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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 1-14501
PENNZOIL-QUAKER STATE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 76-0200625
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
PENNZOIL PLACE, P.O. BOX 2967
HOUSTON, TEXAS 77252-2967
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Registrant's telephone number, including area code: (713) 546-4000
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $0.10 per share New York Stock Exchange
Pacific Exchange
Rights to Purchase Preferred Stock New York Stock Exchange
Pacific Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of the voting stock held by non-affiliates of the
registrant: $884.2 million as of January 31, 2000.
Number of shares outstanding of each class of the registrant's classes of
common stock, as of the latest practicable date, January 31, 2000: Common Stock,
par value $0.10 per share: 78,160,971.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE PROXY STATEMENT TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A
UNDER THE SECURITIES EXCHANGE ACT OF 1934 IN CONNECTION WITH THE COMPANY'S 2000
ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III
HEREOF (TO THE EXTENT SET FORTH IN ITEMS 10, 11, 12 AND 13 OF PART III OF THIS
ANNUAL REPORT ON FORM 10-K).
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FORWARD-LOOKING STATEMENTS -- SAFE HARBOR PROVISIONS
This annual report on Form 10-K of Pennzoil-Quaker State Company for the
year ended December 31, 1999 contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. To the extent that
such statements are not recitations of historical fact, such statements
constitute forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements (i) under the captions (a) "Lubricants
and Consumer Products," (b) "Fast Lube Operations" and (c) "Base Oil and
Specialty Products" under "Item 1. Business and Item 2. Properties" and (ii)
under the captions (a) "Results of Operations," (b) "Disclosures About Market
Risk" and (c) "Capital Resources and Liquidity" under "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contain forward-looking statements. Where, in any forward-looking statement,
Pennzoil-Quaker State Company expresses an expectation or belief as to future
results or events, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The following are factors that could cause actual results or events to
differ materially from those anticipated, and include but are not limited to
general economic, financial and business conditions; commodity prices for crude
oil; competition in the motor oil marketing business; base oil margins and
supply and demand in the base oil business; the success and costs of advertising
and promotional efforts; mechanical failure in refining operations;
unanticipated environmental liabilities; changes in and compliance with
governmental regulations; changes in tax laws; and the costs and effects of
legal proceedings.
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PART I
ITEM 1. BUSINESS AND ITEM 2. PROPERTIES.
Pennzoil-Quaker State Company (the "Company" or "Pennzoil-Quaker State") is
a premier worldwide automotive aftermarket products and consumer car care
company. The Company is engaged primarily in the manufacturing and marketing of
lubricants and car care products, in the franchising, ownership and operation of
fast lube centers and in the manufacturing of base oils and specialty industrial
products. Pennzoil-Quaker State has strong brand-name recognition in key product
categories such as motor oil with Pennzoil(R), Quaker State(R) and Wolf's
Head(R), fast lube centers with Jiffy Lube(R) and car care products with Slick
50(R), Rain-X(R), Blue Coral(R), Black Magic(R), Westley's(R), Medo(R),
Axius(TM), Gumout(R), Fix-A-Flat(R), The Outlaw(R), Snap(R), Classic(R) car wax,
Pennzoil Roadside(TM) Rescue(R) and others.
Pennzoil-Quaker State is the result of the consolidation and separation on
December 30, 1998 (the "Spin-off") of the lubricants and consumer products, fast
lube and base oil and specialty products operations of Pennzoil Company and the
acquisition by the Company of Quaker State Corporation ("Quaker State") in a
merger transaction immediately following the Spin-off. Reference is made to Note
2 of Notes to Consolidated Financial Statements for additional information.
SEGMENT FINANCIAL INFORMATION
Pennzoil-Quaker State's businesses are organized, managed and internally
reported as three segments. The segments, which are based on differences in
products and services, are (1) lubricants and consumer products, (2) fast lube
operations and (3) base oils and specialty products. These segments have
worldwide responsibility for virtually all of the Company's product lines.
Transactions between reportable segments are recorded at market. The
majority of intersegment sales are from the base oil and specialty products
segment to the lubricants and consumer products segment. The Company excludes
interest expense and income tax expense or benefit from segment profit or loss.
Reference is made to Note 14 of Notes to Consolidated Financial Statements for
additional segment financial information and for financial information about
geographic areas.
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1999 1998 1997
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(EXPRESSED IN THOUSANDS)
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NET SALES(1)
Lubricants and Consumer Products(2)...................... $1,894,280 $ 960,493 $ 966,195
Fast Lube Operations(2).................................. 423,413 322,704 316,068
Base Oil and Specialty Products(3)....................... 853,073 717,358 916,759
Other.................................................... 296 248 264
Intersegment Sales....................................... (219,706) (199,127) (217,138)
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$2,951,356 $1,801,676 $1,982,148
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OPERATING INCOME (LOSS)(1)(4)
Lubricants and Consumer Products(2)...................... $ 166,477 $ 55,923 $ 76,460
Fast Lube Operations(5).................................. (16,435) (4,054) 24,492
Base Oil and Specialty Products(6)....................... (13,154) 16,003 19,375
Impairment of Long-Lived Assets(7)....................... (493,910) (29,613) --
Other.................................................... 3,366 (8,099) 1,919
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(353,656) 30,160 122,246
Corporate Administrative Expense(2)...................... 81,134 44,422 54,810
Interest Expense(2)...................................... 80,588 69,943 61,780
Income Tax Provision (Benefit)........................... (194,447) (38,338) 6,245
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Net Loss....................................... $ (320,931) $ (45,867) $ (589)
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IDENTIFIABLE ASSETS(1)
Lubricants and Consumer Products(7)...................... $1,598,767 $1,667,429 $ 371,057
Fast Lube Operations(8).................................. 428,954 527,387 348,764
Base Oil and Specialty Products(7)(9).................... 174,650 700,546 757,042
Other(8)................................................. 530,850 249,632 82,760
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$2,733,221 $3,144,994 $1,559,623
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DEPRECIATION AND AMORTIZATION(1)
Lubricants and Consumer Products......................... $ 58,832 $ 23,709 $ 17,885
Fast Lube Operations..................................... 33,060 24,507 21,439
Base Oil and Specialty Products.......................... 26,437 28,169 25,153
Other.................................................... 5,034 825 13
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$ 123,363 $ 77,210 $ 64,490
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CAPITAL EXPENDITURES(1)(10)
Lubricants and Consumer Products......................... $ 23,785 $ 23,739 $ 32,310
Fast Lube Operations..................................... 18,481 28,651 25,836
Base Oil and Specialty Products(11)...................... 7,510 18,352 89,648
Other(12)................................................ 28,338 17,598 --
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$ 78,114 $ 88,340 $ 147,794
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(1) On December 30, 1998, the Company acquired Quaker State in a merger
transaction. Reference is made to Note 2 of Notes to Consolidated Financial
Statements for additional information. Net sales, operating income (loss),
depreciation and amortization and capital expenditures for 1998 and 1997 do
not include Quaker State. Assets and liabilities of Quaker State are
included in the Company's consolidated balance sheet beginning on December
31, 1998.
(2) The increase in net sales and operating income for the lubricants and
consumer products segment in 1999 was the result of the acquisition of
Quaker State on December 30, 1998 and higher product sales volumes. The
increase in net sales for the fast lube operations segment, corporate
administrative expense and interest expense in 1999 was the result of the
acquisition of Quaker State.
(3) The increase in net sales for the base oil and speciality products segment
in 1999 was the result of higher sales prices of products manufactured. In
October 1997, the Company contributed most of its specialty industrial
products business to Penreco, a partnership with Conoco Inc. The
partnership is accounted for under the equity method with the Company's
share of net earnings being reported as a component of other income for the
base oil and speciality products segment.
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(4) Total 1999 operating income includes $86.2 million in pretax charges
related to the December 30, 1998 acquisition of Quaker State and $12.1
million in pretax charges for restructuring costs and other matters. Total
1998 operating income includes pretax charges of $10.6 million related to
the acquisition of Quaker State. Reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" and Note 2 of Notes to Consolidated
Financial Statements for additional information.
(5) The decrease in operating income for the fast lube operations segment in
1999 compared to 1998 includes $28.5 million of charges as a result of
acquisition expenses and $5.4 million of other charges. The decrease in
operating income for that segment in 1998 compared to 1997 includes $14.8
million of charges as a result of acquisition expenses, legal settlements
and other liabilities.
(6) Operating income includes Pennzoil-Quaker State's share of equity income
from its Excel Paralubes, Penreco, Bareco and other partnerships of $26.5
million, $32.9 million and $4.4 million for the years ended December 31,
1999, 1998 and 1997, respectively. Reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Base Oil and Specialty Products" for additional information.
(7) In December 1999, the base oil and specialty products segment recorded a
pretax charge of $480.0 million related to the expected disposition of its
refineries, and the lubricants and consumer products segment recorded a
pretax charge of $13.9 million related to the closure of the Rouseville
blending and packaging plant. In December 1998, the fast lube operations
segment recorded a pretax charge of $29.6 million to reflect the impairment
of long-lived assets as required under Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." These impairment
charges have not been included in depreciation and amortization expenses in
the table above. Reference is made to "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 3 of Notes to
Consolidated Financial Statements for additional information.
(8) The decrease in identifiable assets for the fast lube operations segment in
1999 compared to 1998 was the result of the sale of certain company owned
stores to franchisees. The increase in Other in 1999 compared to 1998 was
primarily the result of the increase in deferred tax assets associated with
the write-down of the Company's refineries.
(9) Identifiable assets includes $13.2 million, $16.9 million and $32.5 million
in net investment in equity method investees at December 31, 1999, 1998 and
1997, respectively.
(10) There was no capitalized interest in 1999. Includes interest capitalized of
$0.3 million and $7.4 million in 1998 and 1997, respectively.
(11) Total 1997 capital expenditures includes $42.0 million relating to the
upgrade of the Company's Shreveport manufacturing facility.
(12) Other capital expenditures primarily consist of building leasehold
upgrades.
Narrative descriptions of these business segments follow, with emphasis on
1999 developments. Unless otherwise indicated by the context, references to the
Company or Pennzoil-Quaker State include its subsidiaries.
LUBRICANTS AND CONSUMER PRODUCTS
The Company's lubricants and consumer products segment manufactures and
markets lubricants and other automotive aftermarket consumer products.
LUBRICANTS. The Company manufactures and markets Pennzoil(R), Quaker
State(R), Wolf's Head(R) and Lubriguard(R) motor oil. The Company also
manufactures and markets transmission fluids, gear lubricants and greases, as
well as specialty lubricants designed for sport utility vehicles, heavy duty
agricultural and construction equipment, marine craft, motorcycles and
snowmobiles. These other lubricants are sold under the Pennzoil(R) and Quaker
State(R) brand names and certain private label and proprietary brand names. The
Company also markets automobile consumer products such as oil and air filters
and antifreeze produced by third parties and provides collection, transportation
and recycling services for used oil, antifreeze and used oil filters in certain
regions of the United States.
The primary markets for the Company's lubricants are mass merchandisers,
auto parts stores, lube centers and automobile dealerships. Secondary markets
include convenience stores, drug stores, grocery stores, tire stores and
independent automotive repair facilities. The Company markets its branded motor
oils in packages ranging in size from four ounces to 55 gallons and sells a
significant amount in bulk to the installed market. Packaged motor oil is
primarily sold in one quart plastic bottles.
Consumer marketing for the Company's lubricants focuses primarily on the
driving conditions experienced by vehicle owners and the technical benefits that
lubricants can provide under those conditions. Key components of the marketing
strategy include targeted media, motorsports participation, public relations and
consumer promotions. Targeted media includes national and local television,
radio and print advertising
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designed to reach specific populations of consumers based upon their usage.
Motorsports participation includes team sponsorships in NASCAR(R), Indy Racing
League(R), NHRA(R) and the sponsorship of the Pennzoil World of Outlaws(R), a
grass roots sprint car racing series. In addition, several national and local
racing events are sponsored by the Company.
In marketing its lubricants, the Company utilizes a brand management
structure. Under this approach, the Company centralizes all brand-related
activity under a single manager for each brand, allowing coordination of all
strategic and tactical decisions for advertising and promotions, product
packaging and positioning, formulation strategy and pricing. The brand manager
is responsible for developing the annual marketing plan that is designed to
enhance brand equity.
During the fourth quarter of 1999, Pennzoil-Quaker State launched
Pennzoil(R) Synthetic with Pennzane(R), a synthetic motor oil. Pennzane(R) was
developed for the space program and is used by NASA to lubricate space-going
satellite mechanisms, including bearings, momentum wheels, boom/array deployment
mechanisms and payload gimbals.
Motor oils and lubricants are produced by the Company by blending additives
and lubricant base oils in thirteen domestic blending and packaging plants.
These plants are located in Portland, Oregon; Vernon, California; Alameda,
California; Carson, California; Shreveport, Louisiana (where two are located);
Rouseville, Pennsylvania; Mundy's Corner, Pennsylvania; St. Louis, Missouri;
Marion, Illinois; Newell, West Virginia; Vicksburg, Mississippi; and San
Antonio, Texas. The Company will shut down its Rouseville, Pennsylvania blending
and packaging plant in conjunction with the proposed sale of the Rouseville wax
processing facilities in 2000. The Newell, West Virginia location is leased and
the other locations are owned by the Company. Base oils processed by the
Company's blending and packaging plants are purchased at prevailing market
prices and supplied by the Company's manufacturing facilities, Excel Paralubes
(either directly or through exchanges) and other outside suppliers.
Substantially all additives are purchased from outside suppliers. The Company
believes that alternative sources of supply for base oils and additives are
readily available.
At the end of 1999, the Company's lubricants were distributed domestically
through 67 owned and operated distribution facilities in 27 states. The
Company's products are also distributed through independent distributors and
directly from third-party suppliers.
The Company markets Pennzoil(R) and Quaker State(R) lubricants and car care
products in more than 80 countries outside of the United States through directly
and indirectly wholly and partly owned subsidiary companies, joint ventures,
licensees, distributors and jobbers. During 1999, the Company's largest national
markets outside the United States (by total lubricant sales volume) were Mexico,
Canada, Thailand, India and Indonesia. The Company's motor oil and other
lubricants are blended and packaged by wholly owned subsidiaries of the Company
in Australia and Spain, by a majority owned subsidiary in India, by joint
ventures in Bolivia, Malaysia, South Africa and Peru and by licensees in
Indonesia, Mexico, the Philippines and Thailand.
CONSUMER PRODUCTS. The Company manufactures and markets automotive
polishes, car wash products and automotive air fresheners, and markets
automobile engine and fuel treatments, automotive window shades, automotive
glass treatments, tire inflators and automotive accessories.
The Company's products are marketed under national brand names such as
Slick 50(R), Rain-X(R), Blue Coral(R), Black Magic(R), Westley's(R), Medo(R),
Axius(TM), Gumout(R), Snap(R), Fix-A-Flat(R), The Outlaw(R), Classic(R) car wax,
Pennzoil Roadside(TM) Rescue(R) and other proprietary brand names. The divisions
of the Company included in the consumer product segment are described below.
The Blue Coral/Slick 50 division markets Slick 50(R) automotive engine
treatments and related automotive chemical products and manufactures and markets
Blue Coral(R) automobile appearance products. Slick 50(R) branded products are
produced by third party contract manufacturers and distributed directly to
customers or shipped to company locations for distribution to customers. Blue
Coral purchases chemicals, waxes and cleaners from a variety of suppliers and
blends and packages finished products at its leased facility in Cleveland, Ohio.
The Blue Coral/Slick 50 division also markets Rain-X(R), the leading brand of
rain repellant for automobile windows and other appearance products, Black
Magic(R) non-waterbased tire
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protectant and dressing products and Westley's(R) car washes and cleaners. The
majority of the Rain-X(R), Black Magic(R) and Westley's(R) brand products are
manufactured and distributed by third party contract manufacturers.
The Medo division designs, manufactures and markets air fresheners
primarily for use in automobiles. Medo purchases paperboard, containers and
fragrance from a variety of suppliers, and manufactures and distributes finished
air fresheners from a leased Baltimore, Maryland facility.
The Axius division designs and markets automotive window sun protection
products and automotive accessories. Axius purchases its automotive window sun
protection and other accessory products from a variety of suppliers and
distributes sunshades and other automotive accessories from a leased Moorpark,
California facility.
The Company's automotive chemicals division manufactures and markets
Fix-A-Flat(R) tire inflators, Gumout(R) fuel additives and cleaners, The
Outlaw(R) fuel additives, Snap(R) fuel additives, cleaners and performance
fluids, Classic(R) car waxes and washes, Pennzoil Roadside(TM) Rescue(R)
emergency fuel additive and other private and house brand automotive chemicals.
Fix-A-Flat(R) is the number one seller of tire inflators in the United States,
and Gumout(R) is the number one seller of carburetor spray cleaners in the
United States. Fix-A-Flat(R), Gumout(R), Rescue(R), The Outlaw(R) and Snap(R)
products are manufactured through arrangements with third party contract
manufacturers.
Pennzoil-Quaker State launched a new product, Pennzoil Roadside(TM)
Rescue(R), during the fourth quarter of 1999. Pennzoil Roadside(TM) Rescue(R)
emergency fuel additive is intended for use by motorists who have run out of
gas. The product is poured into a vehicle's fuel tank while the engine is still
hot, allowing a restart in a few minutes time. The new product is packaged in
convenient half-gallon containers that are stored in the car. Each half-gallon
of Rescue(R) provides enough fuel for most vehicles to travel approximately 10
miles.
The Company's consumer products are marketed primarily to the consumer
through mass merchandisers and auto parts stores, and secondarily through the
installed market (lube centers, service stations, automobile dealerships, etc.).
Outside the United States, the Company's consumer products are manufactured
by third parties in the United Kingdom. Products are sold in 48 countries
through wholly and partly owned subsidiaries, licensees, sales agents and
distributors.
FAST LUBE OPERATIONS
The Company provides fast automotive preventive maintenance services in the
United States through Jiffy Lube(R) and Q Lube(R) service centers and in Canada
through Q Lube(R) service centers only.
During 1999, the Company initiated a program to rebrand all its Q Lube(R)
service centers to Jiffy Lube(R) service centers to achieve single system
synergies. As of December 31, 1998, 590 Q Lube(R) service centers were open in
the United States, 28 in Canada and one in Puerto Rico. The Company
substantially completed the program during 1999 and had 40 Q Lube(R) service
centers as of December 31, 1999.
As of December 31, 1999, 2,144 Jiffy Lube(R) service centers were open in
metropolitan areas throughout the United States with a heavy concentration of
centers in the northeastern and eastern part of the United States. Franchisees
operated 1,595 of these service centers and the other 549 service centers were
owned and operated by Jiffy Lube, including 25 franchised service centers and 82
company-operated service centers at Sears Auto Centers across the country.
Jiffy Lube's primary service is Jiffy Lube Signature Service(TM), which can
generally be performed in 10 minutes or less, and which includes an oil change
and oil filter replacement, chassis lubrication, checking and topping off
windshield washer, transmission, differential and power steering fluid levels,
vacuuming the interior and cleaning all exterior windows. All tires are inflated
to proper levels, the battery fluid and engine coolant levels are checked, and
the air filter and windshield wiper blades are inspected. Coolant replenishment
is at an additional charge, as is replacement of air filters and wiper blades. A
number of other authorized services and products, including Pennzoil-Quaker
State products, are also available at Jiffy Lube(R) service centers at an
additional cost. Pennzoil(R) and Quaker State(R) motor oils are the featured
motor oils in company-operated service centers and in most franchise-operated
centers. Pennzoil(R) and Quaker State(R) brands constituted approximately 86% of
the lubricants used by Jiffy Lube in 1999.
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Jiffy Lube was ranked fifth in the world among all franchises in the 21st
Annual Franchise 500 (Entrepreneur, January 2000), rising from last year's
ranking of number 61. Jiffy Lube also maintained its first-place ranking among
fast oil change centers in the Franchise 500 (Entrepreneur, January 2000). In
addition, Jiffy Lube continues to be recognized as a "super brand" in
BrandWeek's annual rating of the top 2000 brands in America.
BASE OIL AND SPECIALTY PRODUCTS
During 1999, the Company completed a strategic review of its manufacturing
assets and businesses, including refineries, partnerships and packaging plants.
During the review, it evaluated the strategic and financial advantages and
disadvantages it derives from the vertical integration of its manufacturing and
marketing capabilities. Based on the results of this review, the Company decided
to withdraw from the refining business and to dispose of its refineries and
related assets. In February 2000, the Company ceased processing crude oil at its
Rouseville, Pennsylvania refinery and entered into a definitive agreement to
sell the wax processing facilities and related assets at that refinery, its
interest in the Bareco wax marketing partnership and related assets. The Company
will continue to pursue the divestiture of its Shreveport, Louisiana refinery,
the remaining assets of its Rouseville refinery and related businesses.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of Notes to Consolidated
Financial Statements for additional information.
