trade dress, insignia, imprints, brand identifications, advertising and trade
names of Seller and all signs and other personal property whose primary purpose
is to display any of the foregoing and all forms and documents which prominently
incorporate any of the foregoing except, as to California-South Marketing
Assets, to the extent provided in the Branded Marketer Agreement;
2.3.6 Any invention, patent, trade secret, copyright,
technological information, software, data or rights with respect to any of the
foregoing;
2.3.7 The items listed on Attachments IX-R, IX-T and IX-M;
2.3.8 The Improvements, Equipment or Inventory located at the
Assets, which are not owned by Seller, as listed on Attachments X-R, X-T and
X-M;
2.3.9 Seller's insurance policies and rights under its insurance
policies;
2.3.10 INTENTIONALLY LEFT BLANK;
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2.3.11 Any environmental monitoring wells and remediation
equipment located on any of the Marketing Sites;
2.3.12 Anything else that is stated in this Agreement as
remaining the property or responsibility of Seller;
2.3.13 Any other property that is owned by Seller and not used in
the operation of the Refinery, Terminal or Marketing Assets.
2.4 INSURANCE.
2.4.1 Seller and Purchaser acknowledge that Seller maintains a
worldwide program of property and liability insurance coverage for itself and
its Affiliates. This program has been designed to achieve a coordinated
risk-management package for Seller and all of its Affiliates. The program
consists principally of three types of policies: (i) policies issued to Seller
or its predecessors; (ii) policies issued directly to Affiliates by one of
Seller's wholly-owned insurance companies ("Seller Captive Insurers"); and (iii)
policies issued to Affiliates by locally admitted insurers which are reinsured
by one of the Seller Captive Insurers. All of the insurance policies through
which the worldwide program of coverage is presently or has previously been
provided by or to Seller, its predecessors or Affiliates are herein referred to
collectively as the "Seller Policies."
2.4.2 It is understood and agreed by Purchaser that from and
after the Closing:
2.4.2.1 No insurance coverage shall be provided under the
Seller Policies to Purchaser; and
2.4.2.2 Any and all policies insured or reinsured by any of
the Seller Captive Insurers which, but for this provision, would have insured
the Refinery, the Terminal or the Exxon California Marketing Assets shall be
deemed terminated, commuted and cancelled ab initio;
2.4.2.3 No claims regarding any matter whatsoever, whether or
not arising from events occurring prior to the Closing, shall be made by
Purchaser against or with respect to any of the Seller Policies regardless of
their date of issuance.
2.4.3 Purchaser shall indemnify and defend Seller and its
Affiliates against, and shall hold them harmless from, any claim made after the
Closing against any of the Seller Policies by Purchaser or by any company or
person claiming to be subrogated to Purchaser's rights, including all costs and
expenses (including attorneys' fees) related thereto. Such indemnity shall
cover, without limitation, any claim by an insurer for reinsurance,
retrospective premium payments, prospective premium increases, or any other
restitution or funding requirements attributable to any such claim.
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<PAGE> 16
2.5 SALE OF ASSETS ONLY. The transactions pursuant to this Agreement
constitute only the sale by Seller to Purchaser of assets and not the sale of
businesses. Purchaser is experienced in the operation of properties like the
Assets and is familiar with the risks involved in owning and operating
properties like the Assets, and is not relying on Seller to furnish Purchaser
any information as to such risks.
2.6 CONSENT DECREES
2.6.1 The Assets described herein are consistent with the term
"Exxon California Refining and Marketing Assets" in the Consent Decrees, it
being understood that nothing in this Section 2.6 is intended to enlarge or
contract the Assets to be conveyed pursuant to this Agreement.
2.6.2 Consistent with the "asset maintenance" provisions of the
Consent Decrees, Seller will continue in effect all programs and other business
practices aimed at maintaining existing relationships with Exxon-branded sellers
with respect to the California South Marketing Assets and with distributors, and
shall seek to preserve such relationships as diligently as Seller has in the
past. Moreover, Seller will not unilaterally terminate any distributor contracts
currently in existence, will exercise, in Seller's sole discretion, any
reasonable legal rights to enforce contracts with, or seek damages from, any
distributor that attempts to totally de-brand from Seller, and will exercise, in
Seller's sole discretion, any reasonable rights to liquidated damage provisions
in any existing distributor contracts.
ARTICLE III
PURCHASE PRICE
3.1 AMOUNT. The price to be paid by Purchaser for the transfer, sale
and assignment by Seller of the Assets other than the Refinery and Terminal
Inventory is Eight Hundred Ninety-five Million Dollars ($ 895,000,000)
("Purchase Price"). The price to be paid by Purchaser for the Refinery and
Terminal Inventory ("Refinery and Terminal Inventory Sale Price") shall be
calculated in accordance with Section 6.4. On the Closing Date, Purchaser shall
pay the Purchase Price and the Refinery and Terminal Inventory Sale Price by
wire transfer of immediately available funds to the account designated by Seller
or its assignee.
3.2 EARNEST MONEY DEPOSIT. Within five (5) days after Seller provides
Purchaser notice that Seller desires to accept Purchaser's offer contained in
this Agreement, Purchaser will deliver to Seller an irrevocable stand-by letter
of credit (or similar instrument acceptable to Seller) drawn on a bank
acceptable to Seller and in form and substance satisfactory to Seller, or at
Purchaser's option immediately available funds payable to Seller in the amount
of Eighty-nine Million, Five Hundred Thousand Dollars ($ 89,500,000),
representing an earnest money deposit equal to ten percent (10%) of the
estimated Purchase Price (the "Earnest Money Deposit") as consideration for
Seller's entry into this Agreement. If the Earnest Money Deposit is in the form
of a letter of credit, the letter of credit shall provide that it may be drawn
upon by Seller upon Seller's certification to the issuing bank of Purchaser's
Default under this Agreement. If the
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<PAGE> 17
Earnest Money Deposit is in the form of immediately available funds, such funds
shall be deposited with the Title Company in an interest bearing account
pursuant to an escrow agreement among the Title Company, Seller and Purchaser.
Seller's notice of its desire to accept this Agreement shall not be binding on
Seller unless and until Purchaser delivers the Earnest Money Deposit to the
Title Company and Seller executes and delivers this Agreement. In such event,
the date on which this Agreement is so delivered to Purchaser shall be entered
on the first page hereof and shall be the Effective Date. In the event the
Closing occurs, the Earnest Money Deposit, together with interest or earnings
thereon, shall be credited against the Purchase Price. In the event the Closing
does not occur and the failure to close is not a result of Purchaser's Default
hereunder, then the Earnest Money Deposit, together with any interest or
earnings thereon, shall be paid to Purchaser on the third business day following
the scheduled Closing Date.
3.3 VALUATION. The parties agree that any property valuations
established by the parties for the Assets are for purposes of (i) establishing
an insured amount for the Title Commitments and title policies; (ii) preparing
the Closing statements and escrow instructions; (iii) preparing affidavits of
value and transfer tax returns; (iv) calculating recording fees and transfer
taxes, if applicable, and (v) determining the applicable purchase price for each
Fee & Lease Dealer Property for purposes of the right of purchase pursuant to
Section 2.2.12. Such property valuations are not established necessarily for tax
purposes or for financial or accounting ("book") purposes.
3.4 ALLOCATION OF PURCHASE PRICE. Purchaser and Seller shall make their
own allocations of the Purchase Price for tax and accounting purposes. Neither
party shall be bound by any allocations of the Purchase Price by the other
party.
ARTICLE IV
SELLER'S RETAINED LIABILITIES; PURCHASER'S ASSUMPTION OF
OBLIGATIONS
4.1 SELLER'S RETAINED LIABILITIES. Seller shall retain the following
liabilities and obligations (the "Retained Liabilities"):
4.1.1 Seller's Retained Environmental Liabilities set forth in
Section 11.3.1.1 relating to the Refinery and Terminal and Seller's
environmental liabilities with respect to the Marketing Sites as set forth in
Section 11.4 hereof;
4.1.2 any liability or obligation for: (i) salary, wages,
benefits, vacation, severance, supplies or overhead for or on behalf of any
current or former employees of Seller pertaining to their employment by Seller
at the Assets, or (ii) any injury or exposure suffered by any current or former
employee of Seller or of Seller's contractors or subcontractors (to the extent
and in the proportion the injury or exposure occurred prior to Closing)
pertaining to their employment by Seller or work relating to the Assets, or
(iii) any violations of law relating to the hiring, employment or termination of
employment (including, without limitation, any violations
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of the Employee Retirement Income Security Act ("ERISA"), the Worker Adjustment
and Retraining Notification Act (the "WARN Act"), continuation coverage ("COBRA
Coverage") requirements of Section 4980B of the Internal Revenue Code of 1986,
as amended, or Part 6 of Title I of ERISA, worker's compensation laws, and any
federal, state, local or foreign laws relating to plant closings or termination
of employees) of any current or former employees of Seller pertaining to their
employment by Seller at the Assets, except in each case as otherwise provided in
Article XXII hereof;
4.1.3 any costs for property furnished or services rendered
(other than by Seller's employees) to or for the benefit of the Assets prior to
the Closing;
4.1.4 any Taxes or levies (1) based upon the gross or net income
or receipts of Seller or any of its Affiliates or otherwise in the nature of an
income or franchise Tax (as defined below), or (2) arising during, or relating
to, any period (or portion thereof) ended on or prior to the Closing; and
4.1.5 any liability or obligation with respect to any litigation
listed in Schedule 9.12 or pending or, within Seller's Knowledge, threatened,
against Seller with respect to the Assets or their Operations as of the Closing;
4.1.6 any liability or obligation arising out of or relating to
pre-Closing Operations at the Assets as to products made and sold before the
Closing Date that create infringement of or infringe on Unocal 's U.S. Patent
Nos. 5,288,393, 5,593,567, 5,653,866 and 5,837,126, provided Seller's liability
shall be limited to sums that are payable under a final decree or judgment, or
settlement. Provided further that Seller shall only be liable to Purchaser to
the extent that Purchaser promptly notifies Seller of any such potential
pre-Closing patent liabilities in writing, and allows Seller to control the
defense of any such litigation, and to settle or compromise all claims and
lawsuits, provided however, that Seller may not settle or compromise any such
claim or lawsuit without the written consent of Purchaser if any settlement or
compromise (a) requires Purchaser to part with any right or make any payment not
indemnified, or (b) subjects Purchaser to any injunction. Subject to the
foregoing, Purchaser shall have the right, at its option and expense, but not
the obligation, to retain advisory counsel to represent its interests and
consult with Seller's counsel in defending any such claim or lawsuit and shall
render such reasonable assistance which is requested by Seller without charge to
Seller; and
4.1.7 any liability or obligation arising out of or relating to
any of the Excluded Property.
4.2 PURCHASER'S ASSUMED OBLIGATIONS In consideration of the transfer of
the Assets, Purchaser shall assume, and pay, perform and discharge when due:
4.2.1 any liability or obligation with respect to the Assets or
any condition existing with respect to the Assets, in each case whether arising
before, at or after the Closing, but subject in each case to Seller's retention
of the Retained Liabilities;
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4.2.2 any liability or obligation for: (i) salary, wages,
benefits, vacation, severance, supplies or overhead for or on behalf of any
current or former employees of Seller pertaining to their employment by
Purchaser, or (ii) any injury or exposure suffered by any current or former
employee of Seller or of Seller's contractors or subcontractors (to the extent
and in the proportion the injury or exposure occurred after Closing) pertaining
to their employment by Purchaser or work relating to the Assets, or (iii) any
violations of law relating to the hiring, employment, or termination of
employment (including, without limitation, any violations of ERISA, the WARN
Act, COBRA Coverage, workers' compensation laws, and any federal, state, local
or foreign laws relating to plant closings or termination of employees) of any
current of former employees of Seller pertaining to their employment by
Purchaser, except in each case as otherwise provided in Article XXII hereof;
4.2.3 any costs for property furnished or services rendered
(other than by employees of Purchaser) to or for the benefit of the Assets after
the Closing;
4.2.4 any liability or obligation arising after the Closing under
any of the Contracts, the Permits or any contract or permit transferred pursuant
to Section 2.2; and
4.2.5 the obligations assumed by Purchaser pursuant to Article
XI.
ARTICLE V
RELATED AGREEMENTS
5.1 REFINERY AND TERMINAL AGREEMENTS. At or prior to Closing, Seller
and Purchaser shall enter into the following agreements:
5.1.1 Access Agreement in the form of Exhibit "D";
5.1.2 Hold Harmless and Indemnity Agreement in the form of
Exhibit "E", if applicable;
5.1.3 Assignment and Assumption of Permits and Contracts in the
form of Exhibit "F";
5.1.4 Intentionally left blank; and
5.1.5 Assignment and Assumption of Lease Agreement in the form of
Exhibit "H."
5.2 MARKETING ASSETS AGREEMENTS.
5.2.1 With respect to the California-South Marketing Assets only,
at least forty-five (45) days prior to the Closing Date, Purchaser and Seller
will execute a supply agreement in
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the form of Exhibit "J" (the "Supply Agreement"), whereby Seller will purchase
from Purchaser certain unbranded fuels products. Purchaser and Seller agree that
Exhibit "J" contains all of the material and significant terms of the Supply
Agreement and that prior to the execution of the Supply Agreement, Seller and
Purchaser shall agree in good faith on certain additional administrative
provisions and/or addenda which are necessary to activate the Supply Agreement
and such provisions or addenda shall become part of the Supply Agreement.
5.2.2 With respect to the California-South Marketing Assets only,
at least forty-five (45) days prior to the Closing Date, Seller and Purchaser
will execute a Branded Marketer Agreement in the form of Exhibit "K" (the
"Branded Marketer Agreement"). Purchaser and Seller agree that Exhibit "K"
contains all of the material and significant terms of the Branded Marketer
Agreement and that prior to the execution of the Branded Marketer Agreement,
Seller and Purchaser shall agree in good faith on certain additional
administrative provisions and/or addenda which are necessary to activate the
Branded Marketer Agreement and such provisions or addenda shall become part of
the Branded Marketer Agreement.
5.3 TECHNOLOGY AGREEMENTS.
5.3.1 At or prior to Closing, Seller or its appropriate Affiliate
and Purchaser shall enter into the License Agreement, the form of which is
attached as Exhibit "L-1".
5.3.2 At or prior to Closing, at Purchaser's sole option, Seller
or its appropriate Affiliate and Purchaser shall enter into the Technology
Assistance Agreement, the form of which is attached as Exhibit "L-2".
5.3.3 At or prior to Closing, Seller shall provide such
assistance as Purchaser may reasonably request in Purchaser's efforts to obtain
license agreements or rights for the third-party technology set forth on Exhibit
L-3 or as agreed to by the parties.
5.4 CRUDE SUPPLY AGREEMENTS. At or prior to Closing, at Purchaser's
sole option, Seller and Purchaser shall execute the Crude Supply Agreement(s)
attached as Exhibit "M" (unless revised by mutual agreement of the parties)
including the ANS Crude Supply Agreement by which Seller will supply to
Purchaser Alaska North Slope ("ANS") crude oil in ratable quantities of up to
100 MBD for up to ten (10) years.
5.5 SERVICES AGREEMENT. Seller shall provide, or cause its Affiliates
to provide, Purchaser on a commercially reasonable basis, transition services
pursuant to the Transition Services Agreement attached hereto as Exhibit "N "
(the "Transition Services Agreement"). Such Seller Services would include,
without limitation, any services provided to the Refinery, Terminal and
Marketing Assets by Seller or any of its Affiliates as of the date hereof which
are necessary with respect to the operation of the Refinery and Terminal and
Marketing Assets. Seller will provide such services to Purchaser on a
commercially reasonable basis, for a term not to exceed six (6) months from the
Closing Date which term may be extended for up to an additional six (6) months
upon agreement of the parties, to facilitate the transfer of Operations to
Purchaser.
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5.6 AGREEMENTS NOT EFFECTIVE PRIOR TO CLOSING. With the exception of
the Access Agreement referred to in Section 5.1.1 and the Transition Services
Agreement in Section 5.5, none of the agreements described above in Article V
shall be effective prior to Closing.
ARTICLE VI
CLOSING
6.1 TIME AND PLACE. Subject to satisfaction of the conditions set forth
in Article VII, the closing of the transaction contemplated hereby (the
"Closing") shall be held at First American Title Company on or before June 15,,
2000 (the "Closing Date"), or at such other time or place or in such other
manner, including by mail, as Seller and Purchaser may mutually agree in
writing.
6.2 SELLER'S DELIVERIES. At the Closing, Seller shall do the following:
6.2.1 with respect to the Refinery and the Terminal:
6.2.1.1 deliver to the Title Company Corporation Grant Deeds
for the owned Real Properties, in the form attached as Exhibit "O", executed and
acknowledged by Seller;
6.2.1.2 deliver to Purchaser Bills of Sale for the Personal
Property, in the form attached as Exhibit "P", executed by Seller;
6.2.1.3 deliver to Purchaser Assignments and Assumption of
Leases, in the form attached as Exhibit "H", executed and acknowledged by
Seller;
6.2.1.4 deliver to Purchaser possession of the Refinery and
the Terminal;
6.2.1.5 deliver to Purchaser counterparts executed by Seller
of those agreements required by the provisions of Article V;
6.2.2 with respect to the Marketing Sites:
6.2.2.1 deliver to the Title Company a Corporation Grant Deed
for each Fee Marketing Site, in the form of Exhibit "O", executed and
acknowledged by Seller;
6.2.2.2 to the extent any required consents have been
obtained, deliver to the Title Company an executed and acknowledged Assignment
and Assumption of Lease for each Leased Marketing Site in the form of Exhibit
"H";
6.2.2.3 deliver to Purchaser an executed Bill of Sale for the
Marketing personal property included in the Marketing Assets, in the form of
Exhibit "P";
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6.2.2.4 as to the California-South Marketing Assets, deliver
to Purchaser assignments of the Fee & Lease Dealer Agreements (subject to the
provisions of Section 2.2.12) and the Distributor Sales Agreements, in the form
of Exhibit "S";
6.2.2.5 as to the California-South Marketing Assets, deliver
to Purchaser the executed Supply Agreement, as provided in Section 5.2.1, and
the executed Branded Marketer Agreement, as provided in Section 5.2.2;
6.2.2.6 to the extent obtained by Seller prior to the Closing
Date, deliver to the Title Company the written consent of any lessor or
landlord, if the assignment of the lease relating to a Leased Property requires
such consent, such written consent to be in form and substance satisfactory to
the Title Company and Purchaser; and
6.2.3 With respect to all categories of Assets, deliver to the
Purchaser the following:
6.2.3.1 certified copies of appropriate corporate action by
Seller authorizing the transactions contemplated by this Agreement and
authorizing the person(s) executing the documents listed in this Section 6.2 to
enter into this Agreement and such other documents on behalf of Seller;
6.2.3.2 such affidavits and certificates as the Title Company
shall require, including certificates necessary to delete standard title
insurance exceptions and to protect Purchaser against claims that may give rise
to any mechanic's, materialmen's or other liens against the Real Property
related to Seller;
6.2.3.3 certificate or affidavit that the representations and
warranties made by Seller in this Agreement are true and correct as of the
Closing Date, as though made at and as of the Closing Date, except to the extent
modified pursuant to Article XV;
6.2.3.4 FIRPTA Affidavit and California Form 590E, in the
forms attached as Exhibit "T" and "U", respectively, executed by Seller.
6.3 PURCHASER'S DELIVERIES. At the Closing, Purchaser shall do the
following:
6.3.1 pay to Seller the Purchase Price, in accordance with
Section 3.1;
6.3.2 deliver to Seller counterparts executed by Seller of all
those agreements required by the provisions of Article V;
6.3.3 deliver to Seller and the Title Company certified copies of
appropriate corporate action by Purchaser authorizing the transactions
contemplated by this Agreement and authorizing the person(s) executing the
documents listed in this Section 6.3 to enter into this Agreement and such other
documents on behalf of Purchaser;
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6.3.4 deliver to Seller the executed Guaranty from Valero Energy
Corporation, in accordance with Article XXV and in the form attached as Exhibit
"V";
6.3.5 deliver to Seller a certificate or affidavit that the
representations and warranties made by Purchaser in this Agreement are true and
correct as of the Closing Date, as though made at and as of the Closing Date,
except to the extent modified pursuant to Article XV.
6.3.6 as to the California-South Marketing Assets, execute and
deliver to Seller the Supply Agreement, as provided in Section 5.2.1; and
6.3.7 as to the California-South Marketing Assets, execute and
deliver to Seller the Branded Marketer Agreement, as provided in Section 5.2.2.
6.4 INVENTORIES.
6.4.1 Refinery and Terminal Inventory. The Refinery and Terminal
Inventory shall be calculated in accordance with the procedures set forth in
"Refinery and Terminal Inventory Quantification Procedures" attached hereto as
Attachment XIIA. The price to be paid for the Refinery and Terminal Inventory
("Refinery and Terminal Inventory Sale Price") shall be calculated in accordance
with the "Refinery and Terminal Inventory Valuation Protocol" attached as
Attachment XIIB. At Closing, Seller shall transfer title and custody of the
Refinery and Terminal Inventory to Purchaser and Purchaser will accept the
Refinery and Terminal Inventory and pay the Refinery and Terminal Inventory Sale
Price to Seller.
6.4.2 Marketing Inventory and Merchandise. Seller shall be
responsible for determining the quantities of the Marketing Inventory and
Merchandise to be sold and transferred to Purchaser as of the Closing Date.
"Marketing Inventory" means all refined Petroleum Products in bulk storage owned
by Seller on each Marketing Site and all branded lubricants, tires, batteries,
accessories and or other products owned by Seller and held for resale.
"Merchandise" means all merchandise owned by Seller and held for resale in the
stores on the Marketing Sites other than Marketing Inventory. The Parties
acknowledge that the Purchase Price set forth in Section 3.1 includes payment
for all Marketing Inventory and Merchandise on each Marketing Site at the
Closing.
6.5 APPORTIONMENT OF TAXES, RENTS AND UTILITIES.
6.5.1 The following items relating to the Assets: (i) general
real estate taxes for the then current year relating to each Real Property, (ii)
personal property taxes, (iii) rents, if any, and (iv) charges for water,
electricity, sewerage, gas and all other utilities or municipal charges, shall
be prorated as of the Closing Date and shall be adjusted at the Closing. If the
Closing shall occur before taxes are finally fixed for the then current year for
any Real Property, the apportionment of taxes at the Closing shall be upon the
basis of the Latest Tax Rate applied to the Latest Tax Valuation for such Real
Property. All special taxes or assessments applicable to any Real Property prior
to the Closing Date shall be paid by Seller, including, without limitation,
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all taxes resulting from subsequent assessments for years or portions thereof
prior to the Closing due to change in land usage or ownership pursuant to
existing law. Seller shall collect from Purchaser at Closing and shall pay all
sales taxes applicable to the personal property and equipment transferred to
Purchaser. All escrow fees shall be assessed to Purchaser.
6.5.2 If any of the amounts to be apportioned in Section 6.5.1
are not readily determinable as of the time of Closing, such apportionments
shall, to the extent necessary, be based on Seller's and Purchaser's reasonable
estimate thereof. Purchaser and Seller shall cooperate with each other in making
the calculations upon which any Taxes are to be allocated in favor of Seller or
Purchaser, as the case may be. Such apportionments made on the basis of
estimates shall be recalculated as soon as possible after the availability of
required information, but in any event within one (1) year of the time of
delivery of this Agreement, and any overpayments or underpayments due either
party shall be adjusted by suitable payments of one to the other. Apportionment
of property taxes shall only apply with respect to assets conveyed by Seller at
Closing that are still held by Purchaser as of the assessment date. Any property
taxes attributable to property produced or acquired by the Purchaser after the
Closing Date, except as expressly provided for in this Agreement, shall be
entirely for the account of the Purchaser.
6.6 PAYMENTS FROM FRANCHISEES. All rents and other sums due or payable
by Seller under the Fee & Lease Dealer Agreements and the Distributor Sales
Agreements will be prorated as of the Closing Date. Unless otherwise agreed by
the parties, payment of the prorated amounts will occur within forty-five (45)
days after the Closing.
6.7 CONDITION OF ASSETS. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT
, ALL ASSETS (INCLUDING BUT NOT LIMITED TO THE REAL PROPERTY, EQUIPMENT,
IMPROVEMENTS, INVENTORY, MARKETING INVENTORY, MERCHANDISE, ETC.) TO BE CONVEYED
HEREUNDER WILL BE CONVEYED ON AN "AS IS", "WHERE IS ", AND "WITH ALL FAULTS"
BASIS AT THE CLOSING AND SELLER MAKES NO WARRANTIES, EXPRESS OR IMPLIED,
CONCERNING THE PHYSICAL CONDITION, UTILITY OR OPERABILITY OF ANY OF THE ASSETS,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR
PARTICULAR OR ORDINARY USES OR PURPOSES. EXCEPT FOR THE TANK TESTING OF
MARKETING SITES PROVIDED IN SECTION 11.4.2, ANY ADDITIONAL ENVIRONMENTAL
ASSESSMENTS CONTEMPLATED BY SECTION 11.4.3.2, THE SURVEYS OF MARKETING SITES
REFERENCED IN SECTION 12.1.3 AND INSPECTIONS OF MAJOR EQUIPMENT UNDER SECTIONS
19.2 AND 19.3, PURCHASER AND ANY LENDER OF PURCHASER HAVE COMPLETED ALL DUE
DILIGENCE PRIOR TO THE EFFECTIVE DATE AND PURCHASER'S OBLIGATIONS HEREUNDER ARE
NOT CONDITIONED ON ITS SATISFACTION WITH THE RESULTS OF ANY FURTHER INSPECTION,
INVESTIGATION, REVIEW OR OTHER DUE DILIGENCE.
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ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
7.0 TERMS. Subject to the terms hereof, the obligations of Seller and
Purchaser at the Closing are subject to the satisfaction or waiver at or prior
to the Closing of each of the respective conditions set forth below.
7.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser
at the Closing are subject to the following conditions:
7.1.1 Seller shall have performed all covenants required by
this Agreement to be performed by it at or prior to the Closing;
7.1.2 Seller shall have delivered to Purchaser all agreements,
instruments, certificates and documents required to be so delivered under this
Agreement, including without limitation those listed in Section 6.2;
7.1.3 there shall not be in effect any Order barring the
consummation of the transactions contemplated by this Agreement;
7.1.4 Subject to Article XXIII, Purchaser shall have obtained
(or the prospects for obtaining in the normal course shall be reasonably
assured) all material Refinery and Terminal Permits and Consents as to which
both (i) Purchaser has promptly applied therefor and diligently pursued such
application (or reasonable equivalents for such Permits and Consents) and (ii)
such Permit or Consent is necessary for the normal operation of the Refinery and
Terminal; and
7.1.5 Seller shall have obtained the approved of the Federal
Trade Commission to the consummation of the transactions contemplated by this
Agreement and the California Attorney General shall not have objected thereto.
7.2 CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of Seller at
the Closing are subject to the following conditions:
7.2.1 Purchaser shall have performed all covenants required by
this Agreement to be performed by it at or prior to the Closing;
7.2.2 Purchaser shall have delivered to Seller all agreements,
instruments, certificates and documents required to be so delivered under this
Agreement or such other agreements or instruments, including without limitation
those listed in Section 6.3;
7.2.3 there shall not be in effect any Order barring the
consummation of the transactions contemplated by this Agreement; and
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7.2.4 Seller shall have obtained the approval of the Federal
Trade Commission to the consummation of the transactions contemplated by this
Agreement and the California Attorney General shall not have objected thereto.
7.3 COOPERATION. From the Effective Date hereof until the Closing,
Seller and Purchaser shall work together in the spirit of continuing cooperation
to (a) cause the conditions to Closing set forth in this Article VII to be
satisfied as quickly as is reasonably possible, and (b) obtain any Consent (as
defined in Sections 9.3 and 10.3) required by Seller or Purchaser to consummate
the transactions contemplated by this Agreement, or otherwise in connection with
the Purchaser's ownership of the Assets or its proposed business operations
relating thereto.
ARTICLE VIII
PMPA COMPLIANCE
8.1 CALIFORNIA-SOUTH MARKETING ASSETS.
8.1.1 Subject to the provisions of Section 2.2.12, Seller will
assign to Purchaser at the Closing the PMPA Franchise Agreements with each of
its existing Fee & Lease Dealers, and Distributors identified on Exhibits "A-1,
"A-2", and "B", respectively. Purchaser will assume all of Seller's rights and
obligations under the PMPA Franchise Agreements and, except as otherwise
expressly provided for in this Agreement, under the PMPA and any other
applicable law, as the same relate to the PMPA Franchise Agreements.
8.1.2 With regard to any claim arising out of or relating to
the PMPA or any applicable state law with respect to franchise agreements,
Seller shall indemnify and hold Purchaser, its affiliates, agents and employees
harmless from and against each and every loss, cost, claim, obligation, damage,
liability, payment, fine, penalty, cause of action, judgment (including expert
witness fees and attorneys' fees awarded to any franchisees as part of a
judgment), lien or expense, including, but not limited to, reasonable attorneys'
fees and other litigation expense (a "PMPA Claim") to the extent that any such
PMPA Claim (i) seeks to invalidate or claim the invalidity of Seller's
assignment of its franchise agreements to Purchaser, unless such PMPA Claim is
based on any act or omission by Purchaser; or (ii) arises out of, or is in any
way related to (A) Seller's failure to fulfill its obligations under this
Agreement, the PMPA, or any applicable state law with respect to franchise
agreements or (B) Seller's failure to fulfill any obligations contained in the
PMPA Franchise Agreements assigned to Purchaser by Seller, except to the extent
caused by any act or omission of Purchaser.
8.1.3 At an appropriate time prior to the stated expiration
date of each of the PMPA Franchise Agreements assigned by Seller to Purchaser,
Purchaser will, in good faith and in the normal course of business, offer to
each of the franchisees agreements for the supply of branded motor fuel, unless
such franchisee previously has been properly terminated or non-renewed for any
reason permitted by the PMPA or properly non-renewed pursuant to 15 USC
2802(b)(3)(A). Franchise agreements offered by Purchaser to the franchisees
referenced
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hereunder shall be offered in accordance with PMPA and shall comply in all
respects with all applicable provisions of the PMPA and any applicable state
law.
8.1.4 With regard to any claim arising out of or relating to
the PMPA or any applicable state law with respect to franchise agreements,
Purchaser shall indemnify and hold Seller, its affiliates, agents and employees
harmless from and against each and every PMPA Claim of any kind or character
which results from, arises out of, or are in any way related to (i) any
termination or non-renewal by Purchaser of any PMPA Franchise Agreements
assigned by Seller to Purchaser, (ii) Purchaser's offer of franchise agreements
as required in Section 8.1.3, (iii) Purchaser's failure to offer franchise
agreements as required in Section 8.1.3, (iv) any claims or causes of action by
any franchisee concerning the terms and conditions of franchise agreements
offered by Purchaser or any action taken by Purchaser, specifically including
any termination or nonrenewal action, under or pursuant to said franchise
agreements, (iv) Purchaser's failure to fulfill its obligations under this
Agreement, the PMPA, or any applicable state law with respect to franchise
agreements and (v) Purchaser's failure to fulfill any obligations contained in
the PMPA Franchise Agreements assigned to Purchaser by Seller.
8.1.5 In any lawsuit brought by any franchisee, each party
shall bear its own attorneys' fees and other costs of defense incurred in such
action, except as otherwise provided herein.
8.2 CALIFORNIA-NORTH MARKETING ASSETS.
8.2.1 Seller mailed written notice of termination and/or
nonrenewal to the Fee & Lease Dealers at the California-North Marketing Sites
effective on or after June 15, 2000. Seller agrees to comply with all relevant
provisions of the PMPA in effecting such terminations and/or nonrenewals.
8.2.2 Upon request by Seller, Purchaser shall, within thirty
(30) days after the Effective Date, offer in good faith franchise agreements
(which are not trial franchise agreements) of at least three (3) years duration
to each of the Fee & Lease Dealers at the California-North Marketing Sites. Such
offers by their terms shall remain open for forty-five (45) days, but may state
that they will be deemed to be rejected by each Fee & Lease Dealer if not
accepted within the forty-five (45) day period. Such franchisee agreements shall
be in writing and shall be on terms and conditions which are not discriminatory
within the meaning of 15 U.S.C. 2802(b)(2)(E)(iii)II. Purchaser shall use all
reasonable efforts to host a meeting for all affected Fee & Lease Dealers within
seven (7) days after the offer of such franchise agreements. At that meeting
Purchaser shall inform such franchisees of Purchaser's obligations under this
Section 8.2.2.
8.2.3 The parties acknowledge that some of the
California-North Marketing Sites are in the possession of the Fee & Lease
Dealers and, therefore, are subject to any valid PMPA rights of said franchisees
and PMPA obligations of Seller. Therefore, Purchaser shall not take possession
of any California-North Marketing Site leased to a Fee & Lease Dealer prior to
the effective date of any notice of termination or non-renewal given by Seller
to any franchisee
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pursuant to the PMPA. If any Fee & Lease Dealer of Seller refuses to accept a
non-discriminatory franchise from Purchaser, as provided in Section 8.2.2 and
refuses to vacate the California-North Marketing Site it occupies prior to the
Closing Date, and Seller is unable to evict the Fee & Lease Dealer before the
Closing Date, the Closing shall not be deferred but will proceed as to that
California-North Marketing Site and Seller will take all commercially reasonable
actions, at its expense, to evict the Fee & Lease Dealer; provided, however, if
there is an Order in effect with respect to any such California-North Fee and
Lease Dealers preventing the Closing of the transaction as to such
California-North Marketing Site(s), the Closing shall not take place with
respect to such California-North Marketing Site(s) (but shall otherwise proceed
as to the other Assets) and the parties shall negotiate in good faith the
portion of the Purchase Price that shall not be paid to fairly reflect the fair
market value of the Marketing Sites so affected until such Order shall be
modified, withdrawn or amended to permit the closing of the sale of such
Marketing Sites, which shall occur on a mutually agreeable date as promptly as
practicable and at such closing Purchaser shall pay Seller the applicable
portion of the Purchase Price. In the event that the Closing occurs but there
exists an Order in effect with respect to any such California-North Fee and
Lease Dealer preventing termination, non-renewal or withdrawal by Seller or
preventing Purchaser from taking possession of such California-North Marketing
Site, the parties shall negotiate in good faith to determine the fair and
equitable compensation to Purchaser for its loss as to such site for which
Seller will reimburse and indemnify Purchaser. In the event the parties cannot
negotiate an acceptable amount, the parties agree to submit the matter to
binding arbitration under the Commercial Arbitration Rules of the American
Arbitration Association in effect on the date of arbitration.
8.2.4 If any lawsuit is brought by any of the Fee & Lease
Dealers under the PMPA challenging the termination or non-renewal of their
franchises by Seller or the validity of the notices of termination or
non-renewal given by Seller pursuant to this Article VIII, Seller shall
indemnify and hold Purchaser and its affiliates harmless from and against any
judgment for monetary damages (including expert witness and attorneys' fees
incurred by any franchisees) awarded to any of the franchisees in any such
action. Notwithstanding the foregoing, Seller shall have no obligation to
indemnify Purchaser and its affiliates pursuant to this Article VIII and
Purchaser shall indemnify and hold Seller and its affiliates harmless from and
against any judgment for monetary damages (including expert witness and
attorneys' fees incurred by any franchisees) awarded to any of the Fee & Lease
Dealers, to the extent that any such judgment for monetary damages results from
Purchaser's failure to fulfill its obligations under this Article VIII to offer
new nondiscriminatory franchises in good faith to each such franchisee. In any
such lawsuit brought by any Fee & Lease Dealer pursuant to the PMPA, Seller and
Purchaser shall each bear their own attorneys' fees and other costs incurred in
such action, except as otherwise provided in this Article VIII.
ARTICLE IX
SELLER'S REPRESENTATIONS AND WARRANTIES
In order to induce Purchaser to enter into this Agreement, Seller
hereby warrants and represents to Purchaser that:
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9.1 ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey, and is
duly authorized to conduct business in the State of California.
9.2 AUTHORITY; ENFORCEABILITY. Seller has the corporate power and
authority (i) to execute and deliver this Agreement and each agreement and
instrument delivered or to be delivered by Seller pursuant hereto, and to carry
out its obligations hereunder and thereunder and (ii) to own or lease the Assets
and to conduct its business thereon. The execution, delivery and performance of
this Agreement and each agreement and instrument delivered or to be delivered
pursuant hereto by Seller, and the consummation of the transactions provided for
hereby and thereby, have been duly authorized and approved by all requisite
corporate action of Seller and no other corporate act or proceeding on the part
of Seller or its affiliates or shareholders is necessary to authorize the
execution, delivery or performance of this Agreement or of such other agreements
and instruments, or the transactions contemplated hereby or thereby; and each of
this Agreement and such agreements and instruments is, or upon its execution and
delivery will be, legal, valid, binding and enforceable against Seller in
accordance with its respective terms, subject to the effects of bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfers, preferential
transfers and other laws of general application relating to creditors' rights
and equitable remedies.
9.3 CONSENTS. Other than the consent of the FTC pursuant to the Consent
Decree relating to the Exxon Mobil merger and the nonobjection of the Attorney
General of the State of California, and any other exceptions as set forth on
Schedule 9.3, no material consent, waiver, approval, authorization, exemption,
registration, license or declaration ("Consent") of or by, or material filing
with, any other person is required with respect to Seller or any of its
Affiliates in connection with (i) the execution, delivery or enforceability of
this Agreement or any material agreement or instrument delivered pursuant hereto
by Seller, or (ii) the consummation of any of the transactions provided for in
this Agreement and for other documents specified in clause (i).