BASE OIL. As of December 31, 1999, the Rouseville facility and the
Shreveport facility manufactured base oils and specialty products for the
Company. The paraffinic base oil produced by these manufacturing facilities is
used in the blending of motor oil and other lubricants and for sale to
industrial customers. The manufacturing facilities also produce waxes,
petrolatums, special cut kerosenes, transformer oils, process oils and other
naphthenic base oils for use in producing specialty industrial products or for
sale to industrial customers. In addition, the Company markets gasoline and
distillate products in eight states through wholesale distributors to retail
outlets under the Pennzoil(R) brand name or as an unbranded product.
The Company and Conoco are equal partners in Excel Paralubes, which
operates a state-of-the-art base oil hydrocracker facility located at Conoco's
refinery near Lake Charles, Louisiana. The facility is capable of producing
approximately 20,000 barrels per day of high-quality base oils, the base
ingredient in finished lubricants. Conoco operates the plant with support
positions staffed by both Conoco and the Company. The Company purchases 50% of
base oil production volume of Excel Paralubes at contract rates based on
prevailing market prices.
SPECIALTY PRODUCTS. The Company and Conoco also are partners in Penreco.
The Company contributed to Penreco its operations related to petrolatums, white
oils, ink solvents, sulfonates and other specialty petroleum products, including
its manufacturing facilities in Karns City, Pennsylvania and Dickinson, Texas.
Conoco contributed to Penreco its solvents business, which sells products
primarily into the drilling fluids, mining and cleaning products markets and as
carrier oils for many consumer products. Products from Penreco are marketed
under the Penreco(R), Magie Bros(R), Conosol(R) and LVT(R) brand names. Penreco
markets to manufacturers and end-users directly and through licensed
distributors.
As of December 31, 1999, the Company and Baker Petrolite Corporation, the
specialty chemicals division of Baker Hughes Incorporated, were equal partners
in Bareco Products, which markets a broad line of wax products to domestic and
international purchasers of paraffin, microcrystalline and related synthetic
waxes under the Be Square(R) and other brand names. In February 2000, the
Company agreed to sell its interest in the partnership in connection with the
sale of the Rouseville wax processing facilities.
COMPETITION
The lubricants business is highly competitive. The major competitors of the
Company and their principal brands of motor oil in the United States are Ashland
Inc. (Valvoline(R)), Texaco Inc. (Havoline(R)), Burmah Castrol PLC (Castrol(R)),
and Exxon Mobil Corporation (Mobil(R)). The Company also competes with a number
of independent blending and packaging companies. Outside of the United States,
the Company also
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competes with major fuels marketers and state-owned petroleum companies. The
principal methods of competition in the motor oil business are breadth of
product portfolio, product quality, price, distribution capability, advertising
and sales promotion. Some of the competitors, particularly the major integrated
oil companies, have greater financial resources than the Company.
The car care consumer products business is highly competitive and very
fragmented. The car care industry is composed of several categories, such as
maintenance chemicals, appearance chemicals, tire cleaners and air fresheners.
Major branded competitors in these categories are STP(R), primarily a
maintenance chemical, and appearance products Armor All(R) and Turtle Wax(R).
Many other national brands exist in each of the various categories, although, in
general, they have small market shares. Private label brands also compete with
the national brands with respect to certain car care products. The principal
methods of competition in car care products are specific product benefits,
distribution capability and advertising and sales promotion.
The base oil and specialty products business is highly competitive. The
major competitors are Witco Corporation, Petro-Canada and Lyondell Chemical
Company in the white oils business and several major integrated oil companies in
base oil (primarily Exxon Mobil and Equilon, a joint venture between Texaco and
Shell Oil Company) and the solvents business. Wax products major competitors are
Moore and Munger, Allied Signal Inc., International Group Inc. and National Wax,
a division of Burmah Castrol. Specialty industrial products compete on the basis
of product quality, customer service and price.
The fast lube business is highly competitive. Major competitors include
Ashland Inc. through its Valvoline Instant Oil Change(R) centers. A large number
of independent fast lube chains also compete with Jiffy Lube(R) and Q Lube(R) on
a regional or local basis. In addition to competing with other fast lube
centers, Jiffy Lube(R) and Q Lube(R) service centers compete with automobile
dealers, service stations and garages. The principal methods of competition are
quality of service, speed, location, warranty, price, convenience, reliability
and sales promotion.
PATENTS AND TRADEMARKS
The Company's trademark portfolio exceeds 3,000 domestic and foreign
trademark registrations and applications, with most of its primary brand names
being protected by registered trademarks. Pennzoil-Quaker State recognizes the
importance of its strong brand names to its business. Therefore, the Company
actively polices the use of its trademarks throughout the world where its
products are sold and takes vigorous action against apparent infringements of
its trademarks.
The Company currently has approximately 125 patents and over 50 pending
patent applications. The subject matter of these patents and patent applications
include lubricants, synthetic lubricants, lubricant additives, automotive
chemicals, various hydrocarbon and ester gel technologies, and automotive
accessories.
RESEARCH AND DEVELOPMENT
The Company's research and development division underwent a major
restructuring in 1999. Focus has been placed on Consumer Products technology
with the creation of a new and dedicated department supporting growth plans for
all strategic business units as well as the Automotive Chemicals Division.
Lubricant technology continued to receive attention with focus on new products
and creating beneficial differentiation for the consumer. The Company also
created a new department to build the Company's core competencies in selected
science and technology fields. The Company initiated a major effort to enhance
product quality. The new quality enhancement processes implemented cover a wide
range of activities from product design and specifications to vendor approval
and manufacturing excellence.
As a result of the business-focused deployment of Research and Development,
the Company launched more than ten new products in 1999. One of these products,
Pennzoil Roadside(TM) Rescue(R) emergency fuel additive, was selected by
Business Week magazine as one of the best new products of the year.
The Research and Development division has adopted a goal of becoming a key
business driver, partnering with all business segments including lubricants and
consumer products and fast lube operations. The Company spent approximately
$16.5 million on research activities and quality enhancement in 1999. The
activities are carried out primarily in a 65,700 square foot facility at the
Woodlands, Texas. The Company also operates a state-of-the-art pilot plant at
this location.
7
<PAGE> 10
EMPLOYEES
As of December 31, 1999 the Company and its subsidiaries had approximately
8,198 employees, of whom approximately 5,866 were full-time employees and
approximately 2,332 were temporary and part-time employees. Approximately seven
percent of the Company's employees are represented by various labor unions.
Collective bargaining agreements are in force with most of the unions.
The Company is subject to various federal and state laws and regulations
governing employment practices and working conditions, including, but not
limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of
1866, the Equal Pay Act of 1963, the Civil Rights Act of 1991, the Americans
with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the
Drug Free Workplace Act of 1989, the Age Discrimination in Employment Act of
1967, the Rehabilitation Act of 1973, the Vietnam Era Veterans' Readjustment
Assistance Act of 1974, the Occupational Safety and Health Act of 1970, the Fair
Labor Standards Act of 1938, the National Labor Relations Act of 1935, Executive
Order 11246, the Uniformed Services Employment and Reemployment Rights Act of
1994, and the Veterans Employment Opportunity Act of 1998.
GOVERNMENTAL REGULATION
The Company's operations are affected from time to time in varying degrees
by political developments and federal, state and local laws and regulations.
ENVIRONMENTAL MATTERS. The operations of the Company in the United States
are subject to numerous federal, state and local laws and regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment and human health and safety.
The Company is subject to a variety of state and federal Clean Air Act
rules requiring air emission reductions from its operating units and fuels.
Currently, the U.S. Environmental Protection Agency ("EPA"), the Ozone Transport
Assessment Group ("OTAG"), Ozone Transport Region ("OTR") and several states are
examining new standards and/or controls which could impose significant costs on
the Company. The EPA recently adopted new, more stringent national ambient air
quality standards for ozone and particulate matter, which would designate many
more areas of the country as high pollution areas subject to additional
regulatory controls, including possible fuel specification requirements.
However, litigation over the new standards has rendered their implementation
uncertain. The multi-state OTAG and OTR groups are developing lists of suggested
controls to limit interstate ozone transport. The EPA has issued a proposal to
require states to begin adopting many of these suggested controls over the next
few years.
The precise effect of these actions on the Company and other industrial
companies is uncertain because most of the requirements will be implemented
through EPA regulations to be issued over a period of years. For example, fuels
produced at the Company's Shreveport refinery will likely be required to be
reformulated to a composition significantly different from the fuels currently
produced, which would involve the installation of additional refining equipment.
However, current estimates indicate that expenditures associated with the
installation of such equipment would not have a material effect on the Company's
results of operations.
The EPA also recently enacted regulations limiting the sulfur content of
gasoline fuels, effective in 2004. The Company believes it is eligible under the
regulations for an extension of this deadline to 2008. The expenditures required
to comply with these requirements may have a material effect on the Company's
results of operations. The EPA is expected to propose, later in 2000, new
regulations limiting the sulfur content of diesel fuels. The potential effect on
the Company of such regulations, if ultimately promulgated, is unknown at this
time.
The Company is also subject to certain laws and regulations relating to
environmental remediation activities associated with past operations, such as
the Comprehensive Environmental Response, Compensation, and Liability Act, the
Resource Conservation and Recovery Act and similar state statutes. In response
to liabilities associated with these activities, accruals have been established
when reasonable estimates are possible. The Company adjusts the accruals when
new remediation responsibilities are discovered and probable costs become
estimable, or when current remediation estimates are adjusted to reflect new
information.
8
<PAGE> 11
The Company's assessment of the potential impact of these environmental
laws is subject to uncertainty due to the difficult process of estimating
remediation costs that are subject to ongoing and evolving change. Initial
estimates of remediation costs reflect a broad-based analysis of site conditions
and potential environmental and human health impacts derived from preliminary
site investigations (including soil and water analysis, migration pathways and
potential risk). Later changes in these initial estimates may be based on
additional site investigations, completion of feasibility studies (comparing and
selecting from among various remediation methods and technologies) and risk
assessments (determining the degree of current and future risk to the
environment and human health, based on current scientific and regulatory
criteria) and the actual implementation of the remediation plan. This process
occurs over relatively long periods of time and is influenced by regulatory and
community approval processes and is subject to the ongoing development of
remediation technologies. The Company's assessment analysis takes into account
the condition of each site at the time of estimation, the degree of uncertainty
surrounding the estimates for each phase of remediation and other site-specific
factors.
From January 1997 through December 1999, capital outlays of approximately
$10.0 million have been made by the Company with respect to environmental
protection. Capital expenditures for environmental control facilities are
currently expected to be approximately $0.8 million in 2000. Reference is made
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity -- Environmental" for additional
information.
FAST LUBE OPERATIONS MATTERS. Jiffy Lube and Q Lube are subject to, and
devote substantial efforts to compliance with, a variety of federal and state
laws governing franchise sales and marketing and franchise trade practices.
Although the regulatory environment differs by state, applicable laws and
regulations generally require disclosure of business information in connection
with the sale of franchises. Certain state regulations also affect the ability
of the franchisor to revoke or refuse to renew a franchise. Jiffy Lube and Q
Lube seek to comply with applicable regulatory requirements. However, given the
scope of the fast lube business and the nature of franchise regulations,
compliance problems can be encountered from time to time.
ITEM 3. LEGAL PROCEEDINGS.
(a) LOUISIANA FEDERAL COURT EMPLOYMENT ACTION. In September 1997, a lawsuit
styled Kenneth Epperson, et al. v. Pennzoil Co., et al., was filed in the United
States District Court for the Western District of Louisiana, Shreveport
Division. The amended complaint filed by nine named plaintiffs alleges
discriminatory employment policies and practices against African-American and
other minority employees and seeks attorneys' fees and costs, various forms of
injunctive and equitable relief, $50.0 million in damages for back pay, front
pay and emotional distress, and a minimum of three times that amount in punitive
damages. Class certification was denied by the court in September 1999. The
court, however, allowed the lawsuit to be amended to add new individual
plaintiffs. Since that time, approximately 60 additional plaintiffs have joined
the lawsuit. The Company vigorously denies these allegations.
(b) BLUE CORAL. In May 1997, a class action lawsuit was filed in the United
States District Court for the Northern District of Illinois on behalf of a class
of persons who purchased wax, polish or protectant products sold by a number of
defendants. The action names as defendants a number of car wax manufacturers,
including Blue Coral, Inc., a subsidiary of the Company, and certain of its
present and former officers. The complaint alleges that the defendants falsely
advertised and marketed such products and seeks treble damages, attorneys' fees
and costs for the class for alleged violations of the federal Racketeer
Influenced and Corrupt Organizations Act and compensatory damages for alleged
violations of the Ohio Consumer Sales Practices Act as well as for breach of
express warranty. On January 5, 1999, the court certified a nationwide class
consisting of all persons who purchased products marketed, produced or
distributed as "car wax" by the defendants. While no class period has been
specified by the court, the plaintiffs are seeking a class period dating back
four years prior to the filing of the action. On February 2, 1999, the
plaintiffs proposed a joint settlement fund equal to ten percent of each
defendant's 1997 gross revenue from the products. The Company is contesting this
action vigorously.
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<PAGE> 12
(c) CALIFORNIA SCENTS. In January 2000, a lawsuit styled California Scents,
Inc. v. Medo Industries, Inc. was filed in the United States District Court for
the Central District of California. The plaintiff alleges that it is engaged in
the manufacture and sale of automotive air freshener in the United States and
that the defendant, Medo Industries, Inc., a subsidiary of the Company, has
monopolized and attempted to monopolize that business in violation of federal
antitrust laws. The plaintiff also alleges that the defendant has, in violation
of California state law, tortiously interfered with the plaintiff's prospective
business relationships and engaged in unfair business practices. The plaintiff
claims that the defendant's alleged actions have caused the plaintiff to suffer
actual damages of $16.0 million, plus $4.0 million per year for an unspecified
number of years into the future. The plaintiff seeks trebled damages, punitive
damages, restitution with respect to its claim of unfair business practices and
injunctive relief. The Company is contesting this action vigorously.
(d) OTHER. The Company is involved in numerous lawsuits, primarily in
Louisiana, involving asbestos and asbestos-containing products. The plaintiffs
generally allege exposure to asbestos and asbestos-containing products while
working on the premises of the premises defendants and strict liability and
negligence actions against the premises' defendants, including the Company. In
addition, the plaintiffs generally allege that asbestos-containing products
sold, distributed and supplied by the other defendants in the lawsuits were
defective and unreasonably dangerous and that those defendants were thus
negligent in failing to warn the plaintiffs of these dangers. The Company is
contesting these actions vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the quarter ended December 31, 1999.
ITEM S-K 401(b) EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Set forth below are the names and ages of the executive officers of
Pennzoil-Quaker State Company (at February 29, 2000). Positions, unless
otherwise specified, are with Pennzoil-Quaker State Company.
CARLOS T. ALCANTARA (49)
President -- International Operations
AHMED ALIM (52)
Senior Vice President -- Research and
Development
CLYDE W. BEAHM (62)
Executive Vice President -- Lubricants and
Consumer Products
LINDA F. CONDIT (52)
Vice President and Corporate Secretary
MARK S. ESSELMAN (43)
Senior Vice President -- Human Resources
MARC C. GRAHAM (47)
Group Vice President -- Fast Lube Operations
THOMAS P. KELLAGHER (43)
Group Vice President and Chief Financial Officer
MICHAEL J. MARATEA (55)
Vice President and Controller
JAMES L. PATE (64)(1)
Chairman of the Board and Chief Executive Officer
JAMES J. POSTL (54)(1)
President and Chief Operating Officer
JAMES W. SHADDIX (53)
General Counsel
PAUL B. SIEGEL (54)
Vice President
LAURIE K. STEWART (40)
Vice President and Treasurer
- ---------------
(1) Director of Pennzoil-Quaker State Company and member of Executive Committee.
(b) Officers are appointed annually to serve for the ensuing year or until
their successors have been appointed. Positions, unless specified otherwise, are
with Pennzoil-Quaker State Company.
10
<PAGE> 13
CARLOS T. ALCANTARA -- President -- International Operations since August
1999. Vice President -- International Automotive Products Division of The Clorox
Company from February 1999 to June 1999. Vice President -- Worldwide Business
Development of The Clorox Company from June 1998 to January 1999. Vice
President -- Latin American Division of The Clorox Company prior thereto.
AHMED ALIM -- Senior Vice President -- Research and Development since May
1999. Vice President -- Quality and Technology of Pizza Hut, Inc./Tricon Global
Restaurants, Inc. from March 1996 to April 1999. Vice President -- Technical
Operations of Warner Lambert Company prior to August 1995.
CLYDE W. BEAHM -- Executive Vice President -- Lubricants and Consumer
Products since December 1998. Group Vice President -- Products Marketing of
Pennzoil Company from January 1996 to December 1998. Group Vice
President -- Franchise Operations of Pennzoil Company prior thereto. Vice
President of Pennzoil Products Company from March 1998 to December 1998.
LINDA F. CONDIT -- Vice President and Corporate Secretary since December
1998. Vice President of Pennzoil Company from December 1995 to December 1998.
Corporate Secretary of Pennzoil Company from March 1990 to December 1998. Vice
President and Secretary of Pennzoil Products Company from March 1998 to December
1998.
MARK S. ESSELMAN -- Senior Vice President -- Human Resources since August
1999. Vice President -- Human Resources and Communications of Great Lakes
Chemical Corporation from August 1997 to July 1999. Vice President -- Human
Resources in the Network Systems Division of USRobotics from August 1996 to
April 1997. Vice President -- Human Resources of CompuCom Systems, Inc. prior
thereto.
MARC C. GRAHAM -- Group Vice President -- Fast Lube Operations and
President -- Jiffy Lube International, Inc. since July 1999. President of Paccar
Automotive Inc. prior thereto.
THOMAS P. KELLAGHER -- Group Vice President and Chief Financial Officer
since February 2000. Senior Vice President -- Business Development from January
1999 to February 2000. Principal of McKinsey & Company, Inc. prior thereto.
MICHAEL J. MARATEA -- Vice President and Controller since December 1998.
Vice President of Pennzoil Company from February 1996 to December 1998 and
Controller of Pennzoil Company from May 1995 to December 1998. Vice
President -- Process Improvement of Pennzoil Exploration and Production Company
prior thereto. Controller of Pennzoil Products Company from March 1998 to
December 1998.
JAMES L. PATE -- Chairman of the Board and Chief Executive Officer since
December 1998. Chairman of the Board of Pennzoil Company from May 1994 to August
1999, and Chief Executive Officer of Pennzoil Company from May 1990 to December
1998. President of Pennzoil Company from March 1990 to December 1997. Chief
Executive Officer of Pennzoil Products Company from October 1998 to December
1998 and President of Pennzoil Products Company from March 1998 to October 1998.
JAMES J. POSTL -- President and Chief Operating Officer since December
1998. President of Pennzoil Products Company from October 1998 to December 1998.
President of Nabisco Biscuit Company from December 1995 to February 1998.
President and Chief Executive Officer of Nabisco International prior thereto.
JAMES W. SHADDIX -- General Counsel since December 1998. General Counsel of
Pennzoil Company prior thereto. Vice President of Pennzoil Products Company from
March 1998 to December 1998.
PAUL B. SIEGEL -- Vice President since December 1998. Senior Vice
President -- Legal of Pennzoil Products Group from February 1995 to December
1998. Vice President -- Legal of Pennzoil Products Group prior thereto. Vice
President of Pennzoil Products Company from March 1998 to December 1998.
LAURIE K. STEWART -- Vice President and Treasurer since August 1999.
Assistant Treasurer from December 1998 to July 1999. Manager -- Corporate
Finance of Pennzoil Company from August 1996 to December 1998.
Manager -- Planning and International Finance of Pennzoil Company prior thereto.
Assistant Treasurer of Pennzoil Products Company from March 1998 to December
1998.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The following table shows high and low sales prices for the common stock of
Pennzoil-Quaker State as reported on the New York Stock Exchange (consolidated
transactions reporting system), the principal market in which the common stock
is traded, and dividends paid per share for the calendar quarters indicated. The
common stock is also listed for trading on the Pacific Exchange. The common
stock began trading "regular way" on the New York Stock Exchange and the Pacific
Exchange on December 31, 1998, the day following the effective date of the
Spin-off and the acquisition of Quaker State.
<TABLE>
<CAPTION>
1999
-----------------------------
MARKET PRICE
----------------
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ------ ------ ---------
<S> <C> <C> <C>
March 31.............................................. $16.50 $11.88 $.1875
June 30............................................... $15.44 $11.06 $.1875
September 30.......................................... $15.38 $12.31 $.1875
December 31........................................... $12.94 $ 8.50 $.1875
</TABLE>
The closing sales price for the common stock of Pennzoil-Quaker State on
December 31, 1999 was $10.1875 as reported on the New York Stock Exchange
(consolidated transactions reporting system), the principal market in which the
common stock is traded.