9.4 NO BREACH. Except as set forth on Schedule 9.4, the execution and
delivery of this Agreement and each agreement and instrument delivered or to be
delivered pursuant hereto by Seller, and the consummation of the transactions
provided for hereby and thereby and the compliance by Seller with any of the
provisions hereof or thereof does not and will not (i) violate, or conflict
with, or result in a breach of, any provisions of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any lien upon any of the Assets, under
any of the terms, conditions or provisions of the Certificate of Incorporation
or By-laws of Seller or under any Contract or other agreement, instrument or
obligation to which Seller is a party, or by which any of the Assets or their
Operations otherwise are bound, or (ii) violate any order, injunction, statute,
rule or regulation, or (iii) trigger any rights of purchase (except as set forth
in Section 2.2.12), or any buy/sell or similar rights.
9.5 REAL PROPERTY. (i) Attachments I-R, I-T and I-M-1 and I-M-2 set
forth legal descriptions of the Real Property. With respect to any Real Property
which is under lease to
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Seller, Schedule 9.5 contains a legal description of the property, its owner,
the annual rent and related payments and charges (including Taxes, if any) of
any kind due under or in connection with any relevant lease, and the expiration
date of the lease; and, except as indicated on Schedule 9.5 , all such leases
are valid and are in full force and effect and are enforceable in accordance
with their terms, to Seller's knowledge no material defaults exist with respect
thereto, and, except as indicated on Schedule 9.5, all such leases may be
assigned and/or sublet to Purchaser without the consent of the lessor thereunder
or any third party. With respect to any other interest in real property related
to any of the Assets, Schedule 9.5 sets forth a description of such Real
Property, its owner, and the terms and conditions of use.
9.6 IMPROVEMENTS.
9.6.1 Attachments II-R, II-T and II-M set forth a general list
of all permanent structures and other improvements relating to the Refinery,
Terminal and Marketing Assets, respectively, and their respective Operations,
and provides a summary description of each major Improvement which is material
to each Asset, or their respective Operations. With respect to the major
Improvements in which Seller has an ownership interest, such Attachments
identify the location of such Improvements relative to the Real Property, and
the nature and extent of such ownership. With respect to any Improvements leased
to Seller, such Attachments identify the location of the Improvement, its owner,
the annual rent and related payments and charges (including Taxes, if any) of
any kind due under or in connection with any relevant lease, and the expiration
date of the lease; and, except as indicated in Schedule 9.6.1, all such leases
are valid and are in full force and effect and are enforceable in accordance
with their terms, to Seller's Knowledge no material defaults exist with respect
thereto, and all such leases may be assigned and/or sublet to Purchaser without
the Consent of any third party. With respect to any other interest in
Improvements related to the Assets or the Operations, such Attachments identify
the location of each such Improvement, its owner, and the terms and conditions
of use. To Seller's Knowledge, except as indicated in Schedule 9.6.1, any
arrangement governing the use of such Improvements is valid and in full force
and effect and is enforceable in accordance with its terms, and may be assigned
or otherwise transferred to Seller without the Consent of any third party.
9.6.2 Schedule 9.6.2 identifies and describes in reasonable
detail all major capital projects pending or planned at or in respect of the
Refinery, Terminal and Marketing Assets or their respective Operations (whether
undertaken by Seller or, to the best of Seller's Knowledge, a third party),
including the estimated final completion date and estimated final cost thereof.
Except as set forth in Schedule 9.6.2, there has been no material delay in the
estimated completion date, modification of design or other change in
specification, or increase in estimated final cost of any such project during
Seller's current fiscal year. Except as set forth in such Schedule, to Seller's
Knowledge all Consents and Permits required in respect of the completion and
operation of each and all such capital projects by Seller have been obtained and
are in full force and effect.
9.7 EQUIPMENT. To Seller's Knowledge, Attachments III-R, III-T and
III-M identify each major item of equipment included in the Assets, including a
general description of related
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spare parts, and provides a summary description of each material item thereof,
and except as indicated in Schedule 9.7, Seller has title to such equipment,
free and clear of all liens and encumbrances.
9.8 COMPLIANCE WITH LAWS. To Seller's Knowledge, except as set forth on
Schedule 9.8, Seller is in compliance in all material respects with all Permits,
judgments, orders, injunctions, statutes, rules, regulations and other legal
requirements applicable to, or required in connection with, the Assets. Seller
shall, within 15 days after the Effective Date, make available to Purchaser all
certificates of occupancy in Seller's possession for each Improvement. Except as
set forth in said Schedule 9.8, Seller has not received (whether directly or
indirectly) within one year prior to the Effective Date, any notice of violation
of any such Permit, judgment, order, injunction, statute, rule, regulation or
other legal requirement.
9.9 ENVIRONMENTAL. Except for Seller's Retained Environmental
Liabilities and except as disclosed on Schedule 9.9, to Seller's Knowledge there
are no Environmental Laws which are now in effect and enforceable (including any
such Laws which have established standards or requirements to take effect in the
future) which would materially adversely interfere with the operation of the
Refinery or the Terminal.
9.10 PERMITS. To Seller's Knowledge, Attachments VI-R, VI-T, and VIII-M
set forth accurate and complete lists of all material Permits.
9.11 CONTRACTS.
9.11.1 To Seller's Knowledge, Attachments V-R, V-T and V-M
contain an accurate and complete list of all material Contracts relating to the
Assets to which Seller or any of its affiliates is party, or by which a relevant
category of Assets and their respective Operations are bound.
9.11.2 Except as specifically disclosed in Schedule 9.11, (i)
all of the Contracts are valid and are in full force and effect and are
enforceable in accordance with their terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfers,
preferential transfers and other laws of general application relating to
creditors' rights and equitable remedies, (ii) to Seller's Knowledge, no
material defaults exist with respect thereto, nor has any event occurred which,
with the lapse of time or the giving of notice, or both, would constitute a
default under any Contract, except where such a default would not have a
material adverse effect upon the Assets or the Operations, and (iii) to Seller's
Knowledge all such Contracts may be assigned to Purchaser without the Consent of
any third party. To the best of Seller's Knowledge, there exists no material
dispute with any other party with respect to any such Contract.
9.12 ACTIONS AND PROCEEDINGS.
9.12.1 Except as set forth on Schedule 9.12, there is no legal
action pending, or, to Seller's Knowledge, threatened against Seller or any of
its Affiliates, whether or not the
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defense thereof or liability in respect thereof is covered by policies of
insurance, involving or affecting any of the Assets, or their respective
Operations and seeking (i) compensation in an amount in excess of $100,000 in
each case, or $500,000 in the aggregate, (ii) compensation in an unspecified
amount, (iii) to Seller's Knowledge, relief or redress under Environmental Laws;
or (iv) any injunctive relief, except for such injunctive relief that if granted
would be immaterial, individually and in the aggregate.
9.12.2 To Seller's Knowledge, except as set forth on Schedule
9.12, no action, suit, proceeding in condemnation or eminent domain is pending
or threatened seeking to condemn or acquire all or any part of any Real Property
which is part of the Assets.
9.12.3 To Seller's Knowledge, except as set forth on Schedule
9.12, no action, suit, proceeding or claim is pending or threatened seeking to
restrain or prohibit this Agreement, or any agreement, instrument or transaction
contemplated hereby, or to obtain damages, a discovery order or other relief in
connection with this Agreement or any such agreement, instrument, or transaction
contemplated hereby.
9.13 ABSENCE OF CERTAIN CHANGES.
9.13.1 Except as set forth on Schedule 9.13 or as provided for
or permitted by this Agreement, since their construction, the Refinery and the
Terminal have been used, operated and held by Seller only in the ordinary course
of business.
9.13.2 Except as set forth in such Schedule 9.13, within one
year prior to the Effective Date, Seller has not sold, conveyed, leased or
otherwise transferred any of its right, title or interest in any property
material to the Assets or to the Operations.
9.14 BROKERS. All negotiations relating to this Agreement, the
agreements and instruments delivered pursuant hereto, and the transactions
contemplated hereby and thereby have been carried on without the intervention of
any person acting on behalf of Seller or its Affiliates in such manner as to
give rise to any valid claim against Purchaser for any broker's or finder's fee
or similar compensation in connection with the transactions contemplated hereby
or thereby. Seller agrees to indemnify fully, hold harmless and defend Purchaser
and its Affiliates from and against, any claims by any person alleging a right
to a broker's or finder's fee based upon any actions of Seller or its
Affiliates.
9.15 SOLVENCY. Seller is solvent, is not in the hands of a receiver,
nor is any application of receivership pending and no proceedings are pending by
or against it for bankruptcy or reorganization in any state or federal court.
9.16 RETURNS. Seller is in compliance with all tax reporting and Return
requirements for the Assets and their respective Operations, and such Returns
were prepared on the basis of tax positions for which there was reasonable
support at the time for filing and Seller has paid (or will pay when due) all
Taxes shown on such Returns as owing which are attributable to any taxable
period or portion thereof that ends on or before the Closing Date.
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9.17 MARKETING ASSETS APPROVALS. To Seller's Knowledge, Seller has all
material approvals, Marketing Permits, governmental authorizations and consents
required to operate each of the Company Operated Marketing Sites as a retail
service station and any other current use thereon.
9.18 FOREIGN PERSON. Seller is not a "foreign person" as defined in
Section 1445 of the Internal Revenue Code and the regulations promulgated
thereunder. Seller's U.S. tax identification number is 13-5409005.
ARTICLE X
PURCHASER'S REPRESENTATIONS AND WARRANTIES
In order to induce Seller to enter into this Agreement, Purchaser
hereby warrants and represents to Seller that:
10.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
authorized to do business in the State of California.
10.2 AUTHORITY; ENFORCEABILITY. Purchaser has the corporate power and
authority (i) to execute and deliver this Agreement and each agreement and
instrument delivered or to be delivered by Purchaser pursuant hereto, and to
carry out its obligations hereunder and thereunder and (ii) to own or lease and
operate the Assets and to conduct its business thereon. The execution, delivery
and performance of this Agreement and each agreement and instrument delivered or
to be delivered pursuant hereto by Purchaser, and the consummation of the
transactions provided for hereby and thereby, have been duly authorized and
approved by all requisite corporate action of Purchaser and no other corporate
act or proceeding on the part of Purchaser or its Affiliates or shareholders is
necessary to authorize the execution, delivery or performance of this Agreement
or of such other agreements and instruments, or of the transactions contemplated
hereby or thereby; and each of this Agreement and such agreements and
instruments is, or upon its execution and delivery will be, legal, valid,
binding and enforceable against Purchaser in accordance with its respective
terms, subject to the effects of bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfers, preferential transfers and other laws of
general application relating to creditor's rights and equitable remedies.
10.3 CONSENTS. Except as set forth on Schedule 10.3, no material
Consent of or by, or material filing with, any other person is required with
respect to Purchaser or any of its affiliates in connection with (i) the
execution, delivery or enforceability of this Agreement or any agreement or
instrument delivered or to be delivered pursuant hereto by Purchaser, or (ii)
the consummation of any of the transactions provided in this Agreement and the
other documents specified in clause (i).
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10.4 NO BREACH. Except as set forth on Schedule 10.4, the execution and
delivery of this Agreement and each agreement and instrument delivered or to be
delivered pursuant hereto by Purchaser, and the consummation of the transactions
provided for hereby and thereby and the compliance by Purchaser with any of the
provisions hereof or thereof does not and will not (i) violate, or conflict
with, or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
under, any of the terms, conditions or provisions of the Certificate of
Incorporation or By-laws of Purchaser, or (ii) violate any order, injunction,
statute, rule or regulation, or (iii) trigger any rights of first refusal
(except as set forth in Section 2.2.12), or any buy/sell or similar rights.
10.5 ACTIONS AND PROCEEDINGS. To Purchaser's Knowledge, except as set
forth on Schedule 10.5, no action, suit, proceeding or claim is pending or
threatened seeking to restrain or prohibit this Agreement, or any agreement,
instrument or transaction contemplated hereby, or to obtain damages, a discovery
order or other relief in connection with this Agreement or any such agreement,
instrument, or transaction contemplated hereby.
10.6 BROKERS. All negotiations relating to this Agreement, the
agreements and instruments delivered pursuant hereto, and the transactions
contemplated hereby and thereby have been carried on without the intervention of
any person acting on behalf of Purchaser or its Affiliates in such manner as to
give rise to any valid claim against Seller for any broker's or finder's fee or
similar compensation in connection with the transactions contemplated hereby or
thereby. Purchaser agrees to indemnify fully, hold harmless and defend Seller
and its affiliates from and against, any claims by any person alleging a right
to a broker's or finder's fee based upon any actions of Purchaser or its
affiliates.
10.7 SOLVENCY. Purchaser is solvent, is not in the hands of a receiver,
nor is any application of receivership pending and no proceedings are pending by
or against it for bankruptcy or reorganization in any state or federal court.
Purchaser will have sufficient funds to deliver the Purchase Price and the
Refinery and Terminal Inventory Sale Price at Closing as contemplated in this
Agreement.
ARTICLE XI
ENVIRONMENTAL CLAIMS
11.1 ALLOCATION OF ENVIRONMENTAL CLAIMS. The provisions of this Article
XI are the result of mutual compromise and an allocation of responsibility and
risk for Environmental Claims as between Purchaser and Seller. Each party has
given weight to these matters in entering into the Agreement and setting the
Purchase Price. Purchaser and Seller intend that the allocations of risk and
responsibility for Environmental Claims as set forth in this Article XI and the
other applicable provisions of this Agreement shall be given full effect and
that the rights and remedies in this Article XI and the other applicable
provisions of this Agreement shall be the exclusive rights and remedies
available to the parties and the parties acknowledge that they expressly waive
and relinquish all other statutory and common law rights and remedies with
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respect to Environmental Claims, including without limitation claims under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA").
11.2 SCOPE. Section 11.3 shall apply only to the Refinery and the
Terminal. Section 11.4. shall apply only to the Marketing Assets. Sections 11.5
and 11.6 shall apply to all Assets.
11.3 REFINERY AND TERMINAL.
11.3.1 Allocation Between Purchaser and Seller.
11.3.1.1 Seller's Retained Environmental Liabilities.
Seller shall retain and be solely responsible for the following matters
("Seller's Retained Environmental Liabilities"):
11.3.1.1.1 penalties assessed for any notice
of violation received from any Governmental Authority related to Refinery or
Terminal operations prior to Closing that is pending and unresolved as of the
Closing Date;
11.3.1.1.2 the lawsuits filed by the Solano
County District Attorney and California Attorney General under Proposition 65
(entitled The People of the State of California, Plaintiff v. Exxon Corporation
and DOES 1 - 200, Case No. 013358; and People of the State of California ex rel.
Bill Lockyer, Attorney General of the State of California and David W. Paulson,
District Attorney of Solano County v. Exxon Corporation and DOES 1 - 200, Case
No. 013407, both pending in the Superior Court of the State of California in and
for the County of Solano);
11.3.1.1.3 any costs associated with
compliance with the variance issued by Bay Area Air Quality Management District
(Docket No. 32-37) in connection with control of nitrogen oxides through a
selective catalytic reduction reactor, whether such costs are incurred before or
after Closing;
11.3.1.1.4 Environmental Claims, (i)
asserted within three (3) years of Closing, in connection with the offsite
transportation and disposal prior to Closing of wastes containing Hazardous
Materials or wastes containing Petroleum Products generated by Seller at the
Refinery and Terminal or (ii) asserted with respect to the abandoned sites
listed on Schedule 11.3.1.1.4. in connection with the offsite transportation and
disposal prior to Closing of wastes containing Hazardous Materials or wastes
containing Petroleum Products generated by Seller at the Refinery and Terminal;
and
11.3.1.1.5 the capital costs (but not
operations and maintenance costs) expended after the Closing, commencing on the
Closing Date and for a period of five (5) years thereafter, for Corrective
Action of groundwater and soil contamination (i) as required under Regional
Water Quality Control Board Order Nos. 91-094 and 94-144, and (ii) for the
projects as required under Regional Water Quality Control Board Order Nos.
94-070, and 97-077.
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11.3.1.2 Transfer of Responsibility. Purchaser and
Seller may from time to time attempt to agree upon the cost of Seller's
obligations under Section 11.3.1.1.5 ("Seller's Capital Costs for Groundwater
Remediation") and the transfer of the responsibility for Seller's Capital Costs
for Groundwater Remediation from Seller to Purchaser. If the parties agree upon
such Seller's Capital Costs for Groundwater Remediation and transfer of Seller's
Capital Costs for Groundwater Remediation, Seller shall pay to Purchaser an
amount equal to Seller's Capital Costs for Groundwater Remediation and Purchaser
shall assume responsibility for all costs for Corrective Action of groundwater
contamination. Purchaser shall also execute and deliver to Seller a release in
the form of Exhibit "X". Such release shall include an assignment to Purchaser
of Seller's rights to reimbursement from the relevant state reimbursement fund,
if any, with respect to the Refinery or Terminal, to the extent such assignment
is permitted. To the extent such assignment is not permitted, Purchaser will
cooperate in assisting Seller in seeking such funds.
11.3.1.3 Purchaser's Assumption of Environmental
Liabilities. Except for Retained Liabilities, Purchaser shall assume and be
solely responsible for all Environmental Claims relating to or arising out of
the Refinery and Terminal, whether existing or asserted before or after the
Closing Date, and whether based on past, present or future conditions or events.
11.3.2 Release. Purchaser shall unconditionally release and
discharge Seller, Seller's Affiliates and Seller's employees, officers,
directors and contractors and those of its Affiliates from all Environmental
Claims relating to or arising out of the Refinery and Terminal, whether existing
or asserted before or after the Closing Date, and whether based on past, present
or future conditions or events, except for Retained Liabilities. This release
includes, but is not limited to, any Environmental Claims under CERCLA and the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA") and other
Environmental Laws. In connection with this release, Purchaser hereby expressly
waives the benefits of Section 1542 of the California Civil Code which reads as
follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release which if known to him must have materially affected his
settlement with the debtor."
This Section 11.3.2 shall survive Closing and shall be binding on
Purchaser's transferees, assigns or successors. Purchaser and Seller intend
Sections 11.3.1 and 11.3.2 to be covenants running with the land. Purchaser
agrees to insert provisions similar to and having the same effect as those set
forth in Sections 11.3.1 and 11.3.2 in any deed, lease or other instrument
conveying all or part of the Refinery or the Terminal.
11.3.3 Corrective Action. With respect to the Corrective
Action to be performed by Seller prior to Closing, and with respect to
Corrective Action, if any, required to be performed by Seller after the Closing
pursuant to Section 11.3.1.1.2 and 11.3.1.1.5, the following shall apply:
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11.3.3.1 Communications with Agencies. Seller shall
take the lead on all communications with Governmental Authorities and shall be
solely responsible for the content of any reports or submittals to Governmental
Authorities. Seller shall conduct all negotiations with Governmental
Authorities. The parties acknowledge that Seller shall have the lead for
determining the appropriate Corrective Action to be performed and for conducting
negotiations with Governmental Authorities and that Purchaser shall neither
contact nor negotiate with Governmental Authorities independent of Seller in
connection with any Corrective Action to be performed by Seller. Purchaser shall
provide Seller with copies of all correspondence and reports to and from
Governmental Authorities concerning Corrective Action at the Refinery and the
Terminal. Seller shall provide Purchaser with copies of all correspondence and
reports to and from Governmental Authorities concerning Corrective Action at the
Refinery and the Terminal.
11.3.3.2 Right to Appeal or Contest. Seller shall
have the right, in good faith, to contest or appeal the application,
interpretation or validity of any law, order, regulation, directive or
requirement affecting Corrective Action.
11.3.3.3 Cleanup Standards. Seller and Purchaser
agree that, unless otherwise explicitly compelled by the Governmental Authority
directing Corrective Action, such Corrective Action shall be (i) technically
feasible, (ii) cost effective, (iii) based on customary and accepted engineering
practices, and (iv) based on a risk assessment evaluating actual harm to human
health and the environment, with a preference for remedies that minimize
disturbance of pre-existing contamination, rely on natural attenuation and
manage any pre-existing contamination in place. Purchaser agrees that more
stringent cleanup to commercial or residential standards shall not apply.
11.3.3.4 Seller Not Responsible for Costs Caused by
Development. Seller shall not be responsible for any costs of Corrective Action
and related environmental expenses to the extent caused by any post-Closing
maintenance, modification, construction or redevelopment or change in use of the
Refinery or Terminal, including but not limited to costs to excavate and dispose
of contaminated media, control vapors into structures, relocate remedial
systems, and perform risks assessments or studies related thereto.
11.3.4 Post-Closing Corrective Action and Site Maintenance.
Consistent with Section 11.3.1.3, after Closing, Purchaser shall assume and be
solely responsible for any Corrective Action at the Refinery and Terminal,
including, without limitation, all required groundwater monitoring. With respect
to Seller's obligations under Section 11.3.1.1.5, Seller and Purchaser agree
that, unless otherwise explicitly compelled by the Governmental Authority
directing Corrective Action, such Corrective Action shall be (i) technically
feasible, (ii) cost effective, (iii) based on customary and accepted engineering
practices, and (iv) based on a risk assessment evaluating actual harm to human
health and the environment, with a preference for remedies that minimize
disturbance of pre-existing contamination, rely on natural attenuation and
manage any pre-existing contamination in place. Purchaser shall, at its expense,
take prudent measures to maintain the integrity of any caps and closed sites
where remediation has
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been completed and to prevent the disturbance of any residual Hazardous
Materials or Petroleum Products remaining after Corrective Action is completed.
With respect to Seller's obligations under Section 11.3.1.1.5, Seller shall not
be responsible for any costs of Corrective Action and related environmental
expenses to the extent caused by any post-Closing maintenance, modification,
construction or redevelopment or change in use of the Refinery or Terminal,
including but not limited to costs to excavate and dispose of contaminated
media, control vapors into structures, relocate remedial systems, and perform
risks assessments or studies related thereto.
11.3.5 Restriction to Industrial Use. On or prior to Closing,
Seller will place a restriction on the Refinery or Terminal, limiting the future
use of the Refinery or Terminal to heavy industrial use (the "Restriction"),
which Restriction shall be in the form set forth in Exhibit "Y" and recorded
with the deed for the Refinery and Terminal as a restriction that runs with the
land.
11.3.6 Access. Purchaser shall, without cost to Seller, and on
its behalf and behalf of any future tenants, future owners or successors to
Purchaser, provide Seller and its consultants and contractors with access to the
Refinery and Terminal as reasonably necessary to perform Corrective Action, if
any, in connection with the Seller's Retained Environmental Liabilities,
including the installation, inspection, maintenance, repair and operation of any
monitoring or remedial equipment. Purchaser and Seller shall sign and Purchaser
shall record with the deed a Remediation Easement as set forth in Section 11.5,
in the form set forth in Exhibit "Z". Seller shall perform Corrective Action in
a manner that minimizes any interference with the business operations of the
Refinery and Terminal. In no event, however, shall Seller have liability to
anyone, including Purchaser, for business disruption, lost profits, diminution
in value or consequential damages arising from such actions or access.
11.3.7 Survival. This Section 11.3 shall survive Closing.
Purchaser shall bind Purchaser's successors and assigns and any tenants,
operators or licensees at the Refinery or Terminal to the terms and conditions
in this Article XI. Purchaser and Seller intend that the obligations in Section
11.3 shall be a covenant running with the land and Purchaser agrees to convey
notice of such in any deed, lease or other instrument conveying or creating any
interest in all or part of the Refinery or Terminal. Purchaser's failure to make
the terms and conditions of Article XI binding on its successors and assigns and
any tenants, operators or licensees at the Refinery or Terminal shall terminate
Seller's obligations under this Article XI.
11.4 MARKETING ASSETS.
11.4.1 Definitions. As used herein, "Covered Contamination"
means recoverable free liquid hydrocarbons, dissolved hydrocarbon components,
absorbed and vapor phase hydrocarbon contamination, and soil and groundwater
contamination which (i) was caused by Seller's Operations, or the Operations of
Seller's Lessee while a Lessee of Seller but only with respect to Petroleum
Products at a Marketing Site prior to the Closing Date, or occurs prior to or
after the Closing Date and is the result of the migration off a Marketing Site
of contamination that was located on a Marketing Site prior to the Closing Date,
and (ii) is shown in the Baseline
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Report, as defined in Section 11.4.3, and (iii) was required to be remediated
under applicable Environmental Laws existing and enforceable on the Closing
Date. Schedule 11.4.1 lists those Marketing Sites which, to Seller's Knowledge
as of the Closing date, contain some contamination which is Covered
Contamination. Seller does not agree that all of the contamination on such sites
is Covered Contamination.
11.4.2 Tank Testing. Seller, at Seller's expense, shall cause
tightness tests of all underground tanks and lines at the Marketing Sites to be
conducted within sixty (60) days prior to the Closing Date, or, upon mutual
agreement of the parties, thirty (30) days after the Closing Date, using a
"precision" test, such as the Petro-Tite(R), Tanknology Vacu Test(R) or Leak
Lokator(R) tests, or an equivalent test. Upon completion of such tests, Seller
shall furnish copies of the test results to Purchaser. Any untight fiberglass
tanks or lines discovered pursuant to such tests may be repaired by Seller
rather than replaced if (i) Seller would repair rather than replace such tanks
or lines under Seller's normal procedures if ownership of the Marketing Site
were remaining with Seller, (ii) such equipment was originally manufactured by
either Owens-Corning or Xerxes, (iii) the repair is effected by the manufacturer
or its authorized contractors, and (iv) the manufacturer certifies and warrants
the condition of the tanks and lines to be as tight as when new. In the event
that Seller is unable to repair any fiberglass tanks or lines in accordance with
the standards set forth above, Purchaser will receive at the Closing for such
Marketing Site a credit toward the Purchase Price in the amount of $70,000 per
tankfield, or if after Closing a refund of $70,000 per tankfield, and Purchaser
will be responsible for the installation of replacement tanks and lines on such
Marketing Site, at Purchaser's expense.
11.4.3 Environmental Assessment.
11.4.3.1 Seller may, but shall not be obligated to,
undertake at Seller's expense an environmental assessment of each Marketing Site
to determine the presence of Covered Contamination. If undertaken, Seller will
use reasonable efforts to complete such assessments before the Closing Date or
such other date as the parties may mutually agree. At any Marketing Site at
which Seller has previously conducted, or is currently conducting, or is
planning to conduct, any environmental assessment or remediation activities,
Seller shall deliver all existing environmental assessment data ("Existing Case
Data") to Purchaser as soon as possible but not later than sixty (60) days after
the Effective Date. The report of such environmental assessment, if undertaken,
or the Existing Case Data, if applicable, shall be the "Baseline Report" for
each Marketing Site. A copy of each Marketing Site's Baseline Report shall be
provided to Purchaser promptly after Seller's receipt thereof. Seller also may
undertake additional environmental assessments on any Marketing Site after the
Closing, and the assessment reports will constitute amendments of the Baseline
Reports for such Marketing Sites, if applicable.
11.4.3.2 Purchaser may conduct additional
environmental assessments of Marketing Sites at its expense before the Closing
Date. Purchaser will provide copies of the assessment reports promptly to
Seller. Such assessment reports will constitute amendments of the Baseline
Reports for the Marketing Sites affected thereby, if Baseline Reports have been
prepared.
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11.4.3.3 To the extent required by applicable laws
and regulations, Seller shall report all Covered Contamination reflected in the
Baseline Reports to the relevant Governmental Authorities and provide
appropriate notification thereof to property owners. To the extent required by
applicable laws and regulations, Purchaser shall report all New Contamination
(as defined in Section 11.4.4.3) to the Governmental Authorities and provide
appropriate notification thereof to property owners.
11.4.3.4 Seller shall remediate the Covered
Contamination on any Marketing Site in accordance with all applicable laws and
regulations existing and enforceable on the Closing Date and, with respect to
MTBE, the draft guidelines in effect on the Effective Date (or, if more lenient,
applicable laws, regulations or, with respect to MTBE, guidelines or draft
guidelines, in effect after the Closing Date), provided that the Closing occurs
and the Marketing Site is conveyed to Purchaser. Seller's obligations to
remediate Covered Contamination on any Marketing Site shall continue until
Closure is obtained pursuant to Section 11.4.4.2.
11.4.3.5 Except for the express obligations of Seller
under this Section 11.4.3, and except for Retained Liabilities Purchaser shall
assume and be solely responsible for all Environmental Claims relating to or
arising out of the Marketing Assets, whether existing or asserted before or
after the Closing Date, and whether based on past, present or future conditions
or events.
11.4.4 Environmental Responsibility.
11.4.4.1 Seller shall conduct all negotiations with
the Governmental Authorities with respect to the remediation of the Marketing
Sites, for which Seller is responsible under Section 11.4.3.4. The parties
acknowledge that Seller shall have the lead responsibility for setting policy,
establishing direction and conducting negotiations with the Governmental
Authorities relating to the remediation of Covered Contamination, and Purchaser
shall neither contact nor negotiate with the Governmental Authorities
independently of Seller in connection with the remediation of Covered
Contamination. Seller shall provide Purchaser with copies of all correspondence
or other documents it receives from the Governmental Authorities, and shall
furnish Purchaser copies of all correspondence and other documents it supplies
to the Governmental Authorities, relating to any remedial action plan submitted
by Seller with regard to the Marketing Sites. Purchaser shall provide Seller
with copies of all correspondence and documents it receives from or provides to
the Governmental Authorities during the period of Seller's remediation
activities on any Marketing Site.
11.4.4.2 As to each Marketing Site transferred or
conveyed to Purchaser, Seller shall undertake after the Closing Date, at its
expense, all reporting and notification required by law and all remediation or
further investigation of Covered Contamination on, under or originating from
such Marketing Site, in compliance with the requirements of the Governmental
Authorities and all applicable Environmental Laws and regulations and until
Closure is obtained pursuant to this Section 11.4.4.2. Seller shall be entitled
to the benefit of any
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government reimbursement funds that may be available with respect to such
remediation of Covered Contamination. Seller shall coordinate administrative
efforts to recover such reimbursement, and Purchaser will cooperate in assisting
Seller in seeking such funds. Seller shall remediate the Covered Contamination
on or migrating (or migrated) from any Marketing Site in accordance with all
applicable laws and regulations existing and enforceable on the Closing Date,
until:
11.4.4.2.1 Receipt of written notice from
the Governmental Authorities that either no further remediation of the Covered
Contamination identified in the Baseline Report is required, or that the
approved remediation plan of the Covered Contamination identified in the
Baseline Report has been completed; or
11.4.4.2.2 Seller has requested closure
notice from the Governmental Authorities, has not received any response of any
kind to its request for a closure notice for twelve (12) months and Seller has
reasonably determined that the soil and groundwater has been remediated based on
four (4) successive quarterly monitoring tests by a recognized environmental
remediation contractor that show the level of petroleum hydrocarbons on the
Marketing Site as being below or equal to the limit required by the Authorities,
and Seller so notifies Purchaser in writing.
11.4.4.2.3 The satisfaction of either of the
conditions set forth in subsections 11.4.4.2.1 and 11.4.4.2.2 above shall be
referred to as "Closure" herein.
11.4.4.3 Any environmental contamination which (i) is
not disclosed in the Baseline Report for a Marketing Site, (ii) is discovered
after the Closing Date on any Marketing Site other than through an environmental
assessment made by Seller pursuant to Section 11.4.3.1, or (iii) is caused after
the Closing Date by Purchaser, Purchaser's tenants, franchisees, or contractors,
or is caused by third parties, in an area of the Marketing Site identified in
the Baseline Report as containing Covered Contamination and before Seller's
remediation of such Covered Contamination has been completed, is herein referred
to as "New Contamination." Purchaser shall bear the burden of proving by
substantial evidence that such environmental contamination is Covered
Contamination. Similarly, if any environmental contamination not disclosed in
the Baseline Report for a Marketing Site is discovered after the date Seller
completes the remediation contemplated by Sections 11.4.3 and 11.4.4
("Remediation Completion Date"), Purchaser shall bear the burden of proving by
substantial evidence that such New Contamination is Covered Contamination. If
any environmental contamination is discovered after the Closing Date and
Purchaser meets its burden of proving that it is not New Contamination but
Covered Contamination, Seller shall remediate such Covered Contamination, in
accordance with all applicable laws and regulations existing and enforceable on
the Closing Date and, with respect to MTBE, the draft guidelines in effect on
the Effective Date (or, if more lenient, applicable laws, regulations or, with
respect to MTBE, guidelines or draft guidelines, in effect on or after the
Closing Date).
11.4.4.4 If environmental contamination is discovered
on any Marketing Site after the Closing Date, but prior to the Remediation
Completion Date, Purchaser
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shall promptly notify Seller and act promptly to minimize the effects of such
environmental contamination. If, pursuant to Section 11.4.4.3, Purchaser does
not establish that such environmental contamination is Covered Contamination,
and if Seller reasonably determines that such New Contamination will make
Seller's remediation at the applicable Marketing Site significantly more
difficult, more expensive, or will extend significantly the time required to
complete such remediation work, Purchaser shall hire at Purchaser's sole expense
a consultant mutually acceptable to Purchaser and Seller to assess the effect of
such New Contamination on the environmental condition of the Marketing Site.
This assessment shall include a review of the remediation work that had been
done to date and the remaining cost to complete the remediation absent the New
Contamination. In addition, the consultant will estimate the cost of the
additional work that will be required due to the New Contamination. Purchaser
will begin paying that fractional cost percentage of all further remediation
work performed by Seller at the Marketing Site, determined by the following
formula:
Purchaser's fractional cost = 1 - (Estimated cost to
complete remediation prior to New Contamination divided by estimated cost to
complete remediation after the New Contamination).
EXAMPLE:
Estimated cost to complete remediation prior to New
Contamination equals $100,000. (As calculated at the time the New Contamination
occurs.)
Estimated cost to complete remediation after New
Contamination equals $150,000. (Includes the $100,000 in A plus $50,000 in
estimated costs related to the New Contamination.)
Purchaser's fractional cost equals: 1 - (A divided by
B), or 1 - .667, which results in Purchaser paying one-third (.333) of subject
remediation costs incurred after the New Contamination occurs.
11.4.4.5 Purchaser will promptly pay its share of
costs and expenses to Seller as remediation work is performed and as invoices
for such work, with supporting documentation, are presented to Purchaser.
11.4.4.6 The above notwithstanding, if Purchaser's
fractional cost as so calculated should exceed eleven-twentieths (11/20ths),
Purchaser shall, upon request by Seller, take over the ongoing remediation
efforts at the Marketing Site with the costs of such remediation continuing to
be shared between Seller and Purchaser as set forth in this Section. In such
event, Purchaser and Seller shall attempt to negotiate a buyout to transfer the
remediation responsibility for known Covered Contamination at the Marketing Site
from Seller to Purchaser. If the parties are unable to agree upon the present
value of the expected costs of completing the remediation of known Covered
Contamination ("Remediation Cost") at a Marketing Site, the parties shall select
a consultant satisfactory to both parties who shall attempt to mediate between
the parties to resolve such differences in a mutually satisfactory manner. The
fees and expenses
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of such consultant shall be borne equally by the parties. If the parties agree
upon the Remediation Cost for any Marketing Site, Seller shall pay to Purchaser
an amount equal to the Remediation Cost and Purchaser shall assume
responsibility for the completion of the remediation of Covered Contamination at
the Marketing Site pursuant to the additional requirements of Section 11.4.7.
11.4.5 Access. After the Closing Date, Purchaser shall provide
for and permit such access, at no cost to Seller, as Seller and its employees,
agents, and contractors may require to each Marketing Site, for such time as is
required for Seller to meet all environmental obligations contemplated by this
Agreement. Such access shall include the right to conduct such tests, take such
groundwater or soil samples, excavate, remove, dispose of, and treat the soil
and groundwater, and undertake such other actions as are necessary in the sole
judgment of Seller. Seller shall expeditiously remove from the Marketing Site
(or Marketing Sites) as soon as reasonably practicable all drums containing
drill cuttings, soil, debris or liquids generated from Seller's remediation or
investigation activities. Seller shall restore the surface and existing
structures, if any, on each Marketing Site to a condition substantially similar
to that at the time immediately prior to the action taken by Seller and shall
replace or repair damage to Purchaser's equipment and personal property on the
Marketing Site caused by Seller or its contractors. Seller shall, to the extent
practical, undertake the actions necessary to complete its remediation of
Covered Contamination in a manner that will not unreasonably disrupt the
operations of Purchaser on the Marketing Site. In no event, however, shall
Seller have liability to anyone, including Purchaser, for business disruption,
lost profits, diminution in value or consequential damages arising from such
actions or access. Seller or its contractors shall provide Purchaser as much
advance notice as possible (but at least five (5) business days' notice) of all
potentially disruptive or intrusive activities to be taken on the Marketing
Sites; such notice may be in the form of a periodic schedule of activities. No
advance notice shall be required for non-disruptive activities such as periodic
monitoring of wells on a Marketing Site. Seller and Purchaser agree to cooperate
on the placement and the location of any new Seller's remediation equipment. Any
cost or expense to repair or replace existing or new monitoring and remediation
equipment resulting from the acts or requests or omissions of Purchaser or
Purchaser's contractors shall be the responsibility of Purchaser. Purchaser and
Seller shall cooperate in determining the order in which Seller implements its
remediation operations on the Marketing Sites, but the final determination shall
be Seller's.
11.4.6 Maintenance of Records. During the course of Seller's
remediation of any Marketing Site, Purchaser shall maintain inventory and tank
and line maintenance records for such Marketing Site as required to comply with
all applicable laws and regulations. Seller shall have the right to review these
records as Seller deems necessary so as to be assured of the integrity of
Purchaser's tank and line system at the Marketing Site.
11.4.7 Transfer of Responsibility. Purchaser and Seller may
from time to time attempt to agree upon the Remediation Cost at a Marketing Site
and the transfer of the responsibility for the remediation of known Covered
Contamination from Seller to Purchaser. If the parties agree upon such
Remediation Cost and transfer, Seller shall pay to Purchaser an amount equal to
the Remediation Cost and Purchaser shall assume responsibility for the
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completion of the remediation of known Covered Contamination. Purchaser shall
also execute and deliver to Seller a release of remediation liability for known
Covered Contamination in the form of Exhibit "X". Such release shall include an
assignment to Purchaser of Seller's rights to reimbursement from the relevant
state reimbursement fund, if any, with respect to the Marketing Site, to the
extent such assignment is permitted. To the extent such assignment is not
permitted, Purchaser will cooperate in assisting Seller in seeking such funds.