As of December 31, 1999, Pennzoil-Quaker State had 18,935 record holders of
its common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following table contains selected financial data for the five years
indicated.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -----------
(EXPRESSED IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues(1)................................... $2,988.9 $1,850.1 $2,013.2 $1,968.0 $1,807.7
Net loss(2)................................... $ (320.9) $ (45.9) $ (0.6) $ (9.2) $ (53.2)
Basic and diluted loss per share.............. $ (4.12) $ (0.96) $ (0.01) $ (0.19) $ (1.11)
Dividends per common share.................... $ 0.75 -- -- -- --
Total assets(3)............................... $2,733.2 $3,145.0 $1,559.6 $1,370.5 $1,278.7
Total debt and capital lease
obligations(3)(4)........................... $1,100.4 $1,105.6 $ 458.6 $ 458.5 $ 435.2
Total shareholders' equity(3)................. $ 949.9 $1,350.2 $ 256.4 $ 235.7 $ 224.8
</TABLE>
- ---------------
(1) The increase in revenues for the year ended December 31, 1999 compared to
the year ended December 31, 1998 was primarily due to the acquisition of
Quaker State Corporation on December 30, 1998. The decrease in revenues for
the year ended December 31, 1998 compared to the year ended December 31,
1997 was primarily the result of the Company's contribution of most of its
specialty industrial products business to a partnership with Conoco called
Penreco in October 1997. Beginning in the fourth quarter of 1997, the
Company's share of Penreco's earnings, net of expenses, are reflected in
revenues. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for additional information.
(2) The 1999 net loss includes after-tax charges of $359.1 million ($592.2
million pretax). These charges include $493.9 million in pretax charges
required under SFAS No. 121 related to the expected disposition of the
Company's Rouseville and Shreveport refineries and costs associated with the
closure of the Rouseville, Pennsylvania blending and packaging plant, $86.2
million in pretax charges related to the December 30, 1998 acquisition of
Quaker State and $12.1 million in pretax charges for restructuring costs and
other matters. The 1998 net loss includes after-tax charges of $59.0 million
($91.9 million pretax). These charges include $10.6 million in pretax
expenses related to the acquisition of Quaker State, $29.6 million in pretax
charges for the impairment of fast lube assets required under SFAS No. 121,
$25.0 million in pretax charges associated with the voluntary withdrawal and
reformulation of Fix-A-Flat(R) tire inflator products and $26.7 million in
pretax charges for litigation settlement expenses, net loss on sales of
assets and other matters. The 1997 net loss includes pretax charges of $22.0
million allocated to the Company by its former parent company. The 1996 net
loss includes a pretax charge of $24.4 million for pre-operating expenses of
Excel Paralubes. The 1995
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<PAGE> 15
net loss includes pretax charges of $20.0 million relating to a fire at the
Company's Rouseville manufacturing facility, $10.0 million for a settlement of
certain franchisee litigation, $9.0 million for pre-operating expenses of Excel
Paralubes, $5.7 million associated with international marketing restructuring
charges and $8.2 million associated with a general and administrative cost
reduction program. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information related to
1997 through 1999.
(3) In 1999, the Company wrote down its Rouseville and Shreveport refineries to
their fair values less costs to sell. On December 30, 1998, the Company
acquired Quaker State. Reference is made to Notes 2 and 3 of Notes to
Consolidated Financial Statements for additional information.
(4) Includes current maturities of long-term debt and current portion of capital
lease obligations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Reference is made to Segment Financial Information included in Item 1.
Business and Item 2. Properties and the Consolidated Financial Statements
beginning on page F-3 for additional information.
Pennzoil-Quaker State Company is the result of the consolidation and
separation on December 30, 1998 of the lubricants and consumer products, fast
lube and base oil and specialty products operations of Pennzoil Company and the
acquisition by the Company of Quaker State in a merger transaction immediately
following the separation.
Results of operations for Pennzoil-Quaker State do not include Quaker
State's results prior to the acquisition. In addition, operating results in 1997
and 1998 include certain affiliated charges for interest and services provided
by Pennzoil Company to Pennzoil-Quaker State that were not incurred by
Pennzoil-Quaker State in 1999. Assets and liabilities of Quaker State are
included in the Company's consolidated balance sheet beginning on December 31,
1998.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
The Company had net sales of $2,951.4 million for the year ended December
31, 1999, an increase of $1,149.7 million, or 64%, from 1998. The increase in
net sales was primarily due to the acquisition of Quaker State.
A net loss of $320.9 million was recorded for 1999 compared to a net loss
of $45.9 million in 1998. Results of operations for 1999 included pretax charges
of $592.2 million. Included in these charges are $493.9 million related to the
expected disposition of the Rouseville and Shreveport refineries and closure of
the Rouseville blending and packaging plant, $86.2 million due to costs
associated with the Company's acquisition of Quaker State and $12.1 million for
restructuring costs and other matters. Excluding these items, net income was
$38.2 million for 1999. Results of operations for 1998 include $10.6 million in
pretax expenses related to the acquisition of Quaker State, $29.6 million in
pretax charges for the impairment of fast lube assets required under SFAS No.
121, $25.0 million in pretax charges associated with the voluntary withdrawal
and reformulation of Fix-A-Flat(R) tire inflator products and $26.7 million in
pretax charges for litigation settlement expenses, loss on sales of assets and
other matters. Excluding these items, net income was $13.1 million in 1998.
Reference is made to Note 2 and Note 3 of Notes to Consolidated Financial
Statements for additional information.
LUBRICANTS AND CONSUMER PRODUCTS. Net sales for the lubricants and consumer
products segment in 1999 were $1,894.3 million compared to net sales of $960.5
million for 1998. The 97% increase in net sales from 1998 to 1999 was primarily
due to the acquisition of Quaker State and higher lubricating product sales
volumes. Operating income from this segment was $166.5 million for 1999 compared
to $55.9 million in 1998. Operating income in 1999 included $31.4 million of
certain expenses associated with the acquisition of Quaker State. Operating
income in 1998 included charges of $25.0 million associated with the voluntary
withdrawal and reformulation of Fix-A-Flat(R) tire inflator products and $14.2
million for impairments, write-offs and other charges. Excluding these charges,
operating income was $197.9 million in 1999, an increase of $102.8 million, or
108%, over 1998. Operating income increased primarily due to the acquisition of
Quaker State.
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<PAGE> 16
FAST LUBE OPERATIONS. Net sales recorded by the fast lube operations
segment, operating through Jiffy Lube and Q Lube, increased 31% for 1999
compared to 1998. The increase in net sales was due primarily to an increase in
the number of service centers resulting from the addition of Quaker State Q Lube
operations. Net sales reported by the fast lube operations segment consist of
sales revenues from company-operated service centers and franchise fees, royalty
revenues, rental income and proceeds from automotive product sales to franchisee
operated service centers. System-wide sales increased $282.9 million to $1,100.5
million for 1999 compared to $817.6 million for 1998 as a result of an increased
number of service centers open and an increase in the average ticket price.
System-wide average ticket prices increased to $37.49 in 1999 compared with
$36.71 in 1998, as customers continue to take advantage of additional authorized
services and products available at service centers. There were 2,144 service
centers (including 549 company-operated service centers) open as of December 31,
1999.
The fast lube operations segment reported an operating loss of $16.4
million during 1999 compared to an operating loss of $4.1 million during 1998.
Included in 1999 and 1998 results are charges of $33.9 million and $14.8
million, respectively, for acquisition expenses, legal expenses and other
liabilities. Adjusted to exclude these charges, operating income totaled $17.5
million in 1999 compared to $10.7 million in 1998. The increase in operating
income in 1999 over 1998 is primarily due to the addition of Quaker State's Q
Lube operations.
During 1999, the fast lube operations segment acquired 32 centers for cash
of $26.2 million and sold 423 Q Lube(R) and Jiffy Lube(R) service centers for
cash of $76.0 million and $6.1 million in notes issued. In addition, 71 Q
Lube(R) and 49 Jiffy Lube(R) centers were closed during the year.
BASE OIL AND SPECIALTY PRODUCTS. During 1999, the Company completed a
strategic review of its manufacturing assets and businesses, including
refineries, partnerships and packaging plants. During the review, it evaluated
the strategic and financial advantages and disadvantages it derives from the
vertical integration of its manufacturing and marketing capabilities. Based on
the results of this review, the Company decided to withdraw from the refining
business and to dispose of its refineries and related assets. In December 1999,
the Company recorded a pretax charge of $480.0 million to reflect the impairment
of its Rouseville and Shreveport refineries related to the expected disposition
of those refineries. SFAS No. 121 requires assets to be disposed of be reported
at the lower of the carrying amount or the fair values less costs to sell. The
write-down will reduce annual pretax depreciation and amortization expense by
approximately $21 million. In February 2000, the Company ceased processing crude
oil at its Rouseville refinery and entered into a definitive agreement to sell
the wax processing facilities and related assets at that refinery, its interest
in the Bareco partnership and related assets. The Company will continue to
pursue divestitures of its refineries and related businesses as it withdraws
from such businesses. Reference is made to Note 3 of Notes to Consolidated
Financial Statements for additional information.
Net sales for the base oil and specialty products segment increased 19% for
1999 compared to the same period in 1998. The increase was due to the effect of
increased crude oil prices on average sales prices for base oils, fuels and
other refined petroleum products.
Excluding the refinery impairment, gross margin decreased $9.6 million, or
48%, in 1999 from 1998. The decrease was primarily due to lower margins for base
oils, fuels and waxes as prices for these products failed to keep pace with the
rapidly increasing price of crude oil and other refinery feedstocks. The lower
margins were partially offset by a $42.6 million reduction in operating
expenses.
Other income for the segment was $15.3 million lower in 1999 than in 1998.
The decrease was primarily due to the sale of the Roosevelt, Utah refinery in
1998 and to lower equity income in the Company's partnerships related to the
effects of higher feedstock costs in 1999.
Selling, general and administrative expenses increased $5.6 million, or
41%, in 1999 compared to 1998. The increase was due to costs related to the
strategic review of assets and related restructuring activities.
OTHER. Other operating income in 1999 was $3.4 million, compared to a loss
of $8.1 million in 1998. The increase in 1999 compared to 1998 was primarily due
to higher income from the Company's captive insurance subsidiary.
14
<PAGE> 17
CORPORATE ADMINISTRATIVE. Corporate administrative expenses in 1999 were
$81.1 million compared to $44.4 million in 1998. The increase in 1999 compared
to 1998 is primarily due to the addition of Quaker State and the related
acquisition costs.
1998 COMPARED WITH 1997
The Company had net sales of $1,801.7 million for the year ended December
31, 1998, a decrease of $180.5 million, or 9%, from the comparable period in
1997. The decrease was primarily due to the contribution of most of the
Company's specialty industrial products business to the Penreco partnership in
October 1997. Prior to the creation of this partnership, net sales from the
contributed operations were consolidated in the financial statements of the
Company. In 1998, the Company's share of Penreco earnings was accounted for
under the equity method of accounting and reported as a component of other
income, net.
Excluding the impact of specialty industrial products operation contributed
to Penreco, gross margin (i.e., net sales less cost of sales and purchases from
affiliates) in 1998 decreased 7% from 1997 primarily due to lower fuels margins.
A net loss of $45.9 million was recorded for 1998 compared to a net loss of
$0.6 million in 1997. Results of operations for 1998 include $10.6 million in
pretax expenses related to the acquisition of Quaker State, $29.6 million in
pretax charges for the impairment of fast lube assets required under SFAS No.
121, $25.0 million in pretax charges associated with the voluntary withdrawal
and reformulation of Fix-A-Flat(R) tire inflator products and $26.7 million in
pretax charges for litigation settlement expenses, net loss on sales of assets
and other matters. Depreciation expense increased $12.7 million for 1998
compared to 1997, primarily due to the Shreveport manufacturing facility upgrade
and the implementation of a new information technology system in January 1998.
Reference is made to Note 2 and Note 3 of Notes to Consolidated Financial
Statements for additional information.
LUBRICANTS AND CONSUMER PRODUCTS. Net sales for this segment in 1998 were
$960.5 million, approximately the same as 1997 revenues. Operating income for
this segment was $55.9 million in 1998 compared to $76.5 million in 1997.
Operating income in 1998 included $25.0 million in pretax charges associated
with the voluntary withdrawal and reformulation of Fix-A-Flat(R) tire inflator
products and $14.2 million in pretax charges for impairments, write-offs and
other special charges. Excluding these charges, the year-over-year increase in
operating income was due to a full year's impact of income from acquisitions
made in late 1997, lower raw material costs and lower expenses, partially offset
by increased promotional spending from lubricants and lower filter and
automotive chemicals sales volumes.
FAST LUBE OPERATIONS. Net sales recorded by the fast lube operations
segment were up $6.6 million in 1998 compared to 1997. This increase was due to
an increase in the number of company-operated service centers.
In December 1998, the fast lube operations segment recorded a pretax charge
of $29.6 million to reflect the impairment of long-lived assets as required
under SFAS No. 121.
The fast lube operations segment reported an operating loss of $4.1 million
for the year ended December 31, 1998 compared to operating income of $24.5
million during the same period in 1997. Included in 1998 results are charges of
$14.8 million for acquisition expenses, legal settlements and other liabilities.
Adjusted to exclude these charges, operating income totaled $10.7 million in
1998 compared to $24.5 million in 1997. The year-over-year decline in earnings
was due to increased salaries and other operating costs within company-operated
centers, higher selling, general and administrative costs and higher
depreciation expense.
During 1998, Jiffy Lube acquired 22 centers together with related real
estate in exchange for cash of $8.6 million and liabilities and debt assumed of
$3.5 million. Also, during 1998, 16 centers were sold for $6.5 million in cash.
During 1997, Jiffy Lube acquired 35 centers together with related real
estate in exchange for cash of $17.8 million and liabilities and debt assumed of
$2.5 million. Also, during 1997, 24 centers were sold for
15
<PAGE> 18
$3.1 million in cash and $0.4 million in forgiveness of debt. Also during 1997,
six company-owned service centers were exchanged for six franchisee-operated
stores.
BASE OIL AND SPECIALTY PRODUCTS. Net sales for the base oil and specialty
products segment decreased 22% for 1998 compared to 1997. The decrease was
primarily due to the Company's contribution of most of its specialty industrial
products business to the Penreco partnership. Excluding the net sales associated
with the contributed specialty industrial business, net sales decreased 10% in
1998 compared to 1997 primarily due to lower average sales prices for base oils,
fuels and other refined petroleum products. The decline in sales prices
generally followed the market price decrease of crude oil and other petroleum
feedstocks. Partially offsetting this decrease was an increase in fuels
production volumes as a result of the completion of the Shreveport manufacturing
facility upgrade in April 1997.
Gross margin decreased $35.4 million in 1998 from 1997. The decrease was
primarily due to lower fuels margins, which were primarily caused by lower fuels
sales prices, which decreased faster than crude oil and other feedstock prices.
Other income for this segment increased $24.2 million in 1998 compared to
1997 primarily due to higher equity income in the Company's partnerships, which
was up $28.5 million in 1998 compared to 1997. Equity income related to Excel
Paralubes increased $20.0 million in 1998 over 1997, primarily due to higher
base oil volumes. In addition, equity income attributable to the Penreco
partnership increased $7.0 million in 1998 compared to 1997.
Other income for 1998 included income of $1.6 million related to the sale
of the Company's refinery in Roosevelt, Utah.
Selling, general and administrative expenses decreased $8.5 million in 1998
compared to 1997 due in part to the impact of the specialty industrial products
operations contributed to Penreco.
OTHER. Other operating income in 1998 was a loss of $8.1 million, compared
to income of $1.9 million in 1997. The decrease in 1998 compared to 1997 was
primarily due to the writedown of fixed assets at corporate headquarters.
CORPORATE ADMINISTRATIVE. Corporate administrative expenses in 1998 were
$44.4 million compared to $54.8 million in 1997. The decrease in 1998 compared
to 1997 is primarily due to one-time expenses incurred by Pennzoil Company in
1997.
DISCLOSURES ABOUT MARKET RISK
Pennzoil-Quaker State is exposed to market risk, including adverse changes
in interest rates, commodity prices and foreign currency exchange rates.
Reference is made to Note 9, Note 10 and Note 11 of the Notes to Consolidated
Financial Statements.
INTEREST. At December 31, 1999, the fair value of the Company's long-term
debt, including commercial paper and short-term variable rate credit agreements,
was estimated to be $839.4 million using quoted market prices or, where such
prices are not available, on estimated year-end interest rates of debt with the
same remaining average maturities and credit quality. The carrying amount of the
long-term debt at December 31, 1999 exceeded its fair value by $187.8 million. A
hypothetical 10 percent adverse change in market interest rate relative to the
aforementioned securities would not have had a material effect on the Company's
results of operations for the fiscal year ending December 31, 1999.
At December 31, 1999, the fair value of the Company's notes receivable was
estimated to be $52.7 million using discounted future cash flows based on
estimated year-end interest rates at which similar loans have been made to
borrowers with similar credit ratings for the same remaining maturities. The
fair value of the notes receivable at December 31, 1999 exceeded its carrying
amount by $8.9 million. A hypothetical 10 percent adverse change in market
interest rate relative to the aforementioned securities would not have had a
material effect on the Company's results of operations for the fiscal year
ending December 31, 1999.
16
<PAGE> 19
HEDGING ACTIVITIES. Pennzoil-Quaker State enters into forward exchange
contracts and options to hedge the impact of foreign currency fluctuations on
certain monetary liabilities and commitments denominated in foreign currencies.
The purpose of entering into these hedges is to minimize the impact of foreign
currency fluctuations on the results of operations. The unrealized gains and
losses on these contracts are deferred and recognized in the results of
operations in the period in which the hedged transaction is consummated. There
were no unrealized gains or losses at December 31, 1999 and unrealized gains at
December 31, 1998 are not material.
In 1998, the Company entered into four interest rate locks, based upon the
30-year Treasury rate, to lock-in interest rates for future issuances of
long-term indebtedness. The hedge contracts matured in March 1999 when the
Company issued $400.0 million of 30-year debentures. The total loss of $2.1
million on the interest rate hedges was treated as an adjustment to the issue
price of the debentures, effectively creating a discount that will be amortized
over the life of the borrowings.
Pennzoil-Quaker State also entered into swap contracts to reduce the impact
of fluctuations in refining margins on results of operations. The Company
accounted for these transactions as a hedge, and unrealized gains and losses are
deferred and recognized in the results of operations in the period in which the
hedged transaction is consummated. There were no unrealized gains or losses at
December 31, 1999. Realized gains on refining margin swaps in 1999 were not
material.
In January 2000, Pennzoil-Quaker State approved a tactical hedging program
to lock-in refining margins on up to 90% of its production of certain refined
fuel products through July 2000.
INTEREST CHARGES, NET
Interest charges, net, for the Company increased $10.6 million, or 15%, for
the year ended December 31, 1999 compared to the same period in 1998. The
increase was primarily due to an increase in average long-term debt outstanding
for a full twelve month period as a result of the acquisition of Quaker State on
December 30, 1998, partially offset by a decrease in interest rates.
Interest charges, net, increased $8.2 million, or 13%, in 1998 compared to
1997. The increase was primarily due to a decrease in interest capitalized as a
result of the completion of the Shreveport manufacturing facility upgrade in
April 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1999 1998 1997
------- ------- -------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Interest expense........................................ $80,588 $13,826 $12,847
Affiliated interest charges............................. -- 56,372 56,374
Less: interest capitalized.............................. -- (255) (7,441)
------- ------- -------
Interest charges, net................................... $80,588 $69,943 $61,780
======= ======= =======
</TABLE>
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW. The Company had cash and cash equivalents of $20.2 million,
$14.9 million and $9.1 million at December 31, 1999, 1998 and 1997,
respectively. Cash flow generated from operating activities before changes in
operating assets and liabilities was $160.4 million, $125.4 million and $149.6
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
increase in cash flow from operations before changes in assets and liabilities
for the year ended December 31, 1999 compared to the same period in 1998
resulted primarily from improved operating earnings. The Company's cash flow
from operations for the year ended December 31, 1999 increased $154.4 million
compared to the same period in 1998, and cash flow from operations for the year
ended December 31, 1998 decreased by $281.0 million compared to the same period
in 1997. Reference is made to Note 3 of Notes to Consolidated Financial
Statements for additional information.