11.4.8 Seller's Indemnification. For a period of five (5)
years from the Closing Date, Seller shall defend, indemnify and hold Purchaser
and its Affiliates harmless from and against all claims, expenses (including
reasonable attorneys' fees), loss or liability arising from or related to
Covered Contamination on the Marketing Sites. This indemnity also will apply to
any claim by a third party or Governmental Authority that relates to the
migration of Covered Contamination off any Marketing Site. This indemnity shall
not be assignable by Purchaser. This indemnity will not apply to, and Seller
will have no liability for, claims by Purchaser or third parties for diminution
in value, lost profits, business disruption or consequential damages relating to
Covered Contamination on any Marketing Site.
11.4.9 Purchaser's Indemnification. Purchaser shall defend,
indemnify and hold Seller and its Affiliates harmless from and against all
claims, expenses (including reasonable attorneys' fees), loss or liability
arising from or related to any contamination with respect to the Marketing Sites
that is not Covered Contamination or a Retained Liability.
11.4.10 Purchaser's Release. Purchaser agrees to accept the
conveyance of the Marketing Sites in their present condition and, if Seller
fulfills Seller's Obligations, to make no claim regarding the environmental
condition of the Marketing Sites. Purchaser hereby releases Seller from all
Losses (including Losses under CERCLA and RCRA and other Environmental Laws) for
injury, death, destruction, loss or damage to the person or property of
Purchaser and its employees arising out (i) the environmental condition of the
Marketing Sites and the improvements and the equipment on the Marketing Sites,
and (ii) the existence of Covered Contamination on the Marketing Sites. This
release does not include:
11.4.10.1 The covenants of Seller to remediate and
indemnify Purchaser as provided in Sections 11.4.4 and 11.4.8 ("Seller's
Obligations") and Retained Liabilities; and
11.4.10.2 Claims by third parties and Governmental
Authorities relating to Covered Contamination on the Marketing Sites.
In connection with this release, Purchaser hereby expressly waives the
benefits of Section 1542 of the California Civil Code which reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release which if known to him must have materially affected his
settlement with the debtor."
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11.4.11 Limitations on Liability. Seller shall not be
responsible for remediation of any Covered Contamination at any Marketing Site
after the Remediation Completion Date if such remediation would be required only
as a result of changes in applicable remediation standards or Environmental Laws
and regulations or, with respect to MTBE, applicable guidelines or draft
guidelines, enacted or promulgated after the Closing Date. In addition, the
parties acknowledge and agree that Seller shall have no responsibility for any
environmental matters at any real property on which any Distributor operates a
service station.
11.4.12 Burden of Proof. If any environmental contamination is
discovered in connection with any Marketing Site subsequent to the Remediation
Completion Date, Purchaser shall bear the burden of proof to establish by
substantial evidence that such contamination is Covered Contamination.
11.4.13 Leased Marketing Sites. In the event that, after the
Closing Date and before the Remediation Completion Date, the lease for any
Leased Property expires or is terminated, Seller shall be responsible for
arranging access to the Marketing Site, at Seller's expense, for the purpose of
undertaking and completing its remediation activities, including payment by
Seller to the landowner of any rental or access fee charged by the landowner in
respect to such access to and use of the Marketing Site; provided, however, that
if such lease expiration is the result of Purchaser's decision not to exercise
any extension or renewal option provided for in such lease, Purchaser shall give
Seller at least six (6) months notice of such election to not extend or renew
the lease.
11.4.14 Elective Work. If Purchaser encounters and excavates
or removes contaminated soil or groundwater on any Marketing Site while
conducting construction, remodeling, or demolish-and-rebuild work on any
Marketing Site not required by Seller ("Elective Work"), Purchaser will solely
bear the costs of removing, recycling or disposing of the contaminated soil and
groundwater, regardless of whether the soil or groundwater on any Marketing Site
contains Covered Contamination. Purchaser will be deemed to be the generator of
all hazardous waste caused by or originating from the tanks and lines used in
Purchaser's operations on the Marketing Sites. Purchaser will report any such
hazardous waste and environmental contamination, including Covered Contamination
and contaminated soil and groundwater excavated, removed, recycled or disposed
of by Purchaser in connection with Elective Work on any Marketing Site, to the
Governmental Authorities if required to do so by applicable laws and
regulations. Purchaser also will sign all manifests for transportation and
disposal of any such hazardous waste and contaminated soil or groundwater.
Purchaser will pay the cost of clean fill required for any excavation caused by
Elective Work on any Marketing Site.
11.4.15 California-South Other Responsible Parties. Purchaser
acknowledges that Seller acquired its Fee or Lease interest in a
California-South Marketing Asset from Chevron U.S.A. Inc. ("Other Responsible
Party"), and the Marketing Site's number and address is listed on Exhibit "AA"
("Marketing Site Acquired From Other Responsible Party"). In connection with its
use of such Marketing Site, such Other Responsible Party may now or in the
future be engaged in remediation activities on the Marketing Site. Purchaser is
advised that Seller is not managing or controlling such Other Responsible
Party's activities and shall not be responsible for
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determining what remediation activities are undertaken by such Other Responsible
Party, nor shall Seller be responsible for the manner in which such Other
Responsible Party conducts such activities or the results achieved. Seller will
not be responsible for the remediation of petroleum hydrocarbon contamination on
such Marketing Site Acquired from Other Responsible Party as to which such Other
Responsible Party is obligated to undertake remediation activities. Seller's
indemnity in Paragraph 11.4.8 will not apply to any contamination on such
Marketing Site Acquired From Other Responsible Party for which such Other
Responsible Party is responsible. Seller does however, agree to indemnify
Purchaser to the extent of any indemnity Seller has with respect to such Other
Responsible Party. Purchaser will permit such Other Responsible Party and its
employees, agents and contractors to have access to the Marketing Site for the
purpose of conducting environmental investigation and remediation operations.
11.4.16 California-North Other Responsible Parties. Purchaser
acknowledges that Seller may have acquired its Fee or Lease interest in certain
of the California-North Marketing Assets from Texaco, Inc. or Texaco Refining
and Marketing, Inc., Thrifty Oil Co., Wickland Oil Company or Regal Stations,
Inc. (collectively, "Other Responsible Parties"), and if so, the Marketing
Site's number and address is listed on Exhibit "BB" ("Marketing Sites Acquired
From Other Responsible Parties"). In connection with its use of any such
Marketing Site, such Other Responsible Party may now or in the future be engaged
in remediation activities on the Marketing Site. Purchaser is advised that
Seller is not managing or controlling such Other Responsible Party's activities
and shall not be responsible for determining what remediation activities are
undertaken by such Other Responsible Party, nor shall Seller be responsible for
the manner in which such Other Responsible Party conducts such activities or the
results achieved. Seller will not be responsible for the remediation of
petroleum hydrocarbon contamination on a Property Acquired From Other
Responsible Parties as to which such Other Responsible Party is obligated to
undertake remediation activities. Seller's indemnity in Section 11.4.8 will not
apply to any contamination on a Marketing Site Acquired From Other Responsible
Parties for which such Other Responsible Party is responsible. Seller does
however, agree to indemnify Purchaser to the extent of any indemnity Seller has
with respect to such Other Responsible Party. Purchaser will permit such Other
Responsible Party and its employees, agents and contractors to have access to
the Marketing Site for the purpose of conducting environmental investigation and
remediation operations.
11.4.17. Seller shall retain liability for any Environmental
Claims, (i) asserted within three (3) years of Closing, in connection with the
offsite transportation and disposal prior to Closing of wastes containing
Hazardous Materials or wastes containing Petroleum Products generated by Seller
at the Marketing Sites or (ii) asserted with respect to the abandoned sites
listed on Schedule 11.3.1.1.4. in connection with the offsite transportation and
disposal prior to Closing of wastes containing Hazardous Materials or wastes
containing Petroleum Products generated by Seller at the Marketing Sites.
11.5 REMEDIATION EASEMENT. Title to the Real Property shall be subject
to a Remediation Easement that allows Seller to accomplish Corrective Action.
Seller hereby reserves use of the Remediation Easement for access over and
access to the Real Property, the storage of equipment, the utilization of
staging areas, installation of monitoring and production
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wells including the tankage and associated equipment, including access to and
use of the onsite utilities including water, power, and sewage, the right to
process sewage treatment, and the right to permanently close in place certain
waste units.
11.6 REMEDIATION FACILITIES Section 2.3.11 and Attachment IX-R, IX-T
and IX-M exclude facilities associated with ongoing environmental monitoring or
remediation where Seller retains responsibility at the Refinery, Terminal or
Marketing Assets. Upon request by Purchaser made within 60 days of (i) Closure
with respect to Covered Contamination, or (ii) Purchaser's assumption of
responsibility for Covered Contamination pursuant to Section 11.3.1.2 or
11.4.4.6 or (iii) Seller's notice to Purchaser that Seller has no further
responsibility for environmental matters being addressed by such remediation
facilities, wells or equipment hereunder, Seller will transfer all title,
responsibility, and any further liability for all such remediation facilities,
monitoring wells and equipment to Purchaser via an appropriate transfer
document. Following such transfer, Purchaser agrees to indemnify and hold Seller
harmless for any future claims or cause of action relating to such remediation
facilities, monitoring wells, or equipment. Until such time as the remediation
facilities, monitoring wells and/or equipment shall vest in Purchaser, Seller
agrees upon reasonable notice, to grant Purchaser reasonable access, with the
presence of Seller's representative, to such remediation facilities, monitoring
wells and/or equipment to the extent necessary to comply with any Environmental
Laws. If Purchaser does not request transfer in the time period specified above,
Seller will plug and abandon the monitoring wells, and remove the equipment and
remediation facilities as expeditiously as possible.
ARTICLE XII
TITLE MATTERS
12.1 TITLE COMMITMENTS AND PERMITTED ENCUMBRANCES.
12.1.1 Seller has caused First American Title Insurance
Company ("Title Company") to issue an American Land Title Association ("ALTA")
Form B Owner's or Leasehold Title Commitment ("Title Commitment") for each Real
Property included in the Assets, which reflects the condition of title that will
be transferred at Closing subject to this Section XII. The Title Commitments are
referenced on the attached Exhibit "CC". All title matters on the Title
Commitments, together with such other matters as are provided for in Sections
12.1.2, 12.1.3, and 12.3 shall be deemed Permitted Encumbrances and listed on
the attached Exhibit "DD".
12.1.2 Within three days after discovery, either party shall
inform the other in writing of any new title matter that arises for the first
time after the Effective Date and before Closing and is not reflected in any
Title Commitment. If the new title matter would materially adversely affect the
Assets or the Operations by 0.5% of the Purchase Price, or more, and was not
caused directly or indirectly by Purchaser, then Purchaser may object thereto by
written
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notice to Seller within ten (10) days after Purchaser's initial discovery. If
Purchaser fails to so notify Seller, or if the new title matter is not
materially adverse (as specified above) or was caused directly or indirectly by
Purchaser, then such new title matter shall become a Permitted Encumbrance. If
Purchaser properly objects in writing within the ten-day period, Seller shall
elect to do one of the following: (i) cause such new exception to be removed;
(ii) indemnify the Title Company against liability from such new exception so
that the Title Company insures around such exception; or (iii) indemnify the
Purchaser against such new exceptions. Seller shall notify Purchaser of its
election at least five days prior to Closing. All title matters accepted or
deemed accepted pursuant to Sections 12.1.2 and 12.3 shall become Permitted
Encumbrances, regardless of whether or not they are listed on Exhibit "DD".
12.1.3 As to the Marketing Sites, Purchaser shall have the
option, at Purchaser's expense, to cause to be prepared a current ALTA land
title survey ("Survey") of any Marketing Site, prepared by a duly licensed land
surveyor and registered professional engineer satisfactory to the Title Company
and to Seller. Any Survey must be completed within thirty (30) days after the
Effective Date. Upon completion of any Survey, there shall be delivered to
Purchaser and Seller three (3) sets each of the Survey plat and to the Title
Company one (1) set of the Survey plat. The Survey will show all of the title
matters shown on the relevant Title Commitment. The surveyor shall certify the
accuracy of said Survey to the Title Company in such form as the Title Company
requires for purposes of issuing the ALTA owner's or leasehold policy of title
insurance provided for in Section 12.2. Any new title matter meeting the
criteria set forth in Section 12.1.2 and arising from a Survey undertaken by
Purchaser pursuant to this Section 12.1.3 shall be subject to the same
procedures for new title matters specified in Section 12.1.2. Prior to the
Effective Date, Seller has caused Surveys of the Refinery and Terminal to be
prepared. These Surveys are reflected in the Title Commitments for the Refinery
and Terminal.
12.2 OWNER OR LEASEHOLD POLICIES OF TITLE INSURANCE. At Closing, Seller
shall cause the Title Company to issue as to each Real Property being conveyed
and transferred by Seller, at Purchaser's expense, title insurance policies
consistent with the Title Commitments, (together with any additional Permitted
Encumbrances arising pursuant to Sections 12.1, 12.3 and 12.4) so long as
Purchaser timely performs all of Purchaser's obligations specified in the Title
Commitments.
12.3 CONVEYANCE OF TITLE; ASSIGNMENT OF LEASEHOLD INTERESTS. At
Closing, Seller shall (i) convey to Purchaser, by Corporation Grant Deed in the
form of Exhibit "O," Seller's right, title and interest to all Real Property
other than leased Real Property and (ii) assign to Purchaser Seller's right,
title and interest in all Leased Real Property, and Purchaser shall assume the
same, by Assignment and Assumption Agreement in the form attached as Exhibit
"H", subject to all Permitted Encumbrances including without limitation:
12.3.1 non-delinquent general real estate taxes and personal
property taxes for the year of Closing;
12.3.2 building and zoning ordinances, laws and regulations
applicable to the Real Property;
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12.3.3 mineral rights reserved by third parties;
12.3.4 matters that would be shown in a current survey of the
Real Property (as to any Real Property for which a Survey has not been
performed);
12.3.5 the Remediation Easement provided for in Section 11.6;
and
12.3.6 rights of any franchisee, subtenant or licensee of
Seller occupying any Marketing Asset at the Closing Date, except as provided in
Section 8.2.3 with respect to California-North Marketing Assets.
12.4 RESTRICTIVE COVENANT. The Real Property on which the Refinery and
the Terminal are located will be conveyed subject to the Restriction provided
for in Section 11.3.5. The Restriction shall be deemed to be a Permitted
Encumbrance.
12.5 LEASED MARKETING SITES. With respect to the Marketing Assets,
prior to the Closing Date, Seller will exercise (i) any purchase options in
leases for Leased Marketing Sites, and (ii) any lease renewal options applicable
to the Leased Marketing Sites, that will be forfeited if not exercised on or
before the Closing Date.
12.6 THIRD PARTY CONSENTS. If Seller is unable to obtain a third party
consent required for transfer of any of the Real Property on commercially
reasonable terms, then Seller will deliver substantially equivalent assets to
Purchaser.
ARTICLE XIII
RISK OF LOSS
13.1 REFINERY AND TERMINAL.
13.1.1 In the event that prior to the Closing all or any
portion of the Refinery or Terminal is damaged or destroyed by fire or other
casualty (a "Casualty") or taken by condemnation or eminent domain or by
agreement in lieu thereof with any person or entity authorized to exercise such
rights (a "Taking"), Seller shall immediately notify Purchaser thereof.
13.1.2 In the event of a Casualty or Taking between the
Effective Date and Closing, Purchaser's obligation to close hereunder shall not
be affected, but Purchaser and Seller shall, before the Closing, negotiate in
good faith a reduction of the amount of the Purchase Price to fairly reflect the
diminution in the value (including the discounted effect of lost profits in
excess of 5% of the Purchase Price directly attributable to the Casualty or
Taking) of the Refinery or Terminal caused by the Casualty or Taking. In the
event that the parties are unable to negotiate in good faith a resolution of the
amount of diminution in value caused by the Casualty or Taking, the parties
agree to submit the matter to binding arbitration under the Commercial
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Arbitration Rules of the American Arbitration Association in effect on the date
of arbitration. In the event of a Casualty or Taking affecting Improvements or
equipment described in Attachments III-R and III-T, Seller may, in the
alternative, at Seller's option exercised within 14 days of the Casualty or
Taking, rebuild, repair or replace the, Improvements or equipment damaged or
destroyed by the Casualty or Taking, in which case there shall be no reduction
of the Purchase Price.
13.1.3 In the event of any reduction in the Purchase Price in
connection with a Taking, as provided in Section 13.1.2, Purchaser shall be
entitled to collect from any condemnor the entire award(s) that may be made in
any such proceeding, without deduction, to be paid out as follows: subject to
actual receipt of such award(s) by Purchaser, Seller shall be entitled to
receive from Purchaser all such amounts, up to the amount of such Purchase Price
reduction, and Purchaser shall be entitled to the balance (if any) of such
award(s). Seller hereby expressly assigns to Purchaser all of its right, title
and interest in or to every such award, and also agrees to execute any and all
documents that may be required in order to facilitate collection thereof by
Purchaser.
13.1.4 In the event that Seller exercises the option to
rebuild, repair or replace the Improvements or equipment as provided in Section
13.1.2, Seller will indemnify Purchaser for any lost profits in excess of 5% of
the Purchase Price directly attributable to the lost capacity or utility of such
Improvement or equipment which occurred while Seller was rebuilding, repairing
or replacing such Improvements or equipment. In the event that the Parties are
unable to negotiate in good faith a resolution of the amount of lost profits
caused by such Casualty or Taking and the time period while Seller was
rebuilding, repairing or replacing such Improvement or equipment, the Parties
agree to submit the matter to binding arbitration under the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
of arbitration.
13.2 CASUALTY OR TAKING WITH RESPECT TO MARKETING ASSETS.
13.2.1 Seller shall give Purchaser prompt notice of (i) any
Casualty affecting any of the Marketing Sites between the Effective Date and the
Closing Date and (ii) any actual, pending or proposed Taking, of all or any
portion of any Marketing Site, or any planned or pending Taking as to which
Seller has received written notice from the condemning authority.
13.2.2 In the event any Marketing Site suffers damage or
destruction subsequent to the Effective Date, but prior to the Closing Date,
Seller shall elect either (i) to repair or make adequate provision for the
repair of such Marketing Site prior to Closing or (ii) to reduce the Purchase
Price by an amount agreed upon by Seller and Purchaser to represent the
reduction in the real estate value of the Marketing Site by reason of the
Casualty.
13.2.3 If after the Effective Date and prior to the Closing
Date, there shall occur a Taking, the Closing shall take place as to such
Marketing Site as provided herein without abatement of the Purchase Price, and
there shall be assigned to Purchaser at the Closing all interest of Seller in
any award which may be payable to Seller on account of such Taking.
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13.2.4 If prior to the Closing Date, Seller shall receive
written notice of a planned or threatened Taking of all or part of any Marketing
Site, the Closing shall take place as to such Marketing Site as provided herein
without abatement of the Purchase Price, and there shall be assigned to
Purchaser at Closing all interest of Seller in any award which may be payable to
Seller on account of such Taking.
13.3 RISK OF LOSS. Subject to this Article XIII, Seller shall retain
the risk of loss or damage with respect to each of the Assets until title
passes, which shall occur on the Closing Date.
ARTICLE XIV
DEFAULT; REMEDIES
14.1 PURCHASER'S DEFAULT. In the event of material non-performance,
material default or material breach of this Agreement by Purchaser that results
in the failure to consummate this Agreement (a "Default"), then Seller may at
its sole option take any of the following courses of action:
14.1.1 terminate this Agreement and draw upon the Earnest
Money Deposit, as liquidated damages, as follows:
IF PURCHASER DEFAULTS IN ITS OBLIGATION TO PURCHASE THE ASSETS
ON OR BEFORE THE CLOSING DATE, THEN PURCHASER AND SELLER AGREE THAT SELLER WILL
INCUR DAMAGES BY REASON OF SUCH DEFAULT WHICH ARE IMPRACTICAL AND EXTREMELY
DIFFICULT TO ASCERTAIN. PURCHASER AND SELLER, IN A REASONABLE EFFORT TO
ASCERTAIN SELLER'S DAMAGES, HAVE AGREED BY PLACING THEIR INITIALS BELOW THAT THE
EARNEST MONEY DEPOSIT PLUS INTEREST ACCRUED ON IT SHALL BE DEEMED TO CONSTITUTE
A REASONABLE ESTIMATE OF SELLER'S DAMAGES UNDER CALIFORNIA CODE OF CIVIL
PROCEDURE SECTION 1671. ACCORDINGLY, IF PURCHASER DEFAULTS IN ITS OBLIGATION TO
PURCHASE THE ASSETS, SELLER SHALL HAVE THE RIGHT TO RETAIN AN AMOUNT EQUAL TO
THE EARNEST MONEY DEPOSIT AS LIQUIDATED DAMAGES.
THE ABOVE LIQUIDATED DAMAGES PROVISION SHALL CONSTITUTE
SELLER'S SOLE AND EXCLUSIVE REMEDY FOR PURCHASER'S DEFAULT IN ITS OBLIGATION TO
PURCHASE THE ASSETS ON OR BEFORE THE CLOSING DATE.
THE ABOVE LIQUIDATED DAMAGE PROVISION SHALL NOT APPLY TO NOR
LIMIT (a) ANY INDEMNITY PROVISIONS AND DAMAGES RECOVERABLE BY SELLER UNDER THIS
AGREEMENT, (b) ANY OF SELLER'S RIGHTS OR REMEDIES AS AGAINST PURCHASER FOR ANY
BREACH ON OR BEFORE THE CLOSING DATE, NOR (c) ANY OF SELLER'S RIGHTS OR REMEDIES
SPECIFIED IN SECTION 14.1.3, IN
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EACH CASE, THAT ARE NOT RELATED TO PURCHASER'S DEFAULT IN IT'S OBLIGATION TO
PURCHASE THE ASSETS.
- ------------------- -----------------------
Initials for Seller Initials for Purchaser;
or
14.1.2 enforce specific performance of this Agreement and the
transaction provided for herein according to the terms hereof by all means
available at law or in equity.
14.1.3 In the event Seller elects first to enforce this
Agreement by specific performance and at any time during pursuit of enforcement
elects not to pursue specific performance, Seller shall be entitled to pursue
its remedies under Subsection 14.1.1 as if it had elected to do so as above set
forth, and such subsequent election to pursue its courses of action under
Subsection 14.1.1 shall be deemed to be an election of remedies at that time and
not before.
14.2 SELLER'S DEFAULT. In the event of material non-performance,
material default or material breach of this Agreement by Seller that results in
the failure to consummate this Agreement (a "Default"), then Purchaser may at
its sole option, as its exclusive remedies, take any of the following courses of
action:
14.2.1 file suit against Seller for damages; or
14.2.2 enforce specific performance of this Agreement and the
transaction provided for herein according to the terms hereof by all means
available at law or in equity.
14.2.3 In the event Purchaser elects first to enforce this
Agreement by specific performance and at any time during pursuit of enforcement
elects not to pursue specific performance, Purchaser shall be entitled to pursue
its remedies under Section 14.2.1 as if it had elected to do so as above set
forth, and such subsequent election to pursue its courses of action under
Sections 14.2.1 shall be deemed to be an election of remedies at that time and
not before.
ARTICLE XV
CHANGES IN REPRESENTATIONS AND WARRANTIES
If either Seller or Purchaser discovers on or before the Closing that
any representation or warranty made by it or the other party was or becomes not
true and correct in any material respect, it shall so notify the other party. In
the case of any such change in the representations or warranties by Seller, if
the cumulative changes so made would adversely affect the fair market value of
the Assets by 0.5% or more of the Purchase Price, Purchaser may object thereto
by written notice to Seller within ten (10) days after receipt of the notice. If
such objection notice is
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not given within the ten (10) day period, or the cumulative changes do not have
such adverse effect, then such change shall not give rise to any right or remedy
and may be reflected in the certificate given at Closing under Section 6.2.3.3.
If such objection notice is timely given and the effect of the cumulative
changes on the fair market value of the Assets exceeds such amount, and Seller
determines that it cannot cure such adverse effect prior to Closing by using
commercial reasonable efforts, then the parties shall negotiate in good faith a
reduction of the Purchase Price to fairly reflect the impact of the change on
the fair market value of the Assets. If, despite their good faith efforts, the
parties are unable to agree on a reduction of the Purchase Price prior to
Closing, then Seller shall indemnify Purchaser the effect of the change under
Article XVI.
ARTICLE XVI
INDEMNIFICATION
16.1 INDEMNIFICATION OBLIGATIONS. Seller and Purchaser ("Indemnitors")
each shall defend, indemnify and hold harmless the other, its successors,
assigns, directors, employees, subsidiaries, Affiliates and agents
("Indemnitees"), from and against each and every Loss, which results from,
arises out of or is attributable in any way to any of the following:
16.1.1 claims expressly assumed or retained by the Indemnitor
pursuant to this Agreement;
16.1.2 claims with respect to brokers, finders and agents'
fees and commissions in connection with the transaction contemplated in this
Agreement asserted by any person on the basis of any statement, instrument or
agreement alleged to have been made by the Indemnitor;
16.1.3 subject to Articles XV and XXXII, any representation or
warranty made by the Indemnitor in this Agreement or in documents delivered by
the Indemnitor at the Closing which are misleading or untrue in any material
respect; or
16.1.4 any breach of the obligations, covenants or agreements
made by the Indemnitor in this Agreement.
16.2 PROCEDURES.
16.2.1 In the event that any officer or registered agent of
Indemnitee receives actual notice of any written claim by a third person giving
rise to a right of indemnification of such party hereunder, the Indemnitee
shall, within sixty (60) days after receipt of such notice, give written notice
thereof to the Indemnitor setting forth the facts and circumstances giving rise
to such claim for indemnification and shall tender the defense of such claim to
the Indemnitor. If the Indemnitee fails to give such notice and tender such
defense within
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such 60-day period, the Indemnitee shall be solely responsible for any Loss with
respect to such claim to the extent the Loss is attributable to such failure;
but failure to give such notice and tender such defense within such 60-day
period shall not result in a forfeiture or waiver of any rights to
indemnification for any Loss with respect to such claim to the extent the Loss
is not attributable to such failure.
16.2.2 The Indemnitor shall be solely responsible for
selecting the attorneys to defend any matter subject to indemnification and/or
taking all actions necessary or appropriate to resolve, defend, and/or settle
such matters, and shall be entitled to contest, on its own behalf and on the
Indemnitee's behalf, the existence or amount of any obligation, cost, expense,
debt or liability giving rise to such claim. The Indemnitor shall keep the
Indemnitee fully and timely informed as to actions taken on such matters. The
Indemnitee shall cooperate fully with the Indemnitor and its counsel and shall
provide them reasonable access to the Indemnitee's employees, consultants,
agents, attorneys, accountants, and files to the extent necessary or appropriate
to defend or resolve the matter, the Indemnitor reimbursing the Indemnitee with
respect to the cost of any such access. The Indemnitee shall have the right, but
not the duty, to participate with attorneys of its own choosing, at its own
expense, in the defense of any Loss for which the Indemnitor is obligated to
defend and indemnify it, and to approve any settlement that affects it, without
relieving the Indemnitor of any obligations hereunder
16.2.3 When any Loss results from, relates to, or arises out
of the conduct of both Seller and Purchaser, the parties shall indemnify each
other in proportion to their respective share of such Loss.
16.3 CERTAIN LIMITATIONS. Notwithstanding anything to the contrary in
this Article XVI or elsewhere in this Agreement, neither party will have any
obligation with respect to Losses as a result of breaches of representations or
warranties hereunder unless (i) the aggregate amount of such Losses as a result
of breaches of representations or warranties hereunder exceeds or is reasonably
expected to exceed $1,000,000, in which case only the excess shall be subject to
indemnification under this Article XVI, and (ii) written notice of such Loss, in
reasonable detail, is delivered to the Other Party within 12 months of Closing.
In no event will any party be liable under this Agreement for punitive,
consequential or incidental damages.
ARTICLE XVII
RECORDS
17.1 SELLER'S RIGHTS TO RECORDS. Seller shall have the right to remove
and retain any records of the Assets for which it has, or may have, any
business, technical or legal need, provided that Seller will provide, or allow
Purchaser to make, copies of any such records which Purchaser reasonably needs
for the continuing operation of the Assets. To the extent that those records, or
any other information made available to Purchaser before or after the Closing,
contain proprietary business or technical information of Seller or its
Affiliates, Purchaser agrees to hold such records in confidence and limit their
use to the Assets.
17.2 PRESERVATION OF RECORDS. Purchaser and Seller shall not destroy or
otherwise dispose of any records acquired, removed, or retained hereunder for a
period of five (5) years following the Closing Date or such longer period as
required by applicable regulations, laws,
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statutes, or court orders (except as to tax records, for which the period shall
be seven years), except upon 30 days prior written notice to the other party.
During such five-year period, each party shall make such records available to
the other party or its authorized representatives for any business, legal or
technical need in a manner which does not unreasonably interfere with the record
holder's business operations.
ARTICLE XVIII
SELLER'S ACCESS TO ASSETS AFTER CLOSING
In addition to the right of access provided in Article XI, Purchaser
shall afford duly authorized representatives of Seller reasonable access to the
Assets with respect to any legal, technical or operational matter relating to
Seller's obligations under this Agreement, or Seller's operation of the Assets
before Closing, including without limitation removal of any Excluded Property
from the Assets, provided that Seller gives Purchaser reasonable prior notice,
and provided further that Seller's access does not unreasonably interfere with
Purchaser's normal operations. It is understood and agreed that Seller shall
remove all Excluded Property from the Assets prior to the Closing, or, if
necessary, as soon as practicable thereafter. Access to the Marketing Sites for
purposes of environmental evaluation shall be governed by Article XI.
ARTICLE XIX
PURCHASER'S INSPECTIONS
19.1 ACCESS TO REFINERY AND TERMINAL. Prior to the Effective Date, and
subject to an Access Agreement in the form attached hereto as Exhibit "D",
Seller has given to Purchaser and its representatives access, during normal
business hours, to the Refinery and to the Terminal, and Purchaser has conducted
all invasive testing or sampling, if any, it desires. Subsequent to the
Effective Date, but prior to the Closing, Seller will, subject to such Access
Agreement, permit Purchaser and its representatives access, during normal
business hours, to the Refinery and Terminal to make, or cause to be made, such
further investigations of the Refinery, the Terminal and their respective
Operations, not involving invasive testing or sampling, as Purchaser considers
necessary or advisable. Purchaser's right of access shall be subject to the
following conditions: (i) Purchaser shall give reasonable prior notice, (ii)
such investigation shall not unreasonably interfere with normal operations of
Seller, or with Seller's ongoing Corrective Action at the Refinery and the
Terminal, and (iii) Seller shall have the right to accompany Purchaser and its
representatives during any such inspection. Seller also agrees to make available
to Purchaser, prior to the Effective Date, all such documents and copies of
documents and information with respect to the Refinery, the Terminal and their
respective Operations as Purchaser from time to time reasonably may request.
19.2 ACCESS TO MARKETING ASSETS. At times mutually agreed by the
parties, Purchaser may inspect each of the Marketing Sites, personally or
through agents, employees, contractors, or subcontractors, at Purchaser's
expense, to ensure that the equipment necessary for the operation of the
Marketing Sites as contemplated hereunder (defined as product dispensers,
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pumps, air compressors, lifts, convenience store coolers, and air conditioners)
("Major Equipment") is present and in proper working order. Seller's
representatives may attend all such inspections. If Purchaser determines from
its inspections that any of the Major Equipment is missing or in need of repair,
Purchaser shall notify Seller and Seller shall either replace or repair such
items prior to the Closing Date with items of equivalent utility, value and
quality which reasonably are acceptable to Purchaser, at Seller's expense.
19.3 POST CLOSING INSPECTION OF MARKETING ASSETS. Within three business
days after the Closing, Purchaser shall have the right to inspect each Marketing
Site to determine whether the Major Equipment is missing or in need of repair;
and whether any previously identified repairs or replacements were made pursuant
to Section 19.2. Seller's representatives shall be afforded the opportunity to
attend such inspection. To the extent that Purchaser reasonably determines from
such inspections that any Major Equipment is still missing or is in need of
repair, and so notifies Seller, Seller shall either replace or repair such items
at its expense. If Purchaser does not conduct such inspection of any Marketing
Site within three business days after the Closing, Seller shall not be obligated
to replace or repair any Major Equipment.
19.4 MAINTENANCE OF EQUIPMENT. None of the equipment and personal
property listed in Attachments III-R and III-T or Major Equipment and personal
property on any Marketing Site shall be disposed of or otherwise removed from
the Assets on or after the Effective Date, except as may be agreed in advance by
the parties. Seller agrees to maintain all equipment listed on Attachments III-R
and III-T, and Major Equipment on the Marketing Sites to be transferred to
Purchaser, in accordance with Seller's usual maintenance practices and to
transfer such equipment to Purchaser at the Closing in proper working condition,
subject to reasonable wear and tear.
19.5 PURCHASER'S RIGHT TO INSTALL EQUIPMENT ON MARKETING SITES. Subject
to the legal rights of Seller's franchisees, Purchaser shall have the right,
after the Effective Date, personally or through agents, employees, contractors,
or subcontractors, to enter the Marketing Sites, at Purchaser's expense and at
such times as are reasonably acceptable to Seller, to install point of sale
equipment, telephone lines and other equipment as needed to effect an orderly
transition of operations after the Closing Date. Purchaser shall make reasonable
efforts not to disrupt existing operations on the Marketing Sites. In the event
that Closing does not occur and Purchaser has installed equipment on any
Marketing Site in accordance with this Section, Purchaser shall, at Seller's
option: (1) remove the equipment installed by Purchaser and restore the
Marketing Site to its original condition at Purchaser's sole cost; or (2)
transfer to Seller for no consideration, without warranty, express or implied,
title to any equipment installed by Purchaser, after which Seller shall be
solely responsible therefor.
19.6 PURCHASER'S ENTRY SHALL BE AT PURCHASER'S SOLE RISK. Each entry by
Purchaser or its representatives onto the Refinery, Terminal or Marketing Sites
shall be at Purchaser's sole risk and Purchaser shall defend, indemnify and hold
Seller harmless against all claims, losses, liabilities, costs and expenses
arising from or in connection with such entry. If Purchaser conducts any tests
or causes any such tests to be conducted at any of the Assets, Purchaser agrees
to restore each such Asset to the condition existing immediately prior to such
tests. Purchaser
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shall promptly provide Seller, at no cost to Seller, with copies of the results
or reports of any inspection, review or test conducted with regard to the Assets
by, or at the request of, Purchaser.
19.6.1 NOTWITHSTANDING THE FOREGOING, PURCHASER AGREES THAT IT
CANNOT AND WILL NOT RELY ON ANY FACT, CONDITION, OR STATEMENT MADE DURING ITS
ACTIVITIES CONDUCTED PURSUANT TO THIS SECTION UNLESS SUCH FACT, CONDITION, OR
STATEMENT IS REDUCED TO WRITING AND RATIFIED BY THE SELLER PRIOR TO CLOSING.
ARTICLE XX
OPERATIONS AND ACTIONS
20.1 GENERAL. Except as contemplated in, or provided for by, this
Agreement or as required by any applicable law, from the Effective Date until
the Closing Date, Seller agrees and covenants that (a) the business operations
of the Assets shall be conducted, only in the ordinary course of business, and
(b) without limiting the foregoing, Seller shall not (i) sell, mortgage, or
otherwise transfer or convey any material portion of the Assets, (ii) except in
the ordinary course and consistent with past practice in the conduct of the
business operations of the Assets, amend, modify, terminate or suspend any of
such operations (except in immaterial respects); or (iii) except in the ordinary
course and consistent with past practice in the conduct of such operations,
waive or relinquish any right (except in immaterial respects) under any
Contract, Permit or applicable law.
20.2 OPERATION PENDING CLOSING. With respect to the Marketing Assets,
between the Effective Date and the Closing Date, Seller shall not permanently
close any of the service stations on the Marketing Sites, without the approval
of Purchaser, except for any termination or non-renewal of any Fee & Lease
Dealer Agreement for any reason permitted by the PMPA. Notwithstanding the
foregoing, Seller may close any service station temporarily to change the
franchisee at the Marketing Site, and to repair or rebuild the improvements
therein. Seller will use reasonable commercial efforts to maintain the current
operations on, and the repair and maintenance of, the Marketing Sites between
the Effective Date and the Closing Date.
ARTICLE XXI
PUBLICITY
At all times prior to the Closing, neither party will make any press
release or other public statement concerning this Agreement or the transactions
contemplated hereby, or disclose the terms hereof or thereof to any third party,
except upon mutual agreement, or as required by law or regulation, or in
connection with any Permit application in furtherance of this Agreement. No
public statement or third-party disclosure will be made without advance notice
to the other party.
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ARTICLE XXII
EMPLOYEES AND BENEFITS
22.1 PURCHASER OBLIGATION TO SELLER'S EMPLOYEES.
22.1.1 Purchaser shall offer employment as of the Closing Date to all
employees of Seller assigned to the California Refining and Marketing Assets, as
referred to on Schedule 22.1.1, except any employees previously employed by
Purchaser who are not eligible for rehire under Purchaser's policies, at
substantially the same salaries or wages, including executive incentive and
bonus payments, as were paid by Seller immediately prior to the Closing Date.