CAPITAL EXPENDITURES. Capital expenditures were $78.1 million in 1999,
$88.3 million in 1998 and $147.8 million in 1997. Capital expenditures in 1997
included $42.0 million for the upgrade of the Company's
17
<PAGE> 20
Shreveport manufacturing facility, $17.0 million for the installation of
facilities near the Company's motor oil packaging facilities to store base oils
manufactured by Excel Paralubes and $12.8 million for the implementation of new
information technology software. The 2000 capital budget for the Company is
estimated to be approximately $114.3 million, including $17.5 million for system
upgrades, $12.8 million for the construction or purchase of new fast lube
centers and $11.0 million for the upgrade of a consumer products manufacturing
facility. The Company believes that its cash flow from operations, supplemented
as required by additional borrowings, provides it with sufficient resources to
finance operations and planned capital needs.
ACCOUNTS RECEIVABLE. Current receivables include trade accounts and notes
receivable and are net of allowances for doubtful accounts of $18.8 million and
$18.2 million at December 31, 1999 and 1998, respectively. Long-term receivables
consist of notes receivable and are net of allowances for doubtful accounts of
$1.0 million and $0.9 million at December 31, 1999 and 1998, respectively.
At December 31, 1999 and 1998, current receivables included notes
receivable of $19.9 million and $16.6 million, respectively. Other assets
included long-term notes receivable of $41.8 million and $53.2 million at
December 31, 1999 and 1998, respectively. The long-term receivables are loans
that are made to customers to enhance their operations. Each loan requires a
promissory note between the customer and the Company, and most require payment
of principal and interest. Similar to other incentive programs, sales agreements
normally accompany the loans.
Pennzoil-Quaker State, through its wholly owned subsidiary Pennzoil
Receivables Company ("PRC"), sells certain of its accounts receivable to a third
party purchaser. PRC is a special limited purpose corporation and the assets of
PRC are available solely to satisfy the claims of its own creditors and not
those of Pennzoil-Quaker State or its affiliates. The Company increased and
extended its one-year receivables sales facility in June 1999 to provide for
ongoing sales of up to $160.0 million of accounts receivable. The Company's net
accounts receivable sold under this facility totaled $153.1 and $115.0 million
at December 31, 1999 and 1998, respectively.
CREDIT FACILITIES AND OTHER DEBT. Pennzoil-Quaker State primarily utilizes
its commercial paper programs to manage its cash flow needs. Pennzoil-Quaker
State currently limits aggregate borrowings under its commercial paper programs
to $600.0 million. Borrowings under commercial paper facilities totaled $242.6
million at December 31, 1999. The average interest rate applicable to
outstanding commercial paper was 5.6% during 1999 and 6.0% at year-end 1998.
The Company has a revolving credit facility with a group of banks that
provides for up to $600.0 million of committed unsecured revolving credit
borrowings through November 14, 2000, with any outstanding borrowings on such
date being converted into a term credit facility terminating on November 14,
2001. There were no borrowings outstanding under this revolving credit facility
at December 31, 1999 or December 31, 1998. The Company had borrowings under a
Quaker State revolving credit agreement of $370.0 million at December 31, 1998.
In January 1999, the Company repaid these borrowings with borrowings under its
commercial paper facility and terminated the Quaker State revolving credit
facility. The average interest rate applicable to the outstanding Quaker State
revolving credit borrowings was 5.8% during 1998.
The Company had three short-term variable-rate credit arrangements with
banks at year-end 1999 and intends to enter into several additional
arrangements. The Company currently limits its aggregate borrowings under these
types of credit arrangements to $300.0 million. Outstanding borrowings were
$16.0 million at December 31, 1999. The Company had no outstanding borrowings at
December 31, 1998. None of the banks under these credit arrangements has any
obligation to continue to extend credit after the maturities of outstanding
borrowings or to extend the maturities of any borrowings.
In March 1999, Pennzoil-Quaker State issued debt in the form of $200.0
million of 6 3/4% Notes due 2009 and $400.0 million of 7 3/8% Debentures due
2029. Net proceeds of $592.2 million from the Notes and Debentures were used to
reduce the Company's outstanding commercial paper borrowing and short-term
variable rate debt.
The Company has a revolving credit facility with a Canadian bank that
provides for borrowings of up to US$18.7 million through October 29, 2000, with
any outstanding borrowings on such date being converted
18
<PAGE> 21
into a term credit facility terminating on October 29, 2001. Outstanding
borrowings under the credit facility totaled US$13.8 million and US$9.6 million
at December 31, 1999 and 1998, respectively. The average interest rates
applicable to amounts outstanding under the credit facility were 4.9% and 5.0%
during 1999 and 1998, respectively.
Reference is made to Note 9 of Notes to Consolidated Financial Statements
for additional information regarding the Company's indebtedness and credit
facilities.
CLASSIFICATION OF BORROWINGS UNDER CREDIT FACILITIES. As of December 31,
1999, borrowings totaling $258.6 million under Pennzoil-Quaker State's
commercial paper programs and variable-rate credit agreements have been
classified as long-term debt. Such debt classification is based upon the
availability of committed long-term credit facilities to refinance such
short-term facilities and the Company's intent to maintain such commitments in
excess of one year.
ENVIRONMENTAL. The Company is subject to certain laws and regulations
relating to environmental remediation activities associated with past
operations, such as the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), the Resource Conservation and Recovery Act and similar
state statutes. In response to liabilities associated with these activities,
accruals have been established when reasonable estimates are possible. Such
accruals primarily include estimated costs associated with remediation. The
Company has not used discounting in determining its accrued liabilities for
environmental remediation, and no claims for possible recovery from third-party
insurers or other parties related to environmental costs have been recognized in
the Company's consolidated financial statements. The Company adjusts the
accruals when new remediation responsibilities are discovered and probable costs
become estimatable, or when current remediation estimates are adjusted to
reflect new information.
Certain of the Company's subsidiaries are involved in matters in which it
has been alleged that such subsidiaries are potentially responsible parties
("PRPs") under CERCLA or similar state legislation with respect to various waste
disposal areas owned or operated by third parties. In addition, certain of the
Company's subsidiaries are involved in other environmental remediation
activities, including the removal, inspection and replacement, as necessary, of
underground storage tanks. As of December 31, 1999 and 1998, the Company's
consolidated balance sheet included accrued liabilities for environmental
remediation of $38.0 million and $27.2 million, respectively. Of these reserves,
$5.4 million and $4.2 million are reflected on the consolidated balance sheet as
current liabilities as of December 31, 1999 and 1998, respectively, and $32.6
million and $23.0 million are reflected as other liabilities as of December 31,
1999 and 1998, respectively. The Company does not currently believe there is a
reasonable possibility of incurring additional material costs in excess of the
current accruals recognized for such environmental remediation activities. With
respect to the sites in which the Company's subsidiaries are PRPs, the Company's
conclusion is based in large part on (i) the availability of defenses to
liability, including the availability of the "petroleum exclusion" under CERCLA
and similar state laws, and/or (ii) the Company's current belief that its share
of wastes at a particular site is or will be viewed by the Environmental
Protection Agency or other PRPs as being de minimis. As a result,
Pennzoil-Quaker State's monetary exposure is not expected to be material beyond
the amounts reserved.
YEAR 2000 ISSUES
The Company has completed its program designed to address the issue of
computer systems and embedded chips that would be unable to accommodate the year
2000 and beyond. This program included reviews of computer systems and embedded
technologies at all its locations as well as identification of critical
customers, vendors and service providers to ensure any year 2000 issues were
appropriately mitigated. In addition, contingency and test plans were developed
to mitigate possible disruptions in operations from year 2000 issues.
To date, no significant year 2000 issues have been incurred and no
corresponding operating disruptions have been realized.
19
<PAGE> 22
The cost of year 2000 compliance including consulting fees was less than $5
million and had no significant impact on the Company's financial condition.
There were no major information technology projects deferred due to year 2000
compliance matters, nor were any major information technology systems
accelerated to remedy year 2000 problems.
OTHER MATTERS
The Company does not currently consider the impact of inflation to be
significant in the businesses in which the Company operates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 305 of Regulation S-K is included under
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 10 and Note 11 of the Notes to the Consolidated
Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Pennzoil-Quaker State, together
with the report thereon of Arthur Andersen LLP dated February 29, 2000 and the
supplementary financial data specified by Item 302 of Regulation S-K, are set
forth on pages F-1 through F-33 hereof. (See Item 14 for Index.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing under the captions "Nominees," "Directors with
Terms Expiring in 2001 and 2002" and "Compliance with Section 16(a) of the
Exchange Act" set forth within the section entitled "Election of Directors" in
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Company's 2000
Meeting of Shareholders (the "Proxy Statement") is incorporated herein by
reference. See also Item S-K 401(b) appearing in Part I of this Annual Report on
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under the captions "Director Remuneration" set
forth within the section entitled "Election of Directors" and under the captions
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under the caption "Security Ownership of
Directors and Officers" set forth within the section entitled "Election of
Directors" and under the caption "Security Ownership of Certain Shareholders"
set forth within the section entitled "Additional Information" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing under the captions "Director Remuneration" and
"Certain Transactions" set forth within the section entitled "Election of
Directors" and under the caption "Security Ownership of Certain Shareholders"
set forth within the section entitled "Additional Information" and under the
caption "Compen-
20
<PAGE> 23
sation Committee Interlocks and Insider Participation" in the Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-1
Consolidated Statement of Operations and Comprehensive
Income.................................................... F-3
Consolidated Balance Sheet.................................. F-4
Consolidated Statement of Shareholders' Equity.............. F-6
Consolidated Statement of Cash Flows........................ F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
The supplementary financial data specified by Item 302 of Regulation S-K
are included in "Supplemental Financial and Statistical
Information -- Unaudited" beginning on page F-33.
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Schedules of the Company and its subsidiaries are omitted because of the
absence of the conditions under which they are required or because the required
information is included in the financial statements or notes thereto.
(a)(3) EXHIBITS.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
*3.1(a) -- Restated Certificate of Incorporation of the Company
(filed as exhibit 4.2 to the Current Report on Form 8-K
of the Company filed on December 29, 1998 (File No.
001-14501) and incorporated herein by reference).
3.1(b) -- Certificate of Designations of Series A Junior
Participating Preferred Stock of the Company.
*3.2 -- By-Laws of the Company (filed as exhibit 4.2 to the
Registration Statement on Form S-8 of the Company
(Registration No. 333-72835) and incorporated herein by
reference).
*3.3 -- Form of Common Stock Certificate of the Company (filed as
exhibit 3.5 to the Registration Statement on Form S-4 of
the Company (Registration No. 333-61541) and incorporated
herein by reference).
*3.4 -- Rights Agreement dated as of December 18, 1998 between
the Company and The Chase Manhattan Bank (filed as
exhibit 1 to the Current Report on Form 8-K of the
Company filed on December 18, 1998 (File No. 001-14501)
and incorporated herein by reference).
*4.1 -- Indenture, dated as of February 1, 1999 (the
"Indenture"), between the Company and Chase Bank of
Texas, National Association, as Trustee (filed as exhibit
4.1 to the Current Report on Form 8-K of the Company
filed on March 30, 1999 (File No. 001-14501) and
incorporated herein by reference).
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
*4.2 -- Officer's Certificate dated as of March 30, 1999
delivered pursuant to Section 301 of the Indenture,
providing for the issuance of the Company's 6 3/4% Notes
due 2009 and 7 3/8% Debentures due 2029, including the
form of Note and Debenture (filed as exhibit 4.2 to the
Current Report on Form 8-K of the Company filed on March
30, 1999 (File No. 001-14501) and incorporated herein by
reference).
The Company is a party to several debt instruments under
which the total amount of securities authorized does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the
Company agrees to furnish a copy of such instruments to
the Securities and Exchange Commission upon request.
*10.1(a) -- Credit Agreement dated as of November 17, 1998 among
Pennzoil Products Company and the lenders named therein
(filed as exhibit 10.1 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
10.1(b) -- First Amendment to Exhibit 10.1(a) dated as of November
5, 1999.
10.1(c) -- Amended and Restated Credit Agreement dated as of
November 16, 1999 among Pennzoil-Quaker State Company and
the lenders named therein.
+*10.2 -- Pennzoil-Quaker State Company 1998 Incentive Plan (filed
as exhibit 4.3 to the Registration Statement of the
Company on Form S-8 (Registration No. 333-69837) and
incorporated herein by reference).
+10.3 -- Pennzoil-Quaker State Company 1999 Long-Term Performance
Incentive Program.
+*10.4 -- Form of Indemnification Agreement between Pennzoil-Quaker
State Company and directors and executive officers of the
Company (filed as exhibit 10.7 to the Registration
Statement of the Company on Form S-4 (Registration No.
333-61541) and incorporated herein by reference).
+*10.5 -- Pennzoil-Quaker State Company Deferred Compensation Plan
(filed as exhibit 10.4 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.6 -- Pennzoil-Quaker State Company Medical Expenses
Reimbursement Plan (filed as exhibit 10.5 to the Annual
Report on Form 10-K of the Company for the fiscal year
ended December 31, 1998 (File No. 001-14501) and
incorporated herein by reference).
+*10.7 -- Pennzoil-Quaker State Company Supplemental Disability
Plan (filed as exhibit 10.6 to the Annual Report on Form
10-K of the Company for the fiscal year ended December
31, 1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.8 -- Pennzoil-Quaker State Company Salary Continuation Plan
(filed as exhibit 10.7 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.9 -- Pennzoil-Quaker State Company Supplemental Life Insurance
Plan (filed as exhibit 10.8 to the Annual Report on Form
10-K of the Company for the fiscal year ended December
31, 1998 (File No. 001-14501) and incorporated herein by
reference).
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+*10.10 -- Pennzoil-Quaker State Company Executive Severance Plan
(filed as exhibit 10.9 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.11 -- Form of Pennzoil-Quaker State Company Supplemental
Medical and Retirement Benefits Agreement (filed as
exhibit 10.10 to the Annual Report on Form 10-K of the
Company for the fiscal year ended December 31, 1998 (File
No. 001-14501) and incorporated herein by reference).
+*10.12 -- Employment Agreement between the Company and James J.
Postl (filed as exhibit 10.11 to the Annual Report on
Form 10-K of the Company for the fiscal year ended
December 31, 1998 (File No. 001-14501) and incorporated
herein by reference).
12.1 -- Computation of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995.
21.1 -- Subsidiaries of Pennzoil-Quaker State Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
24.1 -- Powers of Attorney.
27.1 -- Financial Data Schedule.
99.1 -- Financial Statements of Excel Paralubes.
99.2(a) -- First Amendment to the Pennzoil-Quaker State Company
Savings and Investment Plan.
99.2(b) -- Second Amendment to the Pennzoil-Quaker State Company
Savings and Investment Plan.
99.3(a) -- First Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(b) -- Second Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(c) -- Third Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(d) -- Fourth Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(e) -- Fifth Amendment to the Pennzoil-Quaker State Company
Savings and Investment Plan for Hourly Employees (f/k/a
Pennzoil Company Savings and Investment Plan for Hourly
Employees).
99.4(a) -- First Amendment to the Quaker State Corporation Thrift
and Stock Purchase Plan.
99.4(b) -- Second Amendment to the Pennzoil-Quaker State Thrift and
Stock Purchase Plan (f/k/a Quaker State Corporation
Thrift and Stock Purchase Plan).
99.4(c) -- Third Amendment to the Pennzoil-Quaker State Thrift and
Stock Purchase Plan.
</TABLE>
- ---------------
* Incorporated by reference as indicated.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
23
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PENNZOIL-QUAKER STATE COMPANY
By: /s/ JAMES L. PATE
------------------------------------
(James L. Pate, Chairman of the
Board and
Chief Executive Officer)
Date: March 9, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES L. PATE Principal Executive Officer March 9, 2000
- ----------------------------------------------------- and Director
(James L. Pate, Chairman of the Board and
Chief Executive Officer)
/s/ THOMAS P. KELLAGHER Principal Financial and March 9, 2000
- ----------------------------------------------------- Accounting Officer
(Thomas P. Kellagher, Group Vice President and Chief
Financial Officer)
HOWARD H. BAKER, JR.*
W. L. LYONS BROWN, JR.*
ERNEST H. COCKRELL*
ALFONSO FANJUL*
FORREST R. HASELTON* A majority of the Directors
BERDON LAWRENCE* of the Registrant March 9, 2000
JAMES J. POSTL*
TERRY L. SAVAGE*
BRENT SCOWCROFT*
GERALD B. SMITH*
LORNE R. WAXLAX*
*By: /s/ MICHAEL J. MARATEA
------------------------------------------------
(Michael J. Maratea, Attorney-In-Fact)
</TABLE>
24
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennzoil-Quaker State Company:
We have audited the accompanying consolidated balance sheet of
Pennzoil-Quaker State Company (a Delaware corporation) and subsidiaries, as of
December 31, 1999 and 1998, and the related consolidated statements of
operations and comprehensive income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Excel Paralubes (a
50%-owned equity investee of Pennzoil-Quaker State Company), the investment in
which is reflected in the accompanying financial statements using the equity
method of accounting. The Company's equity interest in the earnings (loss) of
Excel Paralubes was $7.3 million, $14.7 million and ($2.8) million for the years
ended December 31, 1999, 1998 and 1997, respectively. The summarized financial
data for Excel Paralubes contained in Note 5 are derived from the financial
statements of Excel Paralubes. The financial statements of Excel Paralubes were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts and disclosures included for Excel
Paralubes, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Pennzoil-Quaker State Company and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 2000
F-1
<PAGE> 28
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE> 29
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
(EXPRESSED IN THOUSANDS EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Net sales.............................................. $2,951,356 $1,801,676 $1,982,148
Other income, net...................................... 37,576 48,462 31,012
---------- ---------- ----------
2,988,932 1,850,138 2,013,160
COSTS AND EXPENSES
Cost of sales.......................................... 2,182,632 1,279,220 1,182,742
Purchases from affiliate............................... -- 115,703 336,413
Selling, general and administrative.................... 520,660 339,799 350,123
Depreciation and amortization.......................... 123,363 77,210 64,490
Acquisition related expenses (Note 2).................. 86,173 10,645 --
Impairment of long-lived assets:
Assets held for use................................. -- 29,613 --
Assets held for disposal, including costs to sell
(Note 3).......................................... 493,910 -- --
Taxes, other than income............................... 16,984 12,210 11,956
Interest charges....................................... 80,588 13,826 12,847
Affiliated interest.................................... -- 56,372 56,374
Interest capitalized................................... -- (255) (7,441)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAX.......................... (515,378) (84,205) 5,656
Income tax provision (benefit)........................... (194,447) (38,338) 6,245
---------- ---------- ----------
NET LOSS................................................. $ (320,931) $ (45,867) $ (589)
---------- ---------- ----------
BASIC AND DILUTED LOSS PER SHARE......................... $ (4.12) $ (0.96) $ (0.01)
========== ========== ==========
NET LOSS................................................. $ (320,931) $ (45,867) $ (589)
Change in:
Foreign currency translation adjustment................ 6,810 (1,506) (5,584)
Unrealized gain (loss) on investment in securities..... (1,420) 925 (1,768)
---------- ---------- ----------
5,390 (581) (7,352)
---------- ---------- ----------
COMPREHENSIVE LOSS....................................... $ (315,541) $ (46,448) $ (7,941)
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 30
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 20,155 $ 14,899
Receivables............................................... 312,320 291,997
Inventories............................................... 298,202 306,512
Materials and supplies, at average cost................... 11,063 12,422
Deferred income taxes..................................... -- 47,413
Other current assets...................................... 44,298 63,328
---------- ----------
TOTAL CURRENT ASSETS.............................. 686,038 736,571
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Lubricants and consumer products.......................... 355,579 336,946
Fast lube operations...................................... 384,509 399,447
Base oil and specialty products........................... 940,678 937,039
Other..................................................... 70,579 47,562
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT............... 1,751,345 1,720,994
Less accumulated depreciation and amortization............ 1,249,244 688,918
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT................. 502,101 1,032,076
---------- ----------
DEFERRED INCOME TAXES....................................... 272,677 36,614
OTHER ASSETS
Goodwill and other intangibles............................ 1,065,143 1,104,353
Other..................................................... 207,262 235,380
---------- ----------
TOTAL OTHER ASSETS................................ 1,272,405 1,339,733
---------- ----------
TOTAL ASSETS................................................ $2,733,221 $3,144,994
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 31
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 1,080 $ 1,283
Accounts payable.......................................... 210,700 245,721
Payroll accrued........................................... 28,328 18,734
Other current liabilities................................. 129,295 147,609
---------- ----------
TOTAL CURRENT LIABILITIES......................... 369,403 413,347
---------- ----------
LONG-TERM DEBT, less current maturities..................... 1,026,153 1,026,054
CAPITAL LEASE OBLIGATIONS................................... 68,786 74,464
OTHER LIABILITIES........................................... 319,011 280,922
---------- ----------
TOTAL LIABILITIES................................. 1,783,353 1,794,787
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY
Common stock, par value $0.10 per share -- authorized
100,000,000 shares, issued and outstanding shares of
78,286,296 at December 31, 1999 and 77,619,765 at
December 31, 1998...................................... 7,829 7,762
Additional capital........................................ 1,506,041 1,532,531
Accumulated deficit....................................... (559,522) (180,216)
Net unrealized holding loss on investments in
securities............................................. (2,263) (843)
Cumulative foreign currency translation adjustment........ (2,217) (9,027)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY........................ 949,868 1,350,207
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $2,733,221 $3,144,994
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 32
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ---------- ------ ---------- ------ ---------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK, $0.10 par --
Authorized 100,000,000 shares
Balance, January 1..................... 77,620 $ 7,762 47,847 $ 4,785 47,847 $ 4,785
Acquisition of Quaker State
Corporation....................... -- -- 29,773 2,977 -- --
Shares issued....................... 666 67 -- -- -- --
------ ---------- ------ ---------- ------ ---------
Balance, December 31................... 78,286 7,829 77,620 7,762 47,847 4,785
------ ---------- ------ ---------- ------ ---------
ADDITIONAL CAPITAL
Balance, January 1..................... 1,532,531 395,233 366,653
Capital contribution from
affiliate......................... (31,368) 412,448 28,580
Acquisition of Quaker State
Corporation....................... -- 724,850 --
Shares issued....................... 4,878 -- --
---------- ---------- ---------
Balance, December 31................... 1,506,041 1,532,531 395,233
---------- ---------- ---------
ACCUMULATED DEFICIT
Balance, January 1..................... (180,216) (134,349) (133,760)
Net loss............................ (320,931) (45,867) (589)
Dividends on common stock........... (58,375) -- --
---------- ---------- ---------
Balance, December 31................... (559,522) (180,216) (134,349)
---------- ---------- ---------
NET UNREALIZED HOLDING LOSS ON
INVESTMENTS IN SECURITIES
Balance, January 1..................... (843) (1,768) --
Change in unrealized holding loss... (1,420) 925 (1,768)
---------- ---------- ---------
Balance, December 31................... (2,263) (843) (1,768)
---------- ---------- ---------
CUMULATIVE FOREIGN CURRENCY TRANSLATION
ADJUSTMENT
Balance, January 1..................... (9,027) (7,521) (1,937)
Change in translation adjustment.... 6,810 (1,506) (5,584)
---------- ---------- ---------
Balance, December 31................... (2,217) (9,027) (7,521)
------ ---------- ------ ---------- ------ ---------
TOTAL SHAREHOLDERS' EQUITY............... 78,286 $ 949,868 77,620 $1,350,207 47,847 $ 256,380
====== ========== ====== ========== ====== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 33
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................ $(320,931) $ (45,867) $ (589)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 123,363 77,210 64,490
Asset impairments.................................... 493,910 29,613 --
Deferred income taxes................................ (197,574) (38,814) 36,029
Loss (gain) on sales of assets....................... 5,459 (4,357) (3,072)
Distributions from equity investees in excess of
earnings........................................... 12,046 27,834 23,774
Non-cash accruals.................................... 33,409 53,830 25,366
Other non-cash items................................. 10,728 25,969 3,555
Change in operating assets and liabilities (Note
3)................................................. (102,059) (221,605) 35,227
--------- --------- ---------
Net cash provided by (used in) operating
activities.................................... 58,351 (96,187) 184,780
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................... (78,114) (88,340) (147,794)
Acquisition of Snap Automotive Products assets.......... -- -- (41,000)
Proceeds from sales of assets........................... 105,815 26,539 14,350
Other investing activities.............................. (9,808) 14,634 (28,222)
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... 17,893 (47,167) (202,666)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper borrowings (repayments)................ (229,835) 488,409 --
Debt repayments......................................... (376,109) (8,405) (10,457)
Proceeds from issuances of debt......................... 600,655 13,457 8,500
Proceeds from note payable to affiliate................. -- 25,622 13,178
Payment of intercompany indebtedness to affiliate....... (7,324) (369,962) --
Dividends paid.......................................... (58,375) -- --
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................... (70,988) 149,121 11,221
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 5,256 5,767 (6,665)
CASH AND CASH EQUIVALENTS, beginning of period............ 14,899 9,132 15,797
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................. $ 20,155 $ 14,899 $ 9,132
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 34
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SPIN-OFF FROM PENNZOIL COMPANY AND PRINCIPLES OF CONSOLIDATION --
Spin-off from Pennzoil Company --
On December 30, 1998, Pennzoil Company distributed (the "Spin-off") to its
stockholders 47.8 million shares of common stock of its wholly owned subsidiary
Pennzoil-Quaker State Company ("Pennzoil-Quaker State" or the "Company")
representing all of the shares of the Company owned by Pennzoil Company, which
was acquired by Devon Energy Corporation ("Devon") in a separate transaction on
August 17, 1999.
Principles of Consolidation --
Pennzoil-Quaker State is engaged primarily in the manufacturing and
marketing of lubricants, car care products, base oils and specialty industrial
products and in the franchising, ownership and operation of fast lube centers.
The accompanying consolidated financial statements reflect the historical costs
and results of operations of Pennzoil-Quaker State, including all majority-owned
subsidiaries of the Company. All significant intercompany accounts and
transactions within Pennzoil-Quaker State have been eliminated. Pennzoil-Quaker
State follows the equity method of accounting for investments in 20% to 50%
owned entities.
(2) ACQUISITIONS --
Acquisition of Quaker State --
On December 30, 1998, the Company acquired Quaker State Corporation
("Quaker State") in a merger transaction, and Quaker State became a wholly owned
subsidiary of the Company. As a result of the acquisition, stockholders of
Quaker State received .8204 of a share of common stock of the Company in
exchange for each share of Quaker State capital stock previously owned. The
total purchase price, including acquisition-related costs and expenses, was
$812.1 million.
Pennzoil-Quaker State accounted for the acquisition using the purchase
method of accounting. The purchase price, which was calculated based on the
market capitalization of Quaker State, was allocated to the assets and
liabilities acquired based upon the fair value of those assets and liabilities
as of the acquisition date. The excess of the aggregate purchase price over fair
value of the net assets acquired was recorded as goodwill and is being amortized
on a straight-line basis over 40 years. The purchase price was initially
allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets acquired...................... $ 659,071
Goodwill and other intangible assets........................ 943,398
Fair value of liabilities assumed........................... (874,642)
---------
Net purchase price.......................................... 727,827
Quaker State acquisition-related costs and expenses......... 80,557
Pennzoil-Quaker State acquisition-related costs and
expenses.................................................. 3,720
---------
Total purchase price........................................ $ 812,104
=========
</TABLE>
The Company has completed its final calculation and allocation of the
purchase price. The effect of adjustments recorded subsequent to the acquisition
date were not material.
At December 31, 1998, Pennzoil-Quaker State recognized certain liabilities
assumed in connection with the acquisition of Quaker State totaling $27.9
million and adjusted the purchase cost accordingly. The preliminary allocation
of the purchase price to liabilities assumed included (a) $16.6 million in
severance costs for certain Quaker State employees, (b) $9.0 million in closing
costs of Quaker State's Q Lube company-operated fast lube service centers and
(c) $2.3 million in relocation costs of certain Quaker State employees. During
the year ended December 31, 1999, those liabilities were reduced by cash
payments of
F-8
<PAGE> 35
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$18.3 million for severance to Quaker State employees and closing costs of
certain of Quaker State's Q Lube company-operated fast lube centers. No
additional liabilities were recorded in 1999 in connection with the Quaker State
acquisition. The remaining accrual of $9.6 million at December 31, 1999,
included in accounts payable, relates primarily to future severance payments to
Quaker State employees.
Pennzoil-Quaker State also incurred $10.6 million in 1998 expenses related
to the acquisition of Quaker State. These charges were the result of
management's changes in strategic plans, restructurings and reorganizations
related to the acquisition and were primarily due to the estimated expenses of
closing Jiffy Lube company-operated fast lube service centers and the resolution
of certain conflicts between Jiffy Lube and Q Lube franchise-operated service
centers. During the year ended December 31, 1999, those liabilities were reduced
by cash payments of $4.7 million to resolve certain conflicts between Jiffy Lube
and Q Lube franchise-operated service centers. No additional liabilities
resulting from restructuring or reorganizations related to the Quaker State
acquisition were recorded in 1999. The remaining accrual of $5.9 million at
December 31, 1999, included in accounts payable, relates primarily to estimated
expenses of closing Jiffy Lube company-operated fast lube service centers.
Acquisition-related expenses of $80.6 million incurred by Quaker State
prior to the acquisition were recognized in Quaker State's 1998 results of
operations and are not included in Pennzoil-Quaker State's results of operations
for 1998.
The following unaudited pro forma information has been prepared as if the
acquisition of Quaker State occurred on January 1, 1997 after including
amortization of goodwill, brands and other intangible assets, interest expense
and related income tax effects. The unaudited pro forma information does not
reflect adjustments for any estimated general and administrative expense
savings, operational efficiencies and costs related to the acquisition of Quaker
State. The unaudited pro forma information is not necessarily indicative of
results that would have actually occurred had the acquisition of Quaker State
been consummated on January 1, 1997 or future results of operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(EXPRESSED IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $3,021,565 $3,217,020
Net loss(1)................................................. (33,191) (1,729)
Basic and diluted loss per share............................ (0.43) (0.02)
</TABLE>
- ---------------
(1) The 1998 net loss includes certain after-tax charges of $82.5 million
($124.5 million pretax) related to the acquisition of Quaker State,
impairment of long-lived assets, restructuring charges and other matters.
Acquisition of Assets of Snap Automotive Products --
In November 1997, the Company acquired the marketing and distribution
assets of Snap Automotive Products, Inc. for $41.0 million in cash. The
acquisition was accounted for using the purchase method of accounting, and the
results of operations of Snap subsequent to November 1997 have been included in
Pennzoil-Quaker State's consolidated statement of operations.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-9
<PAGE> 36
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Receivables --
Current receivables include trade accounts and notes receivable and are net
of allowances for doubtful accounts of $18.8 million and $18.2 million as of
December 31, 1999 and 1998, respectively. Long-term receivables consist of notes
receivable and are net of allowances for doubtful accounts of $1.0 million and
$0.9 million as of December 31, 1999 and 1998, respectively.
At December 31, 1999 and 1998, current receivables included notes
receivable of $19.9 million and $16.6 million, respectively. Other assets
included long-term notes receivable of $41.8 million and $53.2 million at
December 31, 1999 and 1998, respectively.
The Company's net accounts receivable sold under its receivables sales
facility totaled $153.1 million and $115.0 million as of December 31, 1999 and
1998, respectively. The accounts receivable are sold to a third party through
the Company's wholly owned subsidiary, Pennzoil Receivables Company ("PRC"). PRC
is a special limited purpose corporation and its assets are available solely to
satisfy the claims of its own creditors and not those of Pennzoil-Quaker State
or its affiliates. The Company increased and extended its one-year sales
facility in June 1999 to provide for ongoing sales of up to $160.0 million of
accounts receivable.
The Company maintains a lube center receivable purchase and sale agreement,
which provides for the sale of certain notes receivable up to $210.0 million
through a wholly owned subsidiary, Pennzoil Lube Center Acceptance Corporation
("PLCAC"). The aggregate purchase price limit was increased in January 2000 from
$200.0 million to $210.0 million. PLCAC is a Nevada corporation and the assets
of PLCAC are available solely to satisfy the claims of its own creditors and not
those of Pennzoil-Quaker State or its affiliates. The agreement terminates on
March 13, 2001 or on the date on which the aggregate purchase price reaches
$210.0 million. The Company's notes receivable sold under the agreement totaled
$153.2 million and $97.3 million as of December 31, 1999 and 1998, respectively.
Inventories --
Inventories consist primarily of lubricants, consumer products, base oils
and specialty products. A majority of inventories is reported at cost using the
last-in, first-out ("LIFO") method, which is lower than market. Substantially
all other inventories are reported at cost using the first-in, first-out method.
Inventories valued on the LIFO method totaled $181.4 million and $187.5 million
at December 31, 1999 and 1998, respectively. The current cost of LIFO
inventories was approximately $201.1 million and $187.5 million at December 31,
1999 and 1998, respectively.
Property, Plant and Equipment and Depreciation and Amortization --
Property, plant and equipment additions are recorded at cost. Depreciation
of property, plant and equipment is computed using the straight-line or
accelerated methods over estimated useful lives. Pennzoil-Quaker State
capitalizes the interest cost associated with major construction projects based
on the effective interest rate on aggregate borrowings. No interest was
capitalized in 1999.
Impairment of Long-Lived Assets --
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" requires that long-lived assets be reviewed for impairment whenever there is
evidence that the carrying amount of such assets may not be recoverable. This
consists of comparing the carrying amount of the asset with its expected future
undiscounted cash flows without interest costs. If the asset carrying amount is
less than such cash flow estimate, it is written down to its
F-10
<PAGE> 37
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fair value. Estimates of expected future cash flows are to represent
management's best estimate based on reasonable and supportable assumptions. Any
impairment recognized in accordance with SFAS No. 121 is permanent and may not
be restored. Due principally to the incurrence of operating losses at certain
Jiffy Lube company-operated stores, an impairment totaling $29.6 million was
recorded with respect to such stores during 1998. No long-lived asset
impairments were required during 1997.
SFAS No. 121 also requires that assets to be disposed of be reported at the
lower of the carrying amount or fair value less cost to sell. During 1999, the
Company completed a strategic review of its manufacturing assets and businesses
including refineries, interests in manufacturing partnerships and packaging
plants. Based on the results of this review, the Company decided to withdraw
from the refining business and to dispose of its refineries and related assets.
As a result of this decision, Pennzoil-Quaker State recorded a pretax charge of
$445.9 million to reflect the writedown of its Rouseville and Shreveport
refineries to their fair values less costs to sell related to the expected
disposition of those facilities. The assets and results of operations related to
the Rouseville and Shreveport refineries are included in the Base Oil and
Specialty Products segment. The Company also recorded a pretax charge of $11.4
million to reflect the impairment of its Rouseville blending and packaging plant
related to its anticipated closure. The assets and results of operations related
to the Rouseville blending and packaging plant are included in the Lubricants
and Consumer Products segment.
In connection with the above actions, Pennzoil-Quaker State also accrued
$36.6 million in additional expenses related to the sale and closure of the
Rouseville and Shreveport refineries and the Rouseville blending and packaging
plant. These additional expenses included (a) $9.8 million in severance costs
(b) $12.0 million in environmental costs for cleanup and removal of tanks and
equipment and (c) $14.8 million in other disposal costs. Reference is made to
Note 15 for further discussion.
Goodwill and Other Intangible Assets --
Total goodwill as of December 31, 1999 and 1998 was $644.7 million and
$646.4 million, respectively. Tradenames totaled $420.6 million and $431.4
million as of December 31, 1999 and 1998, respectively. Goodwill and tradenames
are being amortized on a straight-line basis over periods ranging from 20 to 40
years. Amortization expense recorded in 1999, 1998 and 1997 was $42.7 million,
$14.1 million and $13.1 million, respectively. Accumulated amortization as of
December 31, 1999 and 1998 was $119.7 million and $71.2 million, respectively.
Deferred Refinery Turnaround Costs --
A turnaround is a periodically required standard procedure for maintenance
of a refinery, which involves the shutdown and inspection of major processing
units and generally occurs approximately every three years. The estimated costs
of major maintenance, including turnarounds at refineries, are accrued. Accruals
for turnarounds included in other current and long-term liabilities in the
accompanying consolidated balance sheet totaled $4.6 million at December 31,
1999 and $15.2 million at December 31, 1998.
Other expenditures for maintenance and repairs are charged to expense when
incurred. Renewals and improvements are treated as additions to property, plant
and equipment, and items replaced are treated as retirements.
Advertising Costs --
Advertising costs are expensed as incurred. Advertising costs were $162.2
million, $114.4 million and $118.1 million for the years ended December 31,
1999, 1998 and 1997 respectively.
F-11
<PAGE> 38
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Environmental Expenditures --
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated. Reference is made to Note 12 for a discussion of
amounts recorded for these liabilities.
Cash Flow Information --
For purposes of the consolidated statement of cash flows, all highly liquid
investments purchased with a maturity of three months or less are considered to
be cash equivalents. The effect of changes in foreign exchange rates on cash
balances has been immaterial. In 1999, the Company received net cash tax refunds
of $25.0 million. No cash was paid or received for income taxes in 1998 or 1997.
Changes in operating assets and liabilities consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Receivables................................................ $ (26,648) $ (31,277) $(30,432)
Inventories................................................ 8,311 (21,077) (34,121)
Other long-term assets..................................... (26,151) (21,855) (30,011)
Payable to Pennzoil Company(1)............................. -- (60,000) 153,535
Other current liabilities.................................. (82,187) (43,824) (1,751)
Other operating assets and liabilities..................... 24,616 (43,572) (21,993)
--------- --------- --------
Decrease (increase) in operating assets and liabilities.... $(102,059) $(221,605) $ 35,227
========= ========= ========
Cash paid during the period for:
Interest (net of amounts capitalized)(2)................. $ 60,121 $ 13,256 $ 4,954
</TABLE>
- ---------------
(1) Historically, changes in operating cash flows pertaining to intercompany
balances were a function of the timing of intercompany settlements, level of
investment activity and operating performance of the user of such funds.
(2) Cash paid for interest increased in 1999 primarily due to the increase in
average long-term debt outstanding for the full twelve month period ended
December 31, 1999 as a result of the Quaker State acquisition on December
30, 1998, partially offset by a decrease in interest rates.
Earnings Per Share --
Pennzoil-Quaker State computes earnings per share in accordance with SFAS
No. 128, "Earnings Per Share." Under the provisions of SFAS No. 128, basic
earnings per share are computed based on the weighted average shares of common
stock outstanding, while diluted earnings per share also reflects the impact of
potentially dilutive securities such as outstanding options. Computations for
basic and diluted loss per share for the years ended 1999, 1998 and 1997 consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- -------- -------
(EXPRESSED IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss................................................... $(320,931) $(45,867) $ (589)
Basic and diluted weighted average shares(1)............... 77,850 48,009 47,847
Basic and diluted loss per share........................... (4.12) (0.96) (0.01)
</TABLE>
- ---------------
(1) Options to purchase 3,367,286 and 3,409,474 shares of common stock and
conditional stock awards of 270,356 and 137,636 were outstanding at December
31, 1999 and 1998, respectively, but were not included in the computation of
diluted loss per share because the impact of these options and awards was
antidilutive. No options or awards were outstanding as of December 31, 1997.
F-12
<PAGE> 39
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
International Operations --
Pennzoil-Quaker State's income (loss) before income tax includes income or
loss from international operations of $9.0 million, $0.3 million and ($9.3)
million in 1999, 1998 and 1997, respectively.
Foreign Currency Translation --
For subsidiaries whose functional currency is deemed to be other than the
U.S. dollar, asset and liability accounts are translated at year-end exchange
rates and revenue and expenses are translated at average exchange rates
prevailing during the year. Translation adjustments are included as a separate
component of shareholders' equity. Any gains or losses on transactions or
monetary assets or liabilities in currencies other than the functional currency
are included in net income in the current period.
Comprehensive Income --
Effective January 1, 1998, Pennzoil-Quaker State adopted SFAS No. 130,
"Reporting Comprehensive Income," which established standards for reporting and
display of comprehensive income and its components. SFAS No. 130 requires
companies to report, in addition to net income, other components of
comprehensive income including unrealized gains or losses on available-for-sale
securities and foreign currency translation adjustments and the related tax
effects. For the years ended December 31, 1999, 1998 and 1997, unrealized
holding gains (losses) on marketable securities includes income tax expense
(benefit) of ($1.2) million, $0.5 million and ($1.0) million, respectively. No
tax benefit associated with foreign currency translation losses has been
recorded through December 31, 1999.
Costs of Start-Up Activities --
Effective January 1, 1999, Pennzoil-Quaker State adopted Statement of
Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities,"
which required costs of start-up activities to be expensed as incurred. The
adoption of this SOP had no material effect on the Company's financial position
or results of operations.
Recent Accounting Pronouncements --
In June 1998, the Financial Accounting Standards Board ("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 be recorded in the balance sheet as either an asset or
liability measured at its fair value. The standard requires that changes in the
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 statement of operations, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133" which defers the effective date of SFAS No. 133 until
all fiscal years beginning after June 15, 2000. The Company is currently
assessing SFAS No. 133 to determine what impact, if any, this pronouncement will
have on the Company's financial position or results of operations.
(4) TRANSACTIONS WITH PENNZOIL COMPANY --
Purchases from Affiliate --
Purchases from affiliate included purchases of crude oil from Pennzoil
Company at market prices of $115.7 million and $336.4 million in 1998 and 1997,
respectively.