Seller shall use its best efforts to retain all employees to be hired by
Purchaser in their current positions up to the Closing Date. Purchaser shall
keep on its payroll all such employees, except for those employees who
voluntarily leave, are terminated due to death or disability, or are discharged
for cause, for at least twelve (12) months after the Closing Date. Purchaser
shall keep on its payroll all employees, except for those employees who
voluntarily leave, are terminated due to death or disability, or are discharged
for cause, who, as of the Closing Date, , are within five (5) years of being
eligible to retire under Seller's benefit plans, at least until such employees
meet the requirements for eligibility for retirement under Purchaser's benefit
plans. For purposes of this Section 22.1.1, "cause" shall include (i) any
meaning ascribed to "cause" under California law, (ii) the commission of an
illegal act, (iii) negligence or willful misconduct in carrying out (or failing
to carry out) the employee's duties or responsibilities, (iv) failure to comply
with any of Purchaser's existing business conduct policies, and (v) any other
violation of Purchaser's policies or practices that could have resulted in
termination of such employee.
22.1.2 Purchaser shall offer employment to each inactive employee of
Seller listed on Schedule 22.1.2 who applies for employment with Purchaser
within one hundred eighty (180) days from the date of commencement of disability
or fourteen (14) days from the scheduled return date for such Employee as shown
on Schedule 22.1.2, whichever is later.
22.2 VACATION LIABILITY. Purchaser shall assume liability as of the Closing
Date for the vacation entitlement (except for unused 1999 vacation carryover
that shall be paid by Seller) that each employee of Seller who becomes an
employee of Purchaser has accrued as reflected on Schedule 22.1.1 (and 22.1.2 to
the extent hired by Purchaser). Such vacation entitlement shall include a
minimum of two weeks for each employee hired by Seller in the year 2000, who
becomes an employee of Purchaser. Purchaser shall pay each such employee's wages
or salary during their vacation entitlement from Purchaser, when taken. If an
employee with accrued vacation terminates employment with Purchaser during the
year 2000 with vacation entitlements remaining, Purchaser shall pay such
employee a lump sum in cash equal to such vacation entitlement.
22.3 BENEFIT LEVEL. From the Closing Date through the first anniversary
thereof, Purchaser shall provide employees with employee benefits set forth on
Schedule 22.3, which benefits (based on the employer contribution and determined
separately for exempt salaried and hourly (including non-exempt salaried)
employees) shall be substantially comparable in the
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aggregate to those benefits provided by Seller prior to the Effective Date. In
addition, from the first anniversary of the Closing Date and thereafter,
employees of Seller who are hired by Purchaser shall be treated no less
favorably than similarly situated employees of Purchaser. Nothing in this
Agreement shall (i) prevent Purchaser from exercising any reserved right
contained in any of its employee benefit plans to amend, modify, suspend,
revoke, or terminate any such plan after the first anniversary of the Closing
Date, (ii) apply with respect to any equity-based compensation scheme of
Purchaser, or (iii) require Purchaser to assume any obligation or liability with
respect to any of Seller's existing employee benefits and pension plans,
agreements, arrangements, or plans, whether or not subject to ERISA. The terms
of Purchaser's benefit plan documents, as amended if necessary to comply with
this Agreement, shall govern any benefits to be provided. Nothing in this
Agreement shall be construed to be a guarantee of an employee's continued
employment with Purchaser.
22.4 SERVICE CREDIT. Each employee hired by Purchaser shall receive credit
for service with the Seller for vesting, eligibility, and benefit level purposes
under all of Purchaser's employee benefit plans, policies, and programs.
22.5 PENSION WRAP AROUND.
22.5.1 Each employee hired by Purchaser who participated in a defined
benefit pension plan sponsored by Seller shall receive credit for benefit
accrual purposes under Purchaser's defined pension plans equal to the service
credited under Seller's pension plans for benefit accrual purposes. The benefit
payable to each such employee from the defined benefit pension plan or plans of
the Purchaser (the "Purchaser's Plan Benefit") shall be the greater of:
22.5.1.1 the difference between 22.5.1.1.1 and 22.5.1.1.2 below,
with the remainder actuarially adjusted as provided herein:
22.5.1.1.1 the annual benefit earned as of the
employee's retirement date under Purchaser's plan or plans (including service
credited by Seller's Plan), calculated as a single life annuity and adjusted by
any applicable early retirement reduction factors but not adjusted for any
qualified domestic relations order, as defined in Section 414 of the Code
("QDRO"); and
22.5.1.1.2 the annual benefit payable under Seller's
plan or plans, calculated as a single life annuity and actuarially adjusted by
any applicable early retirement factors as of the employee's commencement date
under Purchaser's plan or plans but not adjusted for any QDRO or prior lump sum
or other benefit payments; or
22.5.1.2 The annual benefit earned as of the employee's
retirement date under the Purchaser's Plan based solely on service with
Purchaser.
Purchaser's Plan Benefit determined in accordance with Section 22.5 and
illustrated in Schedule 22.5.1 shall be actuarially adjusted for payment in a
form other than single life annuity and the
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application of any temporary early retirement adjustment. Purchaser shall have
the discretion to determine Purchaser's Plan Benefit of each employee in a
manner that is consistent with the foregoing.
22.5.2 The annual benefit payable from Seller's pension plan(s) shall
be determined on a projected benefit basis with the amount determined as of the
date of commencement of benefits (either from Seller or from Purchaser, as
appropriate) rather than on a vested benefit basis as of the Closing Date.
Assumptions used to determine the projected benefit amount payable from Seller's
plan(s) are listed in Schedule 22.5.2.
22.6 MEDICAL PLAN AND DENTAL PLAN (ACTIVE & RETIREE). Purchaser shall offer
a medical plan and a dental plan as of the Closing Date so as to ensure
uninterrupted coverage of all hired employees and eligible dependents referred
to in Schedule 22.6. Such medical plan and dental plan shall grant credit for
any deductible and co-payment amounts paid by such employees during the
applicable plan year, including the Closing Date, and shall not exclude
pre-existing conditions to the extent covered under the Seller Plans. Subject to
Purchaser's right to amend or terminate its plans after the first anniversary of
the Closing Date, Purchaser shall offer benefits under Purchaser's retiree
medical plan to employees hired by Purchaser and their dependents, who meet the
eligibility requirements of Purchaser's retiree medical plan.
22.7 SAVINGS PLAN. Purchaser agrees to accept as a plan-to-plan transfer
employees' account balances from Seller's savings plans for any employee who so
elects. Employee account balances so transferred will include those amounts that
are subject to the provisions of Section 401(k) of the Internal Revenue Code
("401(k) assets"). Purchaser agrees to preserve within its savings plan all
protected benefits, rights and features attributable to transferred 401(k)
assets in accordance with the requirements of Section 411(d)(6) of the Internal
Revenue Code. Seller will vest any otherwise not vested amounts in employees'
savings plan accounts for those employees who request a plan-to-plan transfer to
Purchaser's savings plan. Employees will also have the option to leave their
accounts in Seller's savings plan or to request distribution of those portions
of the accounts which are currently distributable. Non-vested amounts not
transferred to Purchaser's Plan will be subject to forfeiture pursuant to
Seller's savings plan provisions. Purchaser will have no obligation with respect
to amounts attributable to Seller's savings plan other than acceptance of the
plan-to-plan transfers requested by employees and the preservation of the
protected benefits, rights and features attributable to transferred 401(k)
assets.
22.8 SEVERANCE. Purchaser shall establish and maintain for a period of
twelve (12) months from the Closing Date, a severance program providing to
employees it hires from Seller and who leave the employ of Purchaser (other than
through death, disability, discharge for cause or the employee's voluntary act),
benefits that in the aggregate are at least equal to Seller's Transition
Severance Program (a complete and correct copy of which has been provided to
Purchaser), without any mitigation.
22.9 WORKERS' COMPENSATION AND EMPLOYMENT-RELATED CLAIMS. Seller agrees
that, with respect to claims for workers' compensation arising out of events
occurring prior to the Closing Date and all claims under Seller's employee
benefit programs by, or in respect of,
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persons employed by Seller at the Assets arising out of events occurring prior
to the Closing Date, regardless of whether such employment had terminated and
regardless of whether such employee is employed by Purchaser, whether reported
or unreported as of the Closing Date, and whether insured or uninsured
(including, but not limited to, workers' compensation, life insurance, medical
and disability programs), Seller shall, at its own expense, honor, or cause its
insurance carriers, if any, to honor, such claims (to the extent and in
proportion to any injury incurred prior to Closing) in accordance with the terms
and conditions of such programs or applicable workers' compensation statutes,
including any construction of such terms or conditions ultimately made by any
court or administrative body having jurisdiction therefor. Without limiting the
scope of the preceding sentence, Seller shall be responsible for any and all
claims and liabilities arising out of or relating to (i) the employment of the
employees or any former employees of Seller, (ii) except as provided in Section
22.10 (WARN Act), the discharge by Seller of any such employee or former
employee of Seller, and (iii) the provision of any employee benefits to such
employees, former employees, retirees, or disabled employees of Seller (and
their beneficiaries and eligible dependents) attributable to their employment
with, or their participation in any plans or programs maintained or contributed
to, by Seller. Purchaser shall assume liability for all workers' compensation
claims for industrial injuries and illnesses occurring on or after the Closing
Date.
22.10 WARN ACT. Purchaser acknowledges and warrants to Seller that
Purchaser's actions in connection with the transactions contemplated by this
Agreement will not result in a "plant closing" or "mass layoff" within the
meaning of the WARN Act, and Purchaser shall indemnify Seller against any
expense incurred by Seller, including attorneys' fees, if applicable, in
connection with the application of the WARN Act to Seller as a result of the
transactions contemplated by this Agreement; provided that, prior to Closing,
Seller will not temporarily or permanently close or shut down any "single site
of employment" or any "facility" or any "operating unit," "department" or
"service" within a single site of employment, as such terms are used in the WARN
Act, within or constituting part of the Assets. Seller represents that none of
the Assets have had, and will not have, any such closures or shutdowns within
the period of at least ninety (90) days prior to Closing. Seller agrees to not
take any action or contribute to any liability of Purchaser under the WARN Act,
including, without limitation, not laying off any employee between the Effective
Date and Closing, without Purchaser's written consent, provided that Seller may
discharge employees for cause or poor employee performance consistent with
Seller's practices without such consent.
22.11 LABOR MATTERS. Except as described in Schedule 22.11 hereto, there
are no material labor-related disputes of any kind asserted against Seller in
connection with the Operation of any of the Assets pending before or, to
Seller's Knowledge, threatened before, any federal, state or local court or
agency. With respect to the Assets and except to the extent set forth in
Schedule 22.11: (i) there is no unfair labor practice charge or complaint
against Seller actually pending or, to Seller's Knowledge, threatened, before
the National Labor Relations Board; (ii) there is no labor strike, slowdown or
stoppage actually pending or, to Seller's Knowledge, threatened against or
affecting the Assets; (iii) none of the Operations of any of the Assets have
experienced any material labor disputes or any material work stoppage due to
labor disagreements within the past three years; and (iv) no attempt to organize
Employees has
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resulted in an election within the past three years or, to Seller's Knowledge,
is threatened with respect to the Assets. None of the Assets are now, nor at any
time within the past three years have been, subject to any collective bargaining
agreement, contract, letter of understanding or other similar arrangement with
any labor union or organization.
22.12. ERISA. Schedule 22.12 contains a complete list of each employee
benefit plan subject to ERISA (the "ERISA Plans"), any holiday, vacation,
Christmas or other bonus practice and any other employee pay practice,
arrangement, agreement or commitment not subject to ERISA (the "Payroll
Practices/Employee Arrangements") maintained by Seller, or with respect to which
Seller has any liability or obligation, whether actual or contingent, with
respect to Employees at the Assets or their respective beneficiaries.
22.12.1 Seller has not taken action which may result in Purchaser being
a party to, or bound by, any Seller ERISA Plan, and Purchaser shall have no
liability under any Seller ERISA Plan or Payroll Practice/Employee Arrangement
following the consummation of the transactions contemplated hereby.
22.12.2 Seller warrants that no Seller ERISA Plan or other Payroll
Practice/Employee Arrangement of Seller has provided, or provides, for the
payment of retiree benefits by Purchaser, including any obligation to pay for
the cost of any post-retirement health care or life insurance or similar
benefit. There have been no failures to provide COBRA Coverages which Sections
601 through 608 of ERISA require under any welfare benefit plans sponsored by
Seller. Seller shall provide employees and former employees of the Assets, who
are eligible, with COBRA Coverage upon their termination of employment with
Seller, upon the Closing or otherwise, according to ERISA requirements. Seller
does not and has not contributed to or maintained a "multi-employer plan" (as
defined in Section 3(37) of ERISA) relating to any of the Assets.
22.13 PAY EMPLOYEES UNTIL CLOSING DATE. Seller will pay all wages, salaries
and other sums due employees at the Assets other than accrued vacation, and
payroll taxes thereon through the close of business on the day prior to the
Closing Date.
22.14 CHANGE IN EMPLOYEE COMPENSATION. Seller will not increase the rate of
compensation paid, or pay any bonus, to employees at any of the Assets, except
for those increases or bonuses made in the ordinary course of business
consistent in all respects with Seller's past practice. Seller agrees to notify
Purchaser of any increases or bonuses given.
22.15 COVENANT NOT TO INTERFERE. Each of Seller and Purchaser hereby
covenants and agrees that, unless this Agreement is terminated, for a period of
five years after the Closing Date, it will not, whether for its own account or
for the account of any other person, endeavor to entice away from the other any
person who is an employee of such party with respect to the Assets except with
the written permission of such person's employer or as otherwise specifically
contemplated by this Agreement.
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22.16 TRANSITION OF EMPLOYEES. From and after the Closing Date, Purchaser
and Seller shall cooperate to ensure an orderly transition of the employees who
accept employment with Purchaser.
22.17 FICA WITHHOLDING PROCEDURES. Seller and Purchaser agree to follow, if
applicable, the standard procedures outlined in Revenue Procedure 96-60 in
preparing 2000 wage and tax statements for employees who accept employment with
Purchaser.
ARTICLE XXIII
TRANSFER OF PERMITS AND ASSIGNMENT OF CONTRACTS
23.1 TRANSFER OF PERMITS. It shall be Purchaser's responsibility to obtain
the issuance or transfer of all environmental and other Permits; provided,
however, that Seller shall cooperate with any efforts of Purchaser to complete
the actions required in connection with transferring or obtaining the issuance
of all such Permits, including, in the case of the Marketing Assets which are
Company Operated Marketing Sites, all operating permits, including beer and wine
licenses, where applicable.
23.2 DELAYS IN TRANSFER OF PERMITS OR ASSIGNMENT OF CONTRACTS. If there are
prohibitions against, or conditions to, the conveyance of any Contracts or
Permits, without the prior written consent of third parties, then any provision
contained in this Agreement to the contrary withstanding, the transfer of title
to, or interest in, such Contracts or Permits pursuant to this Agreement shall
not become effective unless and until such consent requirement is satisfied,
waived or no longer applies. When and if such consent requirement is so
satisfied, waived or no longer applies, to the extent permitted by applicable
law, the assignment of such Contracts or Permits shall become effective
automatically as of the Closing Date, without further action on the part of
Seller or Purchaser and without payment of further consideration. Each of Seller
and Purchaser agrees to use its commercially reasonable efforts to obtain
satisfaction of any consent requirement on a timely basis. To the extent that
any consent requirement for any Contracts or Permits cannot be obtained, Seller
will, upon request of Purchaser, use its commercially reasonable efforts
(without infringing upon the legal rights of any outside party or violating any
applicable law) to provide Purchaser with the benefits of such Contracts or
Permits or equivalent Contracts or Permits effective as of the Closing Date,
provided Purchaser assumes all responsibilities and liabilities under any such
Contracts or Permits with respect to the period after Closing.
ARTICLE XXIV
CERTAIN TAX MATTERS
24.1 TAXES. As referenced in Section 6.5, ad valorem taxes shall be
prorated between the parties at Closing. Seller shall be responsible for Taxes
assessed against the Assets, or Refinery and Terminal Inventory, the Marketing
Inventory and Merchandise for periods on or before the Closing Date. Purchaser
shall be responsible for Taxes assessed against the Assets,
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<PAGE> 64
Refinery and Terminal Inventory, Marketing Inventory and Merchandise for all
periods after the Closing Date. After the Closing Date, if Purchaser receives a
bill for Taxes assessed that includes Taxes for taxable years or taxable periods
on or before the Closing Date (including Taxes assessed for portions of taxable
years or periods on or before the Closing Date), Purchaser shall pay the bill
and invoice Seller for all such Taxes relating to periods prior to the Closing
Date. Subject to the proration occurring at Closing, Seller shall promptly
reimburse Purchaser upon receipt of such invoice. After the Closing Date, if
Seller receives a bill for Taxes assessed against the Assets that includes Taxes
for taxable years or taxable periods after the Closing Date (including Taxes
assessed for portions of taxable years or periods after the Closing Date),
Seller shall pay the bill and invoice Purchaser for all such Taxes relating to
periods on or after the Closing Date. Subject to the proration occurring at
Closing, Purchaser shall promptly reimburse Seller upon receipt of such invoice.
24.2 DOCUMENTARY TRANSFER TAXES AND RECORDING FEES.
24.2.1 Purchaser and Seller each shall pay one half (1/2) of any real
estate transfer tax imposed on the consideration from conveyance of Real
Property under this Agreement.
24.2.2 Purchaser and Seller shall share equally the cost of any
recording and filing fees imposed in connection with the conveyance of Real
Property under this Agreement.
24.3 OTHER TAXES.
24.3.1 Seller shall collect from Purchaser applicable sales, use, and
any similar taxes (including but not limited to excise taxes on motor fuels and
other refined products) imposed on the sale or licensing of property or the
providing of services under this Agreement or any agreement incorporated by
reference. It is understood between Seller and Purchaser that the consideration
from the sale of Seller's tangible personal property may be exempt from
California sales tax as sale for resale as defined under California Revenue and
Taxation Code Sections 6091-6092. Seller and Purchaser agree to cooperate with
each other to the extent possible to substantiate any values or claimed
exemptions as required by the State of California. Purchaser shall provide to
Seller at Closing a Resale Exemption certificate regarding the Refinery and
Terminal Inventory and Marketing Inventory.
24.3.2 Purchaser shall reimburse Seller for any sales, use, gross
receipts, or excise taxes or any environmental fees previously paid by Seller
with respect to any inventories sold to Purchaser.
24.3. 3 Seller and Purchaser will provide each other with such
cooperation and information as each may reasonably request of the other with
regard to the preparation and filing of Returns, or the conduct of an audit or
other proceeding in respect of Taxes.
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<PAGE> 65
ARTICLE XXV
GUARANTY OF PURCHASER'S OBLIGATIONS
As an inducement for Seller to enter into this Agreement with Purchaser,
Valero Energy Corporation, a Delaware, ("Guarantor") unconditionally guarantees
to Seller the full and prompt payment and performance by Purchaser of all
obligations of Purchaser under this Agreement and any documents or instruments
delivered pursuant hereto including, but not limited to, Purchaser's obligations
to indemnify Seller. Purchaser agrees that Valero Energy Corporation shall
execute and deliver at the Closing a Guaranty Agreement in substantially the
form of Exhibit "V" hereto.