F-13
<PAGE> 40
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Allocated General and Administrative Expenses and Other Items --
Prior to the Spin-off, Pennzoil Company charged Pennzoil-Quaker State for
all direct and indirect administrative costs associated with its operations
through a monthly charge that allocated indirect costs on a formula that
considered the total assets, sales and employees of Pennzoil-Quaker State.
Pennzoil Company and Pennzoil-Quaker State entered into an arrangement to share
certain services for a period of up to one year following the Spin-off. Costs of
these services were shared by each company accordingly. The cost sharing
arrangement terminated on December 31, 1999.
Receivable from Affiliate --
At December 31, 1998, receivables included amounts due from Pennzoil
Company of $11.8 million for borrowings by Pennzoil Company after the Spin-off.
The full amount was repaid in 1999. At December 31, 1999, receivables included
$4.2 million due from Devon for services under the cost sharing arrangement.
(5) SUMMARIZED FINANCIAL DATA --
The Company and Conoco Inc. ("Conoco") are equal partners in Excel
Paralubes, which operates a state-of-the-art base oil hydro-cracker located at
Conoco's refinery in Lake Charles, Louisiana. The facility is capable of
producing approximately 20,000 barrels per day of high-quality base oils, the
base ingredient in finished lubricants. Conoco operates the plant with support
positions staffed by both companies.
Pennzoil-Quaker State's net investment in Excel Paralubes, carried as a
credit balance of $61.5 million and $51.8 million at December 31, 1999 and 1998,
respectively, is netted against other equity investments and included in other
assets on the consolidated balance sheet. Pennzoil-Quaker State's 1999, 1998 and
1997 equity in Excel Paralubes' pretax income (loss) of $7.3 million, $14.7
million and $(2.8) million, respectively, is included in other income in the
consolidated statement of operations.
Summarized balance sheet and operations information for Excel Paralubes (on
a 100% basis) as of December 31, 1999 and 1998 and for the three years in the
period ended December 31, 1999 follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 67,236 $ 53,273
Noncurrent assets........................................... 429,889 442,763
Current liabilities......................................... 96,313 80,912
Noncurrent liabilities...................................... 523,888 518,765
Partners' deficit........................................... (123,076) (103,641)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................................... $316,029 $279,329 $264,388
Operating earnings..................................... 53,453 67,180 32,023
Net income (loss)...................................... 14,565 29,488 (5,677)
</TABLE>
At December 31, 1999, Excel Paralubes had total debt of $574.5 million,
consisting of $240.0 million of 7.125% senior bonds due 2011, $250.0 million of
7.43% senior bonds due 2015, and $84.5 million of variable rate borrowings under
commercial paper facilities with banks. Borrowings under commercial paper
facilities are due in 2000 and are classified as short-term. Recourse for the
partners under the bonds is limited to the revenues and assets of Excel
Paralubes. Certain restrictive covenants may limit the ability of Excel
Paralubes to incur debt, make distributions to the partners, make investments or
create liens. Conoco and Pennzoil-
F-14
<PAGE> 41
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Quaker State maintain an agreement with Excel Paralubes to provide support to
Excel Paralubes up to an aggregate amount of $60.0 million should a liquidity
cash flow deficit occur.
(6) BENEFIT PLANS --
Pensions and Other Postretirement Benefits --
Substantially all Pennzoil-Quaker State employees are covered by
non-contributory defined benefit pension plans which provide benefits based on
the participants' years of service and compensation or stated amounts for each
year of service. Contributions to the plans are made in accordance with the
minimum funding provisions of ERISA where applicable, but not in excess of the
maximum amount that can be deducted for federal income tax purposes.
In addition, Pennzoil-Quaker State sponsors unfunded defined benefit
postretirement plans that cover substantially all of its employees. The plans
provide medical and life insurance benefits and are, depending on the type of
plan, either contributory or non-contributory. The accounting for the health
care plans anticipates future cost-sharing changes that are consistent with
Pennzoil-Quaker State's expressed intent to increase, where possible,
contributions from future retirees to a minimum of 30% of the total annual cost.
Furthermore, future contributions for both current and future retirees have been
limited, where possible, to 200% of the average 1992 benefit cost.
As a result of the acquisition of Quaker State, Pennzoil-Quaker State
assumed the obligations and assets of the pension and postretirement benefit
plans for Quaker State employees. The pension benefit obligation and plan assets
assumed by Pennzoil-Quaker State as of December 31, 1998 were $157.8 million and
$172.6 million, respectively. The accumulated postretirement benefit obligation
assumed by Pennzoil-Quaker State from Quaker State as of December 31, 1998 was
$86.9 million.
F-15
<PAGE> 42
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the Pennzoil-Quaker State plans' benefit
obligations, plan assets, reconciliation of funded status, amounts recognized in
the consolidated balance sheets, components of net periodic benefit cost, and
the actuarial assumptions used in determining the recognized obligations:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
AS OF DECEMBER 31 AS OF DECEMBER 31
------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- ---------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year......... $333,622 $159,060 $ 124,155 $ 39,406
Service cost................................. 9,569 7,143 1,770 579
Interest cost................................ 22,370 11,891 8,360 2,607
Plan amendments.............................. (5,512) 2,342 (5,690) --
Acquisitions................................. -- 157,815 498 86,902
Curtailment gain............................. (3,930) -- (2,296) --
Benefits paid................................ (19,001) (7,377) (8,467) (3,266)
Actuarial (gain) or loss..................... (29,892) 2,748 5,661 (2,073)
-------- -------- --------- ---------
Benefit obligation at end of year............... $307,226 $333,622 $ 123,991 $ 124,155
======== ======== ========= =========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year......................................... $398,181 $186,169 $ -- $ --
Actual return on plan assets................. 29,178 46,274 -- --
Acquisitions................................. -- 172,600 -- --
Employer contributions....................... 1,541 515 8,467 3,266
Benefits paid................................ (19,001) (7,377) (8,467) (3,266)
-------- -------- --------- ---------
Fair value of plan assets at end of year........ $409,899 $398,181 $ -- $ --
======== ======== ========= =========
RECONCILIATION OF FUNDED STATUS:
Over (under) funded status................... $102,673 $ 64,559 $(123,991) $(124,155)
Unrecognized actuarial gain.................. (92,392) (79,899) (2,770) (2,690)
Unrecognized transition asset................ (484) (696) -- --
Unrecognized prior service cost.............. 15,436 23,686 -- --
-------- -------- --------- ---------
Net amount over (under) funded at year-end...... $ 25,233 $ 7,650 $(126,761) $(126,845)
======== ======== ========= =========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE
SHEET CONSIST OF:
Prepaid benefit cost......................... $ 54,767 $ 38,420 $ -- $ --
Accrued benefit liability.................... (33,035) (34,060) (126,761) (126,845)
Intangible asset............................. 2,785 3,131 -- --
Accumulated other comprehensive income....... 716 159 -- --
-------- -------- --------- ---------
Net asset (liability) recognized at year-end.... $ 25,233 $ 7,650 $(126,761) $(126,845)
======== ======== ========= =========
Other comprehensive income attributable to
change in additional minimum liability
recognition................................ 557 137 -- --
</TABLE>
The benefit obligation for the defined benefit pension plans with benefit
obligations in excess of plan assets was $15.5 million and $15.9 million, as of
December 31, 1999 and December 31, 1998, respectively. Fair value of plan assets
for the underfunded plans was $0.2 million as of December 31, 1999. No plan
assets related to the underfunded plans existed for the plans at December 31,
1998.
The projected benefit obligation and accumulated benefit obligation for the
defined benefit pension plans with accumulated benefit obligations in excess of
plan assets were $15.5 million and $14.3 million, respectively, as of December
31, 1999, and $15.9 million and $13.6 million, respectively, as of December 31,
1998. The fair value of plan assets was $0.2 million as of December 31, 1999. No
plan assets related to the underfunded plans existed for these plans at December
31, 1998.
F-16
<PAGE> 43
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net periodic benefit cost included the following components:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------ -------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------ ------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost....................... $ 9,569 $ 7,142 $ 5,934 $ 1,770 $ 579 $ 760
Interest cost...................... 22,370 11,891 10,499 8,360 2,607 2,734
Expected return on plan assets..... (40,959) (19,810) (16,406) -- -- --
Amortization of prior service
cost............................. 2,741 2,570 2,197 -- -- --
Amortization of transition asset... (212) (212) (212) -- -- --
Recognized actuarial gain.......... (5,545) (3,252) (2,682) -- -- --
-------- -------- -------- ------- ------ ------
Net periodic benefit cost (income).... $(12,036) $ (1,671) $ (670) $10,130 $3,186 $3,494
======== ======== ======== ======= ====== ======
Additional gain recognized due to
curtailment........................... $ (3,930) -- -- $(2,296) -- --
</TABLE>
Weighted-average assumptions were:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
AS OF DECEMBER 31 AS OF DECEMBER 31
----------------------- ---------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rates............................... 7.75% 7.00% 7.25% 7.75% 7.00% 7.25%
Expected long-term rate of return on plan
assets..................................... 10.50% 10.50% 10.50% -- -- --
Rate of compensation increase................ 4.20% 4.20% 4.60% -- -- --
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000; the rate was assumed
to decrease gradually to 5.25% for the year 2005 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE-PERCENTAGE ONE-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components for
1999...................................................... $1,040 $ (895)
Effect on year-end 1999 postretirement benefit obligation... 9,436 (8,349)
</TABLE>
Contribution Plans --
Prior to the Spin-off, employees of Pennzoil-Quaker State who had completed
one year of service were also covered by a defined contribution plan of Pennzoil
Company. Employee contributions of not less than 1% to not more than 6% of each
covered employee's compensation were matched between 50% and 100% by Pennzoil
Company. Pennzoil-Quaker State was charged $6.2 million and $6.5 million by
Pennzoil Company for such contributions in 1998 and 1997, respectively. The
Company assumed responsibility for the defined contribution plans related to all
Pennzoil-Quaker State employees on December 30, 1998. The cost of the Company's
contributions totaled $8.8 million in 1999.
F-17
<PAGE> 44
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) CAPITAL STOCK AND STOCK OPTIONS --
Common Stock --
Pennzoil-Quaker State's Restated Certificate of Incorporation authorizes
the issuance of up to 100,000,000 shares of common stock. At December 31, 1999,
78,286,296 shares were issued and outstanding.
Preferred Stock --
Pennzoil-Quaker State's Restated Certificate of Incorporation authorizes
the issuance of up to 10,000,000 shares of preferred stock. None of these shares
were issued or outstanding at December 31, 1999. On December 14, 1998, the Board
of Directors of Pennzoil-Quaker State declared a dividend of one right to
purchase preferred stock ("Right") for each outstanding share of the
Pennzoil-Quaker State common stock, to stockholders of record at the close of
business on December 18, 1998. Each Right entitles the registered holder to
purchase from Pennzoil-Quaker State a unit consisting of one one-hundredth of a
share of Series A Junior Participating Preferred Stock at a purchase price of
$90 per share upon the occurrence of certain specified events.
Stock Option Plans --
In connection with the Spin-off on December 30, 1998, Pennzoil-Quaker State
issued 3,409,474 stock options, on a one-for-one basis, to the holders of
Pennzoil Company stock options outstanding on that date. The exercise prices
were based upon the original exercise prices of outstanding Pennzoil Company
options allocated in proportion to the market value of common stock of
Pennzoil-Quaker State relative to the market value of common stock of Pennzoil
Company immediately following the Spin-off. Options issued on December 30, 1998
have a maximum term of ten years and are exercisable under the terms of the
respective option agreements. At December 31, 1998, expiration dates for the
outstanding options ranged from October 1999 to October 2008 and the weighted
average exercise price per share was $26.54. Payment of the exercise price may
be made in cash or in shares of Pennzoil-Quaker State common stock previously
owned by the optionee, valued at the then-current market value.
At December 31, 1999, Pennzoil-Quaker State had nonqualified stock option
plans covering a total of 8,170,456 shares of Pennzoil-Quaker State common
stock, of which 1,462,433 shares remained available for granting of options.
Options granted under the plans have a maximum term of ten years and are
exercisable under the terms of the respective option agreements at the market
price of the common stock at the date of grant, subject to antidilution
adjustments in certain circumstances. At December 31, 1999, expiration dates for
the outstanding options ranged from April 2000 to December 2009 and the weighted
average exercise price per share was $21.08. Payment of the exercise price may
be made in cash or in shares of Pennzoil-Quaker State common stock previously
owned by the optionee, valued at the then-current market value.
Additional information with respect to the stock option activity during
1999 is summarized in the following table:
<TABLE>
<CAPTION>
WTD. AVG.
EXERCISE
STOCK OPTIONS SHARES PRICE
------------- --------- ---------
<S> <C> <C>
Outstanding at beginning of year............................ 3,409,474 $26.54
Granted................................................... 3,668,615 $15.57
Exercised................................................. 3,000 $ 6.00
Lapsed.................................................... 361,716 $16.40
Expired................................................... 5,350 $39.29
---------
Outstanding at end of year.................................. 6,708,023 $21.08
=========
Options exercisable at year-end............................. 3,367,286 $26.56
=========
</TABLE>
F-18
<PAGE> 45
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ---------------------------
NUMBER OF WEIGHTED WEIGHTED NUMBER OF WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT DEC. 31, 1999 LIFE IN YEARS PRICE AT DEC. 31, 1999 PRICE
------------------------ ---------------- ------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C>
$ 5.63-$15.00.................... 127,200 9.2 13.37 9,000 6.51
$15.01-$23.00.................... 4,204,838 8.3 16.72 982,301 20.34
$23.01-$30.00.................... 1,278,185 5.4 25.76 1,278,185 25.76
$30.01-$39.08.................... 1,097,800 5.7 33.23 1,097,800 33.23
--------- ---------
$ 5.63-$39.08.................... 6,708,023 21.08 3,367,286 26.56
</TABLE>
On December 30, 1998, holders of 137,636 units of Pennzoil Company common
stock granted to participating employees under Pennzoil Company's conditional
stock award programs were granted, on a one-for-one basis, units of
Pennzoil-Quaker State common stock. In 1999, there were 180,150 units of common
stock granted to selected employees under Pennzoil-Quaker State's conditional
stock award programs. Awards under the programs are made in the form of units
which entitle the recipient to receive, at the end of a specified period,
subject to certain conditions of continued employment, a number of shares of
Pennzoil-Quaker State common stock equal to the number of units granted. At
December 31, 1999, units covering 270,356 shares of Pennzoil-Quaker State common
stock were outstanding (compared to 137,636 shares at December 31, 1998). In
1999, 19,860 shares of Pennzoil-Quaker State common stock were distributed to
selected employees upon maturity of awards granted under Pennzoil-Quaker State's
conditional stock award programs. During 1999, units covering 27,570 shares of
Pennzoil-Quaker State's common stock lapsed. These units had been granted in
previous years under Pennzoil-Quaker State's conditional stock award programs.
Pennzoil-Quaker State applies Accounting Principles Board ("APB") Opinion
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. APB Opinion 25 does not
require compensation expense to be recorded on options which have exercise
prices at least equal to the market price of the stock on the date of grant.
Accordingly, no compensation expense has been recognized for Pennzoil-Quaker
State's stock-based plans. Had compensation expense for Pennzoil-Quaker State's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the optional accounting
method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation,"
Pennzoil-Quaker State's net loss and loss per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
(EXPRESSED IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss.......................................... As reported $(320,931) $(45,867)
Pro forma $(332,375) $(51,812)
Basic and diluted loss per share.................. As reported $ (4.12) $ (.96)
Pro forma $ (4.27) $ (1.08)
</TABLE>
The fair value calculated under SFAS No. 123 of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions for 1999 and 1998, respectively: risk-free interest
rates ranging from 4.84% to 6.36% and 6.25%; dividend yield of 2.29% and 3.07%;
stock price volatility factor of .2880 and .2891; and expected option lives of 7
years. The weighted average fair value of options granted during 1999 and 1998
was $4.79 and $12.46, per option, respectively.
F-19
<PAGE> 46
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES --
Accounting for Income Taxes --
Pennzoil-Quaker State accounts for income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition
of deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Federal, State and Foreign --
Federal, state and foreign income tax expense (benefit) consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998 1997
--------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Current
United States..................................... $ -- $ -- $(30,044)
Foreign........................................... 1,637 700 239
State............................................. 1,493 (224) 20
Deferred
United States..................................... (158,443) (37,104) 32,470
Foreign........................................... -- -- (442)
State............................................. (39,134) (1,710) 4,002
--------- -------- --------
Income tax provision (benefit)...................... $(194,447) $(38,338) $ 6,245
========= ======== ========
</TABLE>
Pennzoil-Quaker State's net deferred tax asset is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Deferred tax liability...................................... $ 85,138 $ 194,457
Deferred tax asset.......................................... (374,019) (302,327)
Valuation allowance......................................... 16,204 23,843
--------- ---------
Net deferred tax asset............................ $(272,677) $ (84,027)
========= =========
</TABLE>
F-20
<PAGE> 47
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Temporary differences and carryforwards, which comprise significant
portions of deferred tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
----------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
Inventory................................................... $ (12,267) $(10,310)
Product liability........................................... (2,573) (8,750)
Property, plant and equipment............................... (65,919) 154,563
Investments in foreign subsidiaries......................... 4,782 (7,373)
Benefit related accruals.................................... (57,779) (86,322)
Environmental accruals...................................... (10,601) (11,088)
Alternative minimum tax credit carryforward................. (17,000) (35,229)
Net operating loss carryforwards............................ (87,098) (52,530)
Other, net.................................................. (40,426) (50,831)
Valuation allowance......................................... 16,204 23,843
--------- --------
Net deferred tax asset............................ $(272,677) $(84,027)
========= ========
</TABLE>
The principal items accounting for the difference in income taxes on income
computed at the federal statutory rate and income taxes as recorded are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1999 1998 1997
--------- -------- ------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate...... $(180,381) $(29,472) $1,980
Increases (reductions) resulting from:
State income taxes, net............................. (24,467) (1,257) 2,592
Taxes on foreign income less than statutory rate.... 1,064 456 (149)
Nondeductible goodwill.............................. 5,971 1,040 1,173
Tax sharing benefit received from parent............ -- (9,721) --
Other, net.......................................... 3,366 616 649
--------- -------- ------
Income tax provision (benefit)........................ $(194,447) $(38,338) $6,245
========= ======== ======
</TABLE>
Prior to the 1999 tax year, Pennzoil-Quaker State was included in Pennzoil
Company's U.S. consolidated income tax returns and was a participant in Pennzoil
Company's intercompany tax sharing agreement. The 1998 income tax benefit
includes a favorable adjustment of $9.7 million to reflect the apportionment of
tax attributes formerly shared with Pennzoil Company.
In connection with the Spin-off, Pennzoil-Quaker State entered into a tax
separation agreement with Pennzoil Company which provides, among other things,
that (1) Pennzoil-Quaker State will be responsible for and indemnify Pennzoil
Company against all taxes that are attributable to certain inventory
adjustments, (2) Pennzoil Company will be responsible for and indemnify
Pennzoil-Quaker State against any other consolidated federal or state income tax
liability for periods ended on or before the date of the Spin-off, (3) any other
taxes will be borne by the party on whom such taxes are imposed by law. The
rights and obligations of Pennzoil Company under this agreement were assumed by
Devon in its August 1999 acquisition of Pennzoil Company. The agreement also
establishes procedures for the conduct and settlement of certain tax audits and
related proceedings. Pennzoil-Quaker State and Quaker State filed separate tax
returns for the 1998 tax year. Pennzoil-Quaker State will file a consolidated
tax return beginning with the 1999 tax year.
F-21
<PAGE> 48
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 30, 1998, Pennzoil-Quaker State estimated certain net deferred
tax assets associated with the spun-off assets and liabilities and the
allocation of certain tax attributes associated with the tax separation
agreement. Those net deferred tax assets were considered in calculating the
capital contribution of $412.4 million made by Pennzoil Company to the Company
as part of the Spin-off.
In 1999, Pennzoil-Quaker State adjusted its deferred tax asset in
connection with the allocation of deferred tax assets and liabilities from
Pennzoil Company. The adjustments related primarily to the finalization of
estimates made in 1998 of the allocations of net operating losses, alternative
minimum tax credits and deferred tax liabilities created in foreign
subsidiaries. As a result of these adjustments to tax attributes related to the
spun-off assets and liabilities, the Company decreased its net deferred tax
asset and adjusted the capital contribution related to the Spin-off by $31.4
million in 1999.