ARTICLE XXVI
BULK SALES
Seller and Purchaser agree to waive compliance with any applicable bulk
sales laws. Seller agrees to indemnify and hold Purchaser harmless from and
against, and pay, any and all claims arising out of or resulting from any
failure to comply with or perform any action in connection with such bulk sales
provisions as they apply to the transfer of Assets consistent with this
Agreement. Seller shall comply with the bulk sales tax notice requirement of the
State of California.
ARTICLE XXVII
ASSIGNMENT
27.1 LIMITATION ON ASSIGNMENT. Subject to Section 27.2 hereof, this
Agreement may not be assigned by either party, in whole or in part without the
prior written consent of the other party, which consent shall not be
unreasonably withheld.
27.2 ASSIGNABILITY TO AFFILIATES. Seller and Purchaser may each assign this
Agreement, in whole or in part, to one or more of their respective Affiliates,
upon prior notice to the non-assigning party; provided, that the non-assigning
party may require as a condition of such assignment that the assigning party
reasonably demonstrate and/or assure the assignee's financial and technical
capability to perform its proposed obligations hereunder. Any attempted
assignment of this Agreement in violation of this Section 27 shall be null and
void.
27.3 SCOPE OF PERMITTED ASSIGNMENTS. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns, except that any such
assignment shall not relieve the assigning party of its obligations hereunder.
This agreement is not intended to, and does not create, any rights in any third
parties.
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<PAGE> 66
ARTICLE XXVIII
LIKE-KIND EXCHANGE
The parties agree that either party may use a qualified intermediary, as
such term is defined under Treasury Regulation Section 1.1031(k)-1(g)(4)
("Qualified Intermediary"), for purposes of consummating the transactions
contemplated by this Agreement and effecting a like-kind exchange of property
pursuant to and in accordance with Section 1031 of the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
Purchaser acknowledges that Seller may identify a Qualified Intermediary within
ten (10) days of the Closing Date, for purposes of consummating a like-kind
exchange under this Agreement, its right under this Agreement to receive,
pledge, borrow or otherwise obtain the benefits of the Purchase Price (all other
rights, remedies, liabilities and obligations arising under this Agreement are
retained by Seller). If Purchaser desires to use a Qualified Intermediary, it
shall give written notice to Seller at least ten (10) days prior to the Closing
Date of its intention to do so, and such notice shall identify such Qualified
Intermediary. The parties agree to execute such agreements and other documents
as may be necessary to complete and otherwise effectuate the like-kind exchange,
provided that: (a) a party's obligations hereunder shall not be increased; (b)
such documents shall not modify a party's representations, warranties or
obligations hereunder; (c) the Purchase Price paid by Purchaser shall not be
different from that which Purchaser would have paid pursuant to Section 3.1; (d)
a party shall not incur any additional cost, expense or liability as a result of
its cooperation in such exchange, and (e) Seller shall indemnify and hold
harmless Purchaser for additional expenses, including, but not limited to, taxes
and closing costs, and any cost or expense (including reasonable counsel fees)
which Purchaser may sustain or become subject to as a result of the Purchase
Price being paid to an intermediary party rather than to Seller and the
intermediary's subsequent use of the Purchase Price.
ARTICLE XXIX
PAYMENTS
29.1 Unless otherwise specified herein, any payment to be made hereunder
shall be made in U.S. dollars by wire transfer of immediately available funds,
without discount or deduction, or by such other means as the parties may agree.
29.2 Any amount not paid by either party when due hereunder shall bear
interest from the date upon which payment was due through the date of payment at
a rate equal to one percent (1%) above the prime rate of interest as announced
by Chase Manhattan Bank N.A. in New York City from time to time.
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<PAGE> 67
ARTICLE XXX
NOTICES
30.1 NOTICES. All notices or other communications required hereunder shall
be in writing, shall be addressed as specified below and shall be deemed to have
been given: (a) at the time of delivery when delivered personally; (b) upon
receipt when sent by Federal Express, or similar overnight service, or (c) upon
completion of successful transmission when sent by facsimile (unless
transmission is completed outside recipient's normal working hours, in which
case such notice shall be deemed given at the start of recipient's next business
day), immediately followed by U.S. posting, postage prepaid.
<TABLE>
<S> <C> <C> <C>
Seller Purchaser
Mail: ExxonMobil Refining & Supply Co. Mail: Valero Refining Company -
3225 Gallows Road California
Room 5C-012 One Valero Place
Fairfax, VA 22037 San Antonio, Texas 78212
Attn: Don H. Daigle Attn: Martin E. Loeber
Refining Director, Americas
Facsimile: 703-846-3551 Facsimile: 210-370-2490
Phone: 703-846-1241 Phone: 210-370-2042
</TABLE>
Either Party may change its address or facsimile number by providing written
notice to the other at least ten (10) days prior to the effective date of such
change.
ARTICLE XXXI
AMENDMENTS
This Agreement cannot be altered, amended, changed or modified in any
respect or particular unless each such alteration, amendment, change or
modification shall have been agreed to by each of the parties hereto and reduced
to writing in its entirety and signed and delivered by each party.
ARTICLE XXXII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the parties contained in this
Agreement shall survive for a period of one (1) year following the Closing Date.
No claim, for indemnity or otherwise, with respect to any representation or
warranty shall be brought unless notice of such claim is given to the party
making such representation or warranty on or before the end of such survival
period. It is the parties' intent that such surviving representations and
warranties shall not merge in the Closing or in the conveyancing instruments
delivered at the Closing.
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<PAGE> 68
ARTICLE XXXIII
EXCUSED DELAY IN PERFORMANCE
EXCUSED PERFORMANCE. The performance by either party of any of its
obligations set forth in this Agreement shall not be deemed untimely to the
extent any late performance is due to acts of God, acts of war, civil
disturbance, acts of government (including, but not limited to, governmental or
court orders), strikes or other labor disputes (the settlement of which shall be
totally within the discretion of the party having the difficulty) or any other
act or event beyond the reasonable control of the affected party; provided,
however, that the affected party is taking all reasonable steps to perform and
promptly notifies the other party of the details of such occurrence; and
provided further that the time for the performance of any undertaking shall not
be extended or any failure to perform excused for more than sixty (60) days
pursuant to this Article without the mutual consent of the parties.
ARTICLE XXXIV
GENERAL; ADDITIONAL COVENANTS
34.1 ENTIRE AGREEMENT. This Agreement, including all of the Attachments,
Exhibits and Schedules hereto, constitutes the entire understanding between the
parties with respect to the subject matter contained herein and supersedes any
prior understandings, negotiations or agreements, whether written or oral,
between them respecting such subject matter.
34.2 CONSTRUCTION. Words of any gender used in this Agreement shall be
construed to include any other gender, and words in the singular number shall
include the plural, and vice versa, unless the context requires otherwise.
34.3 CAPTIONS. The captions used in connection with the Articles and
Sections of this Agreement are for convenience only and shall not be deemed to
enlarge, limit or otherwise modify the meaning or interpretation of the language
of this Agreement. Any references to "Articles", "Sections", "Attachments",
"Exhibits", and Schedules" are to Articles, Sections, Attachments, Exhibits, and
Schedules of this Agreement.
34.4 ATTACHMENTS, EXHIBITS AND SCHEDULES. Each Attachment, Exhibit, and
Schedule referred to herein is incorporated into this Agreement by such
reference.
34.5 SEVERABILITY. If any provision of this Agreement is held illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability will
not affect any other provision hereof. This Agreement shall in such
circumstances be deemed modified to the extent necessary to render enforceable
the provisions hereof.
34.6 NO WAIVER. The failure of any party to insist upon strict performance
of any of the terms or conditions of this Agreement will not constitute a waiver
of any of its rights hereunder.
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<PAGE> 69
34.7 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARY. This Agreement shall
inure to the benefit of and be binding upon Purchaser and Seller and their
respective successors and assigns. Except as otherwise provided herein, nothing
in this Agreement will be construed as conferring upon any person or entity
other than Purchaser and Seller, and their respective successors in interest,
any right, remedy or claim under or by reason of this Agreement.
34.8 GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in the State of New York.
Notwithstanding the foregoing sentence, matters relating to real estate law and
local and state environmental law shall be construed and enforced in accordance
with the laws of the State of California. The parties irrevocably submit to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of this Agreement, except for those
matters over which that Court does not have subject matter jurisdiction. Where
the United States District Court for the Southern District of New York does not
have subject matter jurisdiction, the Parties irrevocably submit to the
exclusive jurisdiction of the Supreme Court of New York County, New York.
34.9 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT (a) KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY PARTY AND (b)
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES TO ENTER INTO THIS AGREEMENT.
34.10 BEST EFFORTS; TIME OF ESSENCE. Except as otherwise specifically
provided herein, Purchaser and Seller shall each use its best efforts to satisfy
the conditions to Closing and otherwise consummate the transactions contemplated
by this Agreement as promptly as practical. Time is of the essence with respect
to the Closing of this Agreement.
34.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed by both parties and delivered shall be deemed to be an
original. It shall not be necessary in making proof of this Agreement or any
counterparts hereof to produce or account for any of the other counterparts.
34.12 CONFIDENTIALITY. The parties acknowledge that they are bound by the
terms of the Confidentiality Agreement dated October 21, 1999 between Seller and
Purchaser. In addition, Seller and Purchaser agree that they will keep
confidential and not disclose to a third party any of the terms or provisions of
this Agreement for a period of four years after the Closing Date, except for
disclosure of information that:
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<PAGE> 70
34.12.1 is or becomes publicly available by other than unauthorized
disclosure;
34.12.2 is made pursuant to the requirement or request of a
Governmental Authority of competent jurisdiction to the extent such disclosure
is required by a valid law or Order, and sufficient notice is given by the
disclosing party to the other party to permit the other party to seek an
appropriate protective order or exemption from such requirement or request, if
it so desires. If such protective order or other remedy is not obtained, or if
the other party waives compliance with the provisions of this Section 34.12.2
for this purpose, the disclosing party shall furnish only that portion of the
information that is legally required and will exercise its best efforts to
obtain reliable assurance that confidential treatment will be accorded the
information by the Governmental Authority.
34.13 EXTENSIONS OF TIME; WAIVER. It is agreed that any party to this
Agreement may extend time for performance by any other party hereto or waive the
performance of any obligation of any other party hereto or waive any
inaccuracies in the representations and warranties of any other party, but any
such waiver shall be in writing, and shall not constitute or be construed as a
waiver of any other obligation, condition, representation or warranty under this
Agreement.
34.14 FURTHER ASSURANCES. Purchaser and Seller shall take such
additional action, and shall cooperate with one another, as may be reasonably
necessary to effectuate the terms of this Agreement and any agreement or
instrument delivered pursuant hereto.
34.15 NO PRESUMPTION AGAINST DRAFTER. Purchaser and Seller have each
fully participated in the negotiation and drafting of this Agreement. If an
ambiguity, question of intent or question of interpretation arises, this
Agreement must be construed as if drafted jointly, and there must not be any
presumption, inference or conclusion drawn against either party by virtue of the
fact that its representative has authored this Agreement or any of its terms.
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<PAGE> 71
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first written above.
<TABLE>
<S> <C> <C>
ATTEST: EXXON MOBIL CORPORATION
By:
- ----------------------------------- ------------------------------------
Assistant Secretary Vice President
ATTEST: VALERO REFINING COMPANY-CALIFORNIA
By:
- ----------------------------------- ------------------------------------
Assistant Secretary Vice President
ATTEST: [Guarantor]
VALERO ENERGY CORPORATION
(with respect to Article XXV only)
By:
- ----------------------------------- ------------------------------------
Assistant Secretary Vice President
</TABLE>
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The following are lists of Attachments, Exhibits, and Schedules that have been
omitted from the Company's filing of this Report. The Company agrees to furnish
supplementally a copy of any omitted Attachment, Exhibit, or Schedule to the
Commission upon request.
ATTACHMENTS
<TABLE>
<S> <C>
Attachment I-R, I-T, I-M-1, I-M-2: Legal description of Real Property for Refinery,
(Section 2.1.1, Section 2.2.2) Terminal, California-North Marketing Assets, California-South
Marketing Assets
Attachment II-R, II-T, II-M: Improvements located on the Real Property
(Section 2.1.2, Section 9.6.1)
Attachment III-R, III-T, III-M: Personal Property
(Section 2.1.3, Section 9.7)
Attachment IV-R, IV-T, IV-M: DELETED
Attachment V-R, V-T, V-M: Contracts
(Section 2.1.5, Section 9.11.1)
Attachment VI-R, VI-T: Refinery and Terminal Permits
(Section 2.1.6)
Attachment VII DELETED
Attachment VIII-M Marketing Permits
(Section 2.2.8)
Attachment IX-R, IX-T, IX-M: Excluded Property
(Section 2.3.7)
Attachment X-R, X-T, X-M: Improvements, Equipment or Inventory NOT
(Section 2.3.8) owned by Seller
Attachment XI DELETED
(Section 5.5)
Attachment XII: A. Refinery and Terminal Inventory Quantification
(Section 6.4.1) Procedures
B. Inventory Valuation Protocol
</TABLE>
71
<PAGE> 73
72
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit "A-1" Fee Dealers (Section 2.2.2.1)
Exhibit "A-2" Lease Dealers (Section 2.2.2.1)
Exhibit "B" Distributors (Section 2.2.2.2)
Exhibit "C" Current balances, Distributors' loans/reimbursement agreements
(Section 2.2.6)
Exhibit "D" form of Access Agreement (Section 5.1.1)
Exhibit "E" form of Hold Harmless and Indemnity Agreement (Section 5.1.2)
Exhibit "F-R, F-T, F-M" form of Assignment and Assumption of Permits and Contracts
(Section 5.1.3)
Exhibit "G" DELETED
Exhibit "H" form of Assignment and Assumption of Lease Agreement
(Section 5.1.5)
Exhibit "I" DELETED
Exhibit "J" form of Supply Agreement (Section 5.2.1)
Exhibit "K" form of Branded Marketer Agreement (Section 5.2.2)
Exhibit "L-1" form of License Agreement (Section 5.3.1)
Exhibit "L-2" form of Technology Assistance Agreement (Section 5.3.2)
Exhibit "L-3" List of Third Party Technology (Section 5.3.3)
Exhibit "M" Crude Supply Agreements (Section 5.4)
Exhibit "N " Transition Services Agreement (Section 5.5)
Exhibit "O" form of Corporation Grant Deed (Section 6.2.1 and 6.2.2.1)
Exhibit "P" form of Bill of Sale (Section 6.2.1.2 and 6.2.2.3)
Exhibit "Q" DELETED
</TABLE>
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<PAGE> 75
<TABLE>
<S> <C>
Exhibit "R" DELETED
Exhibit "S" form of assignment of Franchise Agreements
(Section 6.2.2.4)
Exhibit "T" form of FIRPTA Affidavit (Section 6.2.3.4)
Exhibit "U" California Form 590E (Section 6.2.3.4)
Exhibit "V" form of Guaranty (Section 6.3.4)
Exhibit "W" DELETED
Exhibit "X" form of release of remediation liabilities (Section 11.3.1.2)
Exhibit "Y" form of Restriction (Section 11.3.5)
Exhibit "Z" form of Remediation Easement (Section 11.3.6)
Exhibit "AA" Marketing Site Acquired From Other Responsible Party
(Section 11.4.15)
Exhibit "BB" Marketing Sites Acquired From Other Responsible Parties
(Section 11.4.16)
Exhibit "CC" Title Commitments(Section 12.1.1)
Exhibit "DD" Permitted Encumbrances (Section 12.1.1)
Exhibit "EE" DELETED
</TABLE>
74
<PAGE> 76
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
SCHEDULE 1 - P List of Purchaser's Employees with actual knowledge
(Article I )
SCHEDULE 1 - S List of Seller's Employees with actual knowledge
(Article I )
SCHEDULE 2.2.10 Rent Abatement, Imaging Rebate and Other Brand Program and Service
Agreements
SCHEDULE 9.3 Consents required by Seller
(Section 9.3)
SCHEDULE 9.4 No Breach Exceptions (Seller)
(Section 9.4)
SCHEDULE 9.5 Issues Involving Real Property Leases (validity, assignability, etc.)
(Section 9.5)
SCHEDULE 9.6.1 Issues Involving Improvements
(Section 9.6.1)
SCHEDULE 9.6.2 Major Capital Projects (including delays, modifications, etc.)
(Section 9.6.2)
SCHEDULE 9.7 Equipment Issues (title, liens, encumbrances)
(Section 9.7)
SCHEDULE 9.8 Issues Involving Compliance with Laws
(Section 9.8)
SCHEDULE 9.9 Environmental Liabilities which would adversely interfere with operation
of Refinery and Terminal
(Section 9.9)
SCHEDULE 9.11 Issues Involving Contracts (enforceability, material defaults, etc.)
(Section 9.11)
SCHEDULE 9.12 Pending Actions and Proceedings (over $100K, environmental laws,
injunctive relief, eminent domain, restrain or prohibit this Agreement)
(Section 9.12)
SCHEDULE 9.13 Changes Made to Facilities
(Section 9.13)
</TABLE>
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<PAGE> 77
<TABLE>
<S> <C>
SCHEDULE 10.3 Consents Required by Purchaser
(Section 10.3)
SCHEDULE 10.4 No Breach Exceptions (Purchaser)
(Section 10.4)
SCHEDULE 10.5 Pending Actions and Proceedings (to restrain or prohibit this Agreement)
(Section 10.5)
SCHEDULE 11.3.1.1.4 Listed Disposal Sites
SCHEDULE 11.4.1 Marketing Sites with Covered Contamination
SCHEDULE 22.1.1 Seller's Active Employees
(Section 22.1.1)
SCHEDULE 22.1.2 Seller's Inactive Employees
(Section 22.1.2)
SCHEDULE 22.3 Benefits
SCHEDULE 22.5.1 Purchaser's Plan Benefit
SCHEDULE 22.5.2 Projected Benefit Assumptions
SCHEDULE 22.6 Medical Plan: Hired employees and eligible dependents
(Section 22.6)
SCHEDULE 22.7 Non-Vested Company Matching Credits (Section 22.7)
SCHEDULE 22.11 Labor Matters
(Section 22.11)
SCHEDULE 22.12 ERISA Benefit Plans/Payroll Practices/Employee Arrangements
(Section 22.12)
</TABLE>
76
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,509
<SECURITIES> 0
<RECEIVABLES> 406,778
<ALLOWANCES> 3,221
<INVENTORY> 436,197
<CURRENT-ASSETS> 960,331
<PP&E> 2,711,907
<DEPRECIATION> 726,723
<TOTAL-ASSETS> 3,121,174
<CURRENT-LIABILITIES> 955,274
<BONDS> 645,155
0
0
<COMMON> 563
<OTHER-SE> 1,108,141
<TOTAL-LIABILITY-AND-EQUITY> 3,121,174
<SALES> 2,928,617
<TOTAL-REVENUES> 2,928,617
<CGS> 2,871,565
<TOTAL-COSTS> 2,871,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,760
<INCOME-PRETAX> 46,939
<INCOME-TAX> 16,200
<INCOME-CONTINUING> 30,739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,739
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.54
</TABLE>