As of December 31, 1999, Pennzoil-Quaker State had a United States net
operating loss carryforward of approximately $139.4 million, which is available
to reduce future federal income taxes payable. Additionally, for the purposes of
determining alternative minimum tax, an approximate $50.1 million net operating
loss is available to offset future alternative minimum taxable income. If not
used, these carryovers will expire in years 2018 and 2019. In addition,
Pennzoil-Quaker State also has a separate return limitation loss of $4.5 million
and an approximate $3.1 million net operating loss which is available to offset
alternative minimum taxable income. Utilization of the separate return net
operating losses, to the extent generated in separate return years, is limited
based on the separate taxable income of the subsidiary, or its successor,
generating the loss. If not used, these carryovers will expire in the years 2000
to 2006. A valuation allowance of approximately $1.6 million has been
established to offset the portion of the deferred tax asset related to the
separate return limitation losses expected to expire before their utilization.
In addition, Pennzoil-Quaker State has approximately $17.0 million of
alternative minimum tax credits indefinitely available to reduce regular tax
liability to the extent it exceeds the related alternative minimum tax otherwise
due. All net operating loss and credit carryover amounts are subject to
examination by the tax authorities.
Pennzoil-Quaker State also had state net operating loss carryforwards, the
tax effect of which was approximately $38.3 million as of December 31, 1999. A
valuation allowance of approximately $14.6 million has been established to
offset the portion of this deferred tax asset related to state tax loss
carryforwards expected to expire before their utilization.
F-22
<PAGE> 49
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) DEBT --
Debt outstanding was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
7.375% Debentures due 2029, net of discount................. $ 398,038 $ --
6.750% Notes due 2009, net of discount...................... 199,057 --
6.625% Notes due 2005, net of discount...................... 99,647 99,578
Commercial paper............................................ 242,578 488,409
Pollution control bonds, net of discount.................... 50,549 50,544
International debt facilities............................... 13,830 11,033
Quaker State variable-rate revolving credit agreements...... -- 370,000
Other variable-rate credit arrangements with banks.......... 16,000 --
Other debt.................................................. 7,534 7,773
---------- ----------
Total debt........................................ 1,027,233 1,027,337
Less amounts classified as current maturities............... (1,080) (1,283)
---------- ----------
Total long-term debt.............................. $1,026,153 $1,026,054
========== ==========
</TABLE>
On March 30, 1999, Pennzoil-Quaker State issued debt in the form of $200.0
million of 6 3/4% Notes due April 1, 2009 and $400.0 million of 7 3/8%
Debentures due April 1, 2029. Net proceeds of $592.2 million from the Notes and
Debentures were used to reduce the Company's outstanding commercial paper
borrowings and variable rate debt.
The Company has a revolving credit facility with a group of banks that
provides for up to $600.0 million of committed unsecured revolving credit
borrowings through November 14, 2000, with any outstanding borrowings on such
date being converted into a term credit facility terminating on November 14,
2001. There were no borrowings outstanding under this revolving credit facility
at December 31, 1999 or 1998.
The Company has currently limited aggregate borrowings under its commercial
paper programs to $600.0 million. Borrowings under commercial paper facilities
totaled $242.6 million and $488.4 million at December 31, 1999 and 1998,
respectively. The average interest rate applicable to outstanding commercial
paper was 5.6% during 1999 and 6.0% at year-end 1998.
The Company had three short-term variable-rate credit arrangements with
banks at year-end 1999 and intends to enter into several additional
arrangements. The Company currently limits its aggregate borrowings under these
types of credit arrangements to $300.0 million. Outstanding borrowings were
$16.0 million at December 31, 1999 and zero at December 31, 1998. None of the
banks under these credit arrangements has any obligation to continue to extend
credit after the maturities of outstanding borrowings or to extend the
maturities of any borrowings.
The Company has a revolving credit facility with a Canadian bank that
provides for borrowings of up to US$18.7 million through October 29, 2000, with
any outstanding borrowings on such date being converted into a term credit
facility terminating on October 29, 2001. Outstanding borrowings under the
credit facility totaled US$13.8 million and US$9.6 million at December 31, 1999
and 1998, respectively. The average interest rate applicable to amounts
outstanding under the credit facility were 4.9% and 5.0% during 1999 and 1998,
respectively.
Prior to the Spin-off, the Company had revolving credit arrangements with
Pennzoil Company that provided for borrowings of up to $590.0 million through
December 31, 1998 and $340.0 million through
F-23
<PAGE> 50
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004. Amounts borrowed under the credit arrangements bore interest
at variable and fixed rates.
In December 1998, in connection with its separation from Pennzoil Company,
the Company repaid $430.0 million in intercompany indebtedness and certain
accounts payable to Pennzoil Company. Intercompany indebtedness of $412.4
million to Pennzoil Company was not repaid and was treated as a capital
contribution to the Company in connection with the separation. This amount was
reclassified from payable to affiliate to shareholders' equity. Interest
associated with the affiliated debt was $56.4 million for the years ended
December 31, 1998 and 1997. The average interest rates applicable to amounts
outstanding under these credit arrangements during 1998 and 1997 was 9.8%.
At December 31, 1998, Quaker State had total debt of $472.7 million,
consisting of $99.6 million, net of discount, of 6.625% Notes due 2005, $370.0
million of variable rate borrowings under a revolving credit facility and $3.1
million in various notes due in installments through 2005. On January 4, 1999,
variable rate borrowings of $370.0 million under the revolving credit facility
were repaid by Pennzoil-Quaker State.
The Company has a total of $50.5 million, net of discount, in pollution
control bonds issued by three authorities. Issuances by the Industrial
Development Board of the Parish of Caddo, Inc. include $24.6 million issued
December 23, 1996, $8.5 million issued December 19, 1997 and $11.8 million, net
of discount, issued December 22, 1998. The three issuances are scheduled for
retirement on December 1, 2026, December 1, 2027 and December 1, 2028,
respectively. Proceeds from the bonds were used to help fund an upgrade to the
Company's Shreveport refinery. The interest rates for the bonds issued in 1996
and 1997 are currently reset weekly and interest is paid monthly. The interest
rate is fixed at 5.6% for the bonds issued in 1998 and interest is paid
semi-annually. Issuances by the Venango Industrial Development Authority and the
Butler County Industrial Development Authority of $3.4 million and $2.3 million,
respectively, were issued on December 21, 1982 and are scheduled for retirement
on December 1, 2012. The interest rate on both bond issuances is currently reset
weekly and interest is paid monthly. Proceeds from the issuances were used to
help fund pollution control facilities related to facilities in Pennsylvania.
As of December 31, 1999, borrowings totaling $258.6 million under
Pennzoil-Quaker State's commercial paper programs and variable-rate credit
agreements have been classified as long-term debt. Such debt classification is
based upon the availability of committed long-term credit facilities to
refinance such short-term facilities and the Company's intent to maintain such
commitments in excess of one year.
At December 31, 1999, aggregated maturities of long-term debt for the years
ending December 31, 2000 through 2004 were $1.0 million, $273.2 million, $0.9
million, $0.3 million and $0.3 million, respectively.
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK --
Financial Instruments With Off-Balance-Sheet Risk --
Pennzoil-Quaker State is a party to various financial instruments with
off-balance-sheet risk as part of its normal course of business, including
financial guarantees and contractual commitments to extend financial guarantees,
credit and other assistance to customers, franchisees and other third parties.
These financial instruments involve, to varying degrees, elements of credit risk
which are not recognized in Pennzoil-Quaker State's consolidated balance sheet.
Contractual commitments to extend credit and other assistance are in effect
as long as certain conditions established in the respective contracts are met.
Contractual commitments to extend financial guarantees are conditioned on the
occurrence of specified events.
F-24
<PAGE> 51
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following are the amounts related to Pennzoil-Quaker State's financial
guarantees and contractual commitments to extend financial guarantees, credit
and other assistance as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNTS
DECEMBER 31
-----------------
1999 1998
------- -------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Financial guarantees relating to Excel Paralubes............ $20,218 $17,710
Financial guarantees -- fast lube........................... 34,536 41,609
Financial guarantees -- other............................... 5,815 5,730
Commitments to extend financial guarantees:
Guarantees of letters of credit........................... 28,075 21,537
Guarantees -- Red River................................... 7,915 8,701
------- -------
Total............................................. $96,559 $95,287
======= =======
</TABLE>
Pennzoil-Quaker State's exposure to credit losses in the event of
nonperformance by the other parties to these financial instruments is
represented by the contractual or notional amounts. Decisions to extend
financial guarantees and commitments and the amount of remuneration and
collateral required are based on management's credit evaluation of the
counterparties on a case-by-case basis. The collateral held varies but may
include accounts receivable, inventory, equipment, real property, securities and
personal assets. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
Use of Derivatives --
In 1998, the Company entered into four interest rate locks, based upon the
30-year Treasury rate, to lock in interest rates for future issuances of
long-term indebtedness. The hedge contracts matured in March 1999 when the
Company issued $400.0 million of 30-year debentures. The total loss of $2.1
million on the interest rate hedges was treated as an adjustment to the issue
price of the debentures, effectively creating a discount that will be amortized
over the life of the borrowings.
Pennzoil-Quaker State also entered into swap contracts to reduce the impact
of fluctuations in refining margins on results of operations. The Company
accounted for these transactions as a hedge and unrealized gains and losses are
deferred and recognized in the results of operations in the period in which the
hedged transaction is consummated. There were no unrealized gains or losses at
December 31, 1999. Realized gains on refining margin swaps in 1999 were not
material.
In January 2000, Pennzoil-Quaker State approved a tactical hedging program
to lock-in refining margins on up to ninety percent of its production of certain
refined fuel products through July 2000.
Concentrations of Credit Risk --
Pennzoil-Quaker State extends credit to various companies in the lubricants
and consumer products, base oil and specialty products and fast lube operations
industries in the normal course of business. Within these industries, certain
concentrations of credit risk exist. These concentrations of credit risk may be
similarly affected by changes in economic or other conditions and may,
accordingly, impact Pennzoil-Quaker State's overall credit risk. However,
management believes that Pennzoil-Quaker State's receivables are well
diversified, thereby reducing potential credit risk to Pennzoil-Quaker State,
and that allowances for doubtful accounts are adequate to absorb estimated
losses as of December 31, 1999. Pennzoil-Quaker State's policies concerning
collateral requirements and the types of collateral obtained for
on-balance-sheet financial
F-25
<PAGE> 52
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
instruments are the same as those described above under "Financial Instruments
With Off-Balance-Sheet Risk."
As of December 31, 1999, receivables related to group concentration in the
lubricants and consumer products, fast lube operations and base oil and
specialty products segments were $289.7 million, $39.1 million and $27.5
million, respectively, compared with $274.0 million, $40.1 million and $37.4
million, respectively, at December 31, 1998. The Company's net accounts
receivable sold under its receivables sales facility totaled $153.1 million and
$115.0 million as of December 31, 1999 and 1998, respectively. Reference is made
to Note 3 for further information.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS --
Balance Sheet Financial Instruments --
The carrying amounts of Pennzoil-Quaker State's short-term financial
instruments, including cash equivalents, other investments, trade accounts
receivable, trade accounts payable and notes payable, approximate their fair
values based on the short maturities of those instruments.
The following table summarizes the carrying amounts and estimated fair
values of Pennzoil-Quaker State's other balance sheet financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes receivable.............................. $ 61,681 $ 52,738 $ 69,848 $ 70,212
Debt.......................................... 1,027,233 839,426 1,027,337 1,000,970
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument included above:
Notes Receivable. The estimated fair value of notes receivable is
based on discounting future cash flows using estimated year-end interest
rates at which similar loans have been made to borrowers with similar
credit ratings for the same remaining maturities.
Debt. The estimated fair value of long-term debt is based on quoted
market prices or, where such prices are not available, on estimated
year-end interest rates of debt with the same remaining average maturities
and credit quality.
Off-Balance-Sheet Financial Instruments --
The estimated fair value of certain financial guarantees written and
commitments to extend financial guarantees was $14.5 million and $13.7 million
as of December 31, 1999 and 1998, respectively. The estimated fair value of
certain financial guarantees written and commitments to extend financial
guarantees is based on the estimated cost to Pennzoil-Quaker State to obtain
third party letters of credit to relieve Pennzoil-Quaker State of its
obligations under such guarantees or, in the case of certain lease guarantees
related to Jiffy Lube franchisees, the present value of expected future cash
flows using a discount rate commensurate with the risks involved.
(12) COMMITMENTS AND CONTINGENCIES --
Environmental Matters --
The operations of the Company in the United States are subject to numerous
federal, state and local laws and regulations controlling the discharge of
materials into the environment or otherwise relating to the protection of the
environment and human health and safety.
F-26
<PAGE> 53
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is subject to a variety of state and federal Clean Air Act
rules requiring air emission reductions from its operating units and fuels.
Currently, the U.S. Environmental Protection Agency ("EPA"), the Ozone Transport
Assessment Group ("OTAG"), Ozone Transport Region ("OTR") and several states are
examining new standards and/or controls which could impose significant costs on
the Company. The EPA has recently adopted new, more stringent national ambient
air quality standards for ozone and particulate matter, which would designate
many more areas of the country as high pollution areas subject to additional
regulatory controls, including possible fuel specification requirements.
However, litigation over the new standards has rendered their implementation
uncertain. The multi-state OTAG and OTR groups are developing lists of suggested
controls to limit interstate ozone transport. The EPA has issued a proposal to
require states to begin adopting many of these suggested controls over the next
few years.
The precise effect of these actions on the Company and other industrial
companies is uncertain because most of the requirements will be implemented
through EPA regulations to be issued over a period of years. For example, fuels
produced at the Company's Shreveport refinery will likely be required to be
reformulated to a composition significantly different from the fuels currently
produced, which would involve the installation of additional refining equipment.
However, current estimates indicate that expenditures associated with the
installation of such equipment would not have a material effect on the Company's
results of operations.
The EPA also recently enacted regulations limiting the sulfur content of
gasoline fuels, effective in 2004. The Company believes it is eligible under the
regulations for an extension of this deadline to 2008. The expenditures required
to comply with these requirements may have a material effect on the Company's
results of operations. The EPA is expected to propose, later in 2000, new
regulations limiting the sulfur content of diesel fuels. The potential effect on
the Company of such regulations, if ultimately promulgated, is unknown at this
time.
Pennzoil-Quaker State is subject to certain laws and regulations relating
to environmental remediation activities associated with past operations, such as
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), the Resource Conservation and Recovery Act and similar state
statutes. In response to liabilities associated with these activities, accruals
have been established when reasonable estimates are possible. Such accruals
primarily include estimated costs associated with remediation. Pennzoil-Quaker
State has not used discounting in determining its accrued liabilities for
environmental remediation, and no claims for possible recovery from third party
insurers or other parties related to environmental costs have been recognized in
Pennzoil-Quaker State's combined financial statements. Pennzoil-Quaker State
adjusts the accruals when new remediation responsibilities are discovered and
probable costs become estimable, or when current remediation estimates are
adjusted to reflect new information.
The Company's assessment of the potential impact of these environmental
laws is subject to uncertainty due to the difficult process of estimating
remediation costs that are subject to ongoing and evolving change. Initial
estimates of remediation costs reflect a broad-based analysis of site conditions
and potential environmental and human health impacts derived from preliminary
site investigations (including soil and water analysis, migration pathways and
potential risk). Later changes in these initial estimates may be based on
additional site investigations, completion of feasibility studies (comparing and
selecting from among various remediation methods and technologies) and risk
assessments (determining the degree of current and future risk to the
environment and human health, based on current scientific and regulatory
criteria) and the actual implementation of the remediation plan. This process
occurs over relatively long periods of time and is influenced by regulatory and
community approval processes and is subject to the ongoing development of
remediation technologies. The Company's assessment analysis takes into account
the condition of each site at the time of estimation, the degree of uncertainty
surrounding the estimates for each phase of remediation and other site-specific
factors.
F-27
<PAGE> 54
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain of Pennzoil-Quaker State's subsidiaries are involved in matters in
which it has been alleged that such subsidiaries are potentially responsible
parties ("PRPs") under CERCLA or similar state legislation with respect to
various waste disposal areas owned or operated by third parties. In addition,
certain of Pennzoil-Quaker State's subsidiaries are involved in other
environmental remediation activities, including the removal, inspection and
replacement, as necessary, of underground storage tanks. As of December 31, 1999
and 1998, Pennzoil-Quaker State's consolidated balance sheet included accrued
liabilities for environmental remediation of $38.0 million and $27.2 million,
respectively. Of these reserves, $5.4 million and $4.2 million are reflected on
the consolidated balance sheet as current liabilities as of December 31, 1999
and 1998, respectively, and $32.6 million and $23.0 million are reflected as
other long-term liabilities as of December 31, 1999 and 1998, respectively.
Pennzoil-Quaker State does not currently believe there is a reasonable
possibility of incurring additional material costs in excess of the current
accruals recognized for such environmental remediation activities. With respect
to the sites in which Pennzoil-Quaker State subsidiaries are PRPs,
Pennzoil-Quaker State's conclusion is based in large part on (i) the
availability of defenses to liability, including the availability of the
"petroleum exclusion" under CERCLA and similar state laws, and/or (ii)
Pennzoil-Quaker State's current belief that its share of wastes at a particular
site is or will be viewed by the EPA or other PRPs as being de minimis. As a
result, Pennzoil-Quaker State's monetary exposure is not expected to be material
beyond the amounts reserved.
From January 1997 through December 1999, capital outlays of approximately
$10.0 million have been made by the Company with respect to environmental
protection. Capital expenditures for environmental control facilities are
currently expected to be approximately $0.8 million in 2000.
Louisiana Federal Court Employment Action --
In September 1997, a lawsuit styled Kenneth Epperson, et al. vs. Pennzoil
Co., et al., was filed in the United States District Court for the Western
District of Louisiana, Shreveport Division. The amended complaint filed by nine
named plaintiffs alleges discriminatory employment policies and practices
against African-American and other minority employees and seeks attorney's fees
and costs, various forms of injunctive and equitable relief, $50.0 million in
damages for back pay, front pay, and emotional distress, and a minimum of three
times that amount in punitive damages. Class certification was denied by the
court in September 1999. The court, however, allowed the lawsuit to be amended
to add new individual plaintiffs. Since that time, approximately 60 additional
plaintiffs have joined the lawsuit. The Company vigorously denies these
allegations.
Blue Coral --
In May 1997, a class action lawsuit was filed in the United States District
Court for the Northern District of Illinois on behalf of a class of persons who
purchased wax, polish or protectant products sold by a number of defendants. The
action names as defendants a number of car wax manufacturers including Blue
Coral, Inc., a subsidiary of the Company and certain of its present and former
officers. The complaint alleges that the defendants falsely advertised and
marketed such products and seeks treble damages, attorneys' fees and costs for
the class for alleged violations of the federal Racketeer Influenced and Corrupt
Organizations Act and compensatory damages for alleged violations of the Ohio
Consumer Sales Practices Act as well as for breach of express warranty. On
January 5, 1999, the court certified a nationwide class consisting of all
persons who purchased products marketed, produced or distributed as "car wax" by
the defendants. While no class period has been specified by the court, the
plaintiffs are seeking a class period dating back four years prior to the filing
of the action. On February 2, 1999, the plaintiffs proposed a joint settlement
fund equal to ten percent of each defendant's 1997 gross revenue from the
products. The Company is contesting this action vigorously.
F-28
<PAGE> 55
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
California Scents --
In January 2000, a lawsuit styled California Scents, Inc. v. Medo
Industries, Inc. was filed in the United States District Court for the Central
District of California. The plaintiff alleges that it is engaged in the
manufacture and sale of automotive air freshener in the United States and that
the defendant, Medo Industries, Inc., a subsidiary of the Company, has
monopolized and attempted to monopolize that business in violation of federal
antitrust laws. The plaintiff also alleges that the defendant has, in violation
of California state law, tortiously interfered with the plaintiff's prospective
business relationships and engaged in unfair business practices. The plaintiff
claims that the defendant's alleged actions have caused the plaintiff to suffer
actual damages of $16.0 million, plus $4.0 million per year for an unspecified
number of years into the future. The plaintiff seeks trebled damages, punitive
damages, restitution with respect to its claim of unfair business practices and
injunctive relief. The Company is contesting this action vigorously.
Other --
The Company is involved in numerous lawsuits, primarily in Louisiana,
involving asbestos and asbestos-containing products. The plaintiffs generally
allege exposure to asbestos and asbestos-containing products while working on
the premises of the premises defendants and strict liability and negligence
actions against the premises' defendants, including the Company. In addition,
the plaintiffs generally allege that asbestos-containing products sold,
distributed and supplied by the other defendants in the lawsuits were defective
and unreasonably dangerous and that those defendants were thus negligent in
failing to warn the plaintiffs of these dangers. The Company is contesting these
actions vigorously.
Pennzoil-Quaker State and its subsidiaries are also involved in various
other claims, lawsuits and other proceedings relating to a wide variety of
matters. While uncertainties are inherent in the final outcome of all claims,
lawsuits and other proceedings and it is presently impossible to determine the
actual costs that ultimately may be incurred, management currently believes that
the resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on Pennzoil-Quaker State's financial position or
results of operations.
(13) LEASES --
As Lessee --
Pennzoil-Quaker State leases various assets and office space with lease
periods of one to 20 years. Additionally, Pennzoil-Quaker State leases sites and
equipment which are subleased to franchisees or used in the operation of
automotive fast lubrication and fluid maintenance service centers operated by
Pennzoil-Quaker State. The typical lease period for the service centers is 20
years with escalation clauses generally increasing the lease payments by 9%
every third year, with some leases containing renewal options generally for
periods of five years. These leases, excluding leases for land that are
classified as operating leases, are accounted for as capital leases and are
capitalized using interest rates appropriate at the inception of each lease.
Certain operating and capital lease payments are contingent upon such
factors as the consumer price index or the prime interest rate with any future
changes reflected in income as accruable. The effects of these changes are not
considered material.
Total operating lease rental expenses for Pennzoil-Quaker State were $88.4
million, $61.9 million and $55.1 million for 1999, 1998 and 1997, respectively.
Interest expense related to Pennzoil-Quaker State's capital lease obligations
was $9.0 million, $8.3 million and $8.6 million for 1999, 1998 and 1997,
respectively.
F-29
<PAGE> 56
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum commitments under noncancellable leasing arrangements as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMOUNTS PAYABLE
AS LESSEE
------------------------
CAPITAL OPERATING
LEASES LEASES
--------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
YEAR ENDING DECEMBER 31:
2000........................................................ $ 13,495 $ 87,818
2001........................................................ 13,563 68,592
2002........................................................ 13,473 61,181
2003........................................................ 13,467 56,366
2004........................................................ 13,053 57,526
Thereafter.................................................. 55,552 372,429
-------- --------
Net minimum future lease payments........................... $122,603 $703,912
========
Less interest............................................... 49,268
--------
Present value of net minimum lease payments at December 31,
1999...................................................... $ 73,355
========
</TABLE>
Assets recorded under capital lease obligations of $74.4 million and $11.9
million at December 31, 1999 are classified as property, plant and equipment and
other assets, respectively, in the accompanying consolidated balance sheet.
Assets recorded under capital lease obligations of $74.5 million and $12.9
million at December 31, 1998 are classified as property, plant and equipment and
other assets, respectively, in the accompanying consolidated balance sheet.
As Lessor --
Pennzoil-Quaker State owns or leases numerous service center sites which
are leased or subleased to franchisees. Buildings owned or leased that meet the
criteria for direct financing leases are carried at the gross investment in the
lease less unearned income. Unearned income is recognized in such a manner as to
produce a constant periodic rate of return on the net investment in the direct
financing lease. Any buildings leased or subleased that do not meet the criteria
for a direct financing lease and any land leased or subleased are accounted for
as operating leases. The typical lease period is 20 years and some leases
contain renewal options. The franchisee is responsible for the payment of
property taxes, insurance and maintenance costs related to the leased property.
The net investment in direct financing leases is classified as other assets in
the accompanying consolidated balance sheet.
F-30
<PAGE> 57
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payment receivables under noncancellable leasing
arrangements as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMOUNTS RECEIVABLE
AS LESSOR
-------------------------
DIRECT
FINANCING OPERATING
LEASES LEASES
---------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C>
YEAR ENDING DECEMBER 31:
2000........................................................ $ 4,533 $ 30,713
2001........................................................ 4,556 28,387
2002........................................................ 4,571 27,055
2003........................................................ 4,531 25,038
2004........................................................ 4,553 23,368
Thereafter.................................................. 18,217 132,803
------- --------
Net minimum future lease payments........................... $40,961 $267,364
========
Less unearned income........................................ 16,746
-------
Net investment in direct financing leases at December 31,
1999...................................................... $24,215
=======
</TABLE>
The carrying value of owned property leased under operating leases or held for
lease was $34.7 million and $16.5 million (net of accumulated depreciation of
$18.7 million and $9.6 million) at December 31, 1999 and 1998, respectively.
(14) SEGMENT FINANCIAL INFORMATION --
Information with respect to revenues, operating income and other data by
operating segment is presented in Item 1. Business and Item 2. Properties of
this Annual Report on Form 10-K. The tabular presentation below sets forth
certain financial information regarding Pennzoil-Quaker State's net sales by
classes of similar products and services and net sales and identifiable assets
by geographic area for the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
NET SALES BY CLASSES OF SIMILAR PRODUCTS OR
SERVICES:
Lubricants(1)............................................... $1,398,243 $ 818,166 $ 840,383
Consumer Products(1)........................................ 300,443 56,310 31,284
Base Oils................................................... 288,203 263,421 258,061
Specialty Products(2)....................................... 62,368 65,336 210,602
Fast Lube Operations........................................ 423,413 322,704 316,068
All Other Products.......................................... 698,392 474,866 542,888
Intersegment Sales(3)....................................... (219,706) (199,127) (217,138)
---------- ---------- ----------
Total(1)........................................... $2,951,356 $1,801,676 $1,982,148
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
GEOGRAPHIC AREAS:
Net Sales
Domestic(4)............................................... $2,765,059 $1,695,453 $1,875,264
Foreign(4)................................................ 186,297 106,223 106,884
Identifiable Assets
Domestic.................................................. 2,566,667 $2,948,320 $1,422,777
Foreign................................................... 166,554 196,674 136,846
</TABLE>
- ---------------
(1) The increase in net sales in 1999 was the result of the acquisition of
Quaker State on December 30, 1998. Net sales for 1998 and 1997 do not
include Quaker State.
F-31
<PAGE> 58
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) In October 1997, the Company contributed most of its specialty industrial
products business to Penreco, a partnership with Conoco. The partnership is
accounted for under the equity method with the Company's share of net
earnings being reported as a component of other income.
(3) Intersegment sales are priced at market. The majority of intersegment sales
are from the base oil and specialty products segment to the lubricants and
consumer products segment.
(4) Export sales to foreign customers originating from domestic offices are
shown in this table as domestic sales.
(15) SUBSEQUENT EVENTS
On January 11, 2000, the Company agreed to acquire the assets of Sagaz
Industries, Inc., a leading manufacturer and marketer of automobile seat covers
and cushions in the United States and Canada, for approximately $62.5 million.
The Company expects to consummate the purchase of Sagaz in the first quarter of
2000.
On February 2, 2000, the Company acquired Auto Fashions, a 25-year-old
Australian automotive accessories firm. Auto Fashions is a leader in the
Australian automotive air freshener, sunshade and comfort accessories market.
On February 7, 2000 the Company entered into a definitive agreement with
Calumet Lubricants Company, LP to sell the Company's Rouseville, Pennsylvania
wax processing facilities and related assets, including the Company's Reno,
Pennsylvania packaging plant and its crude oil gathering and trucking operations
in the state of Utah. Also included in the sale is Pennzoil-Quaker State's share
of its Bareco partnership with Baker Petrolite, a division of Baker Hughes
Incorporated. The sale is expected to close by April 15, 2000, and no
significant gain or loss is expected.
F-32
<PAGE> 59
PENNZOIL-QUAKER STATE COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION -- UNAUDITED
QUARTERLY RESULTS --
<TABLE>
<CAPTION>
BASIC AND
DILUTED
OPERATING NET INCOME EARNINGS (LOSS)
REVENUES INCOME (LOSS)(1) (LOSS) PER SHARE
---------- ---------------- ---------- ---------------
(EXPRESSED IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
First Quarter.......................... $ 443,442 $ 28,748 $ 599 $ 0.01
Second Quarter......................... 498,969 38,460 6,050 0.13
Third Quarter.......................... 474,852 31,843 636 0.01
Fourth Quarter......................... 432,875 (68,891) (53,152) (1.11)
---------- --------- --------- ------
$1,850,138 $ 30,160 $ (45,867) $(0.96)
========== ========= ========= ======
1999
First Quarter.......................... $ 704,066 $ 39,741 $ (2,219) $(0.03)
Second Quarter......................... 759,920 54,213 6,302 0.08
Third Quarter.......................... 759,892 29,996 (6,744) (0.09)
Fourth Quarter......................... 765,054 (477,606) (318,270) (4.08)
---------- --------- --------- ------
$2,988,932 $(353,656) $(320,931) $(4.12)
========== ========= ========= ======
</TABLE>
- ---------------
(1) Operating income is defined as net revenues less costs and operating
expenses.
F-33
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
*3.1(a) -- Restated Certificate of Incorporation of the Company
(filed as exhibit 4.2 to the Current Report on Form 8-K
of the Company filed on December 29, 1998 (File No.
001-14501) and incorporated herein by reference).
3.1(b) -- Certificate of Designations of Series A Junior
Participating Preferred Stock of the Company.
*3.2 -- By-Laws of the Company (filed as exhibit 4.2 to the
Registration Statement on Form S-8 of the Company
(Registration No. 333-72835) and incorporated herein by
reference).
*3.3 -- Form of Common Stock Certificate of the Company (filed as
exhibit 3.5 to the Registration Statement on Form S-4 of
the Company (Registration No. 333-61541) and incorporated
herein by reference).
*3.4 -- Rights Agreement dated as of December 18, 1998 between
the Company and The Chase Manhattan Bank (filed as
exhibit 1 to the Current Report on Form 8-K of the
Company filed on December 18, 1998 (File No. 001-14501)
and incorporated herein by reference).
*4.1 -- Indenture, dated as of February 1, 1999 (the
"Indenture"), between the Company and Chase Bank of
Texas, National Association, as Trustee (filed as exhibit
4.1 to the Current Report on Form 8-K of the Company
filed on March 30, 1999 (File No. 001-14501) and
incorporated herein by reference).
*4.2 -- Officer's Certificate dated as of March 30, 1999
delivered pursuant to Section 301 of the Indenture,
providing for the issuance of the Company's 6 3/4% Notes
due 2009 and 7 3/8% Debentures due 2029, including the
form of Note and Debenture (filed as exhibit 4.2 to the
Current Report on Form 8-K of the Company filed on March
30, 1999 (File No. 001-14501) and incorporated herein by
reference).
The Company is a party to several debt instruments under
which the total amount of securities authorized does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, the
Company agrees to furnish a copy of such instruments to
the Securities and Exchange Commission upon request.
*10.1(a) -- Credit Agreement dated as of November 17, 1998 among
Pennzoil Products Company and the lenders named therein
(filed as exhibit 10.1 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
10.1(b) -- First Amendment to Exhibit 10.1(a) dated as of November
5, 1999.
10.1(c) -- Amended and Restated Credit Agreement dated as of
November 16, 1999 among Pennzoil-Quaker State Company and
the lenders named therein.
+*10.2 -- Pennzoil-Quaker State Company 1998 Incentive Plan (filed
as exhibit 4.3 to the Registration Statement of the
Company on Form S-8 (Registration No. 333-69837) and
incorporated herein by reference).
+10.3 -- Pennzoil-Quaker State Company 1999 Long-Term Performance
Incentive Program.
+*10.4 -- Form of Indemnification Agreement between Pennzoil-Quaker
State Company and directors and executive officers of the
Company (filed as exhibit 10.7 to the Registration
Statement of the Company on Form S-4 (Registration No.
333-61541) and incorporated herein by reference).
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+*10.5 -- Pennzoil-Quaker State Company Deferred Compensation Plan
(filed as exhibit 10.4 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.6 -- Pennzoil-Quaker State Company Medical Expenses
Reimbursement Plan (filed as exhibit 10.5 to the Annual
Report on Form 10-K of the Company for the fiscal year
ended December 31, 1998 (File No. 001-14501) and
incorporated herein by reference).
+*10.7 -- Pennzoil-Quaker State Company Supplemental Disability
Plan (filed as exhibit 10.6 to the Annual Report on Form
10-K of the Company for the fiscal year ended December
31, 1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.8 -- Pennzoil-Quaker State Company Salary Continuation Plan
(filed as exhibit 10.7 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.9 -- Pennzoil-Quaker State Company Supplemental Life Insurance
Plan (filed as exhibit 10.8 to the Annual Report on Form
10-K of the Company for the fiscal year ended December
31, 1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.10 -- Pennzoil-Quaker State Company Executive Severance Plan
(filed as exhibit 10.9 to the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31,
1998 (File No. 001-14501) and incorporated herein by
reference).
+*10.11 -- Form of Pennzoil-Quaker State Company Supplemental
Medical and Retirement Benefits Agreement (filed as
exhibit 10.10 to the Annual Report on Form 10-K of the
Company for the fiscal year ended December 31, 1998 (File
No. 001-14501) and incorporated herein by reference).
+*10.12 -- Employment Agreement between the Company and James J.
Postl (filed as exhibit 10.11 to the Annual Report on
Form 10-K of the Company for the fiscal year ended
December 31, 1998 (File No. 001-14501) and incorporated
herein by reference).
12.1 -- Computation of Ratio of Earnings to Fixed Charges for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995.
21.1 -- Subsidiaries of Pennzoil-Quaker State Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
24.1 -- Powers of Attorney.
27.1 -- Financial Data Schedule.
99.1 -- Financial Statements of Excel Paralubes.
99.2(a) -- First Amendment to the Pennzoil-Quaker State Company
Savings and Investment Plan.
99.2(b) -- Second Amendment to the Pennzoil-Quaker State Company
Savings and Investment Plan.
99.3(a) -- First Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(b) -- Second Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(c) -- Third Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
99.3(d) -- Fourth Amendment to the Pennzoil Company Savings and
Investment Plan for Hourly Employees.
99.3(e) -- Fifth Amendment to the Pennzoil-Quaker State Company
Savings and Investment Plan for Hourly Employees (f/k/a
Pennzoil Company Savings and Investment Plan for Hourly
Employees).
99.4(a) -- First Amendment to the Quaker State Corporation Thrift
and Stock Purchase Plan.
99.4(b) -- Second Amendment to the Pennzoil-Quaker State Thrift and
Stock Purchase Plan (f/k/a Quaker State Corporation
Thrift and Stock Purchase Plan).
99.4(c) -- Third Amendment to the Pennzoil-Quaker State Thrift and
Stock Purchase Plan.
</TABLE>
- ---------------
* Incorporated by reference as indicated.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
<PAGE> 1
EXHIBIT 3.1(b)
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
PENNZOIL-QUAKER STATE COMPANY
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
PENNZOIL-QUAKER STATE COMPANY, a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of
Directors in accordance with the provisions of the Restated Certificate of
Incorporation of the said Corporation, the said Board of Directors on December
14, 1998 adopted the following resolution creating a series of 1,000,000 shares
of Preferred Stock designated as "Series A Junior Participating Preferred
Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of
the Restated Certificate of Incorporation, a series of Preferred Stock,
par value $1.00 per share, of the Corporation be and hereby is created,
and that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of
Preferred Stock that shall be designated as "Series A Junior Participating
Preferred Stock," and the number of shares constituting such series shall be
1,000,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series A Junior Participating Preferred Stock to less than
the number of shares then issued and outstanding plus the number of shares
issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating
<PAGE> 2
Preferred Stock with respect to dividends, the holders of shares of Series A
Junior Participating Preferred Stock, in preference to the holders of shares of
any class or series of stock of the Corporation ranking junior to the Series A
Junior Participating Preferred Stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the 15th day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $2.00 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $0.10 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. The "Adjustment Number" shall initially be 100. In the event the
Corporation shall at any time after December 18, 1998 (the "Rights Declaration
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $2.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly
2
<PAGE> 3
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as otherwise provided herein, in the Restated
Certificate of Incorporation or by law, the holders of shares of Series A Junior
Participating Preferred Stock, the holders of shares of any other class or
series entitled to vote with the Common Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C)(i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") that shall extend until
such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all shares of
Series A Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, (1) the
number of Directors shall be increased by two, effective as of the time of
election of such Directors as herein provided, and (2) the holders of Preferred
Stock (including holders of the Series A Junior Participating Preferred Stock)
upon which these or like voting rights have been conferred and are exercisable
(the "Voting Preferred Stock") with dividends in arrears in an amount equal to
six quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect such two Directors.
(ii) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that such voting right shall not be exercised
unless the holders of at least one-third in number of the shares of Voting
Preferred Stock outstanding shall be present in person or by proxy. The absence
of a quorum of the holders of Common Stock shall not affect the exercise by the
holders of Voting Preferred Stock of such voting right.
(iii) Unless the holders of Voting Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order,
3
<PAGE> 4
or any stockholder or stockholders owning in the aggregate not less than ten
percent of the total number of shares of Voting Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting of the
holders of Voting Preferred Stock, which meeting shall thereupon be called by
the Chairman of the Board, the President, a Vice President or the Secretary of
the Corporation. Notice of such meeting and of any annual meeting at which
holders of Voting Preferred Stock are entitled to vote pursuant to this
paragraph (C)(iii) shall be given to each holder of record of Voting Preferred
Stock by mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for a time
not earlier than 20 days and not later than 60 days after such order or request
or, in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent of the total
number of shares of Voting Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, after the holders of Voting
Preferred Stock shall have exercised their right to elect Directors voting as a
class, (x) the Directors so elected by the holders of Voting Preferred Stock
shall continue in office until their successors shall have been elected by such
holders or until the expiration of the default period, and (y) any vacancy in
the Board of Directors may be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class or classes of stock
which elected the Director whose office shall have become vacant. References in
this paragraph (C) to Directors elected by the holders of a particular class or
classes of stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Voting Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Voting
Preferred Stock as a class shall terminate and (z) the number of Directors shall
be such number as may be provided for in the Restated Certificate of
Incorporation or By-Laws irrespective of any increase made pursuant to the
provisions of paragraph (C) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law or in the Restated
Certificate of Incorporation or By-Laws). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter
4
<PAGE> 5
and until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating Preferred Stock outstanding
shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of Series A Junior Participating
Preferred Stock, or to all such holders and the holders of any such
shares ranking on a parity therewith, upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to any conditions and restrictions on issuance
set forth herein.
6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared,
5
<PAGE> 6
to the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) the Adjustment Number. Following the payment of
the full amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall, subject to the
prior rights of all other series of Preferred Stock, if any, ranking prior
thereto, receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with respect to
such Series A Junior Participating Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, that rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6, but the sale, lease or conveyance of all or substantially all the
Corporation's assets shall be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 6.
7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. Redemption. (A) The Corporation, at its option, may redeem
shares of the Series A Junior Participating Preferred Stock in whole at any time
and in part from time to time, at a redemption price equal to the Adjustment
Number times the current per share market price (as such term is hereinafter
defined) of the Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of such
redemption. The "current per share market price" on any date shall be deemed to
be the average of the closing price per share of such Common Stock for the ten
consecutive Trading Days (as such term is hereinafter
6
<PAGE> 7
defined) immediately prior to such date; provided, however, that in the event
that the current per share market price of the Common Stock is determined during
a period following the announcement of (A) a dividend or distribution on the
Common Stock other than a regular quarterly cash dividend or (B) any
subdivision, combination or reclassification of such Common Stock and the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, shall not have occurred prior to
the commencement of such ten Trading Day period, then, and in each such case,
the current per share market price shall be properly adjusted to take into
account ex-dividend trading. The closing price for each day shall be the last
sales price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange, or, if
the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange but sales price
information is reported for such security, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or such other self-regulatory organization or registered securities information
processor (as such terms are used under the Securities Exchange Act of 1934, as
amended) that then reports information concerning the Common Stock, or, if sales
price information is not so reported, the average of the high bid and low asked
prices in the over-the-counter market on such day, as reported by NASDAQ or such
other entity, or, if on any such date the Common Stock is not quoted by any such
entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on any such date no such market maker
is making a market in the Common Stock, the fair value of the Common Stock on
such date as determined in good faith by the Board of Directors of the
Corporation shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if the Common
Stock is not so quoted, a Monday, Tuesday, Wednesday, Thursday or Friday on
which banking institutions in the State of New York are not authorized or
obligated by law or executive order to close.
(B) In the event that fewer than all the outstanding shares of
the Series A Junior Participating Preferred Stock are to be redeemed, the number
of shares to be redeemed shall be determined by the Board of Directors and the
shares to be redeemed shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method that may be
determined by the Board of Directors in its sole discretion to be equitable.
(C) Notice of any such redemption shall be given by mailing to
the holders of the shares of Series A Junior Participating Preferred Stock to be
redeemed a notice of such redemption, first class postage prepaid, not later
than the fifteenth day and not earlier than the sixtieth day before the date
fixed for redemption, at their last address as the same shall appear upon the
books of the Corporation. Each such notice shall state: (i) the redemption date;
(ii) the number of shares to be redeemed and, if fewer than all the shares held
by such holder are to be redeemed, the number of
7
<PAGE> 8
such shares to be redeemed from such holder; (iii) the redemption price; (iv)
the place or places where certificates for such shares are to be surrendered for
payment of the redemption price; and (v) that dividends on the shares to be
redeemed will cease to accrue on the close of business on such redemption date.
Any notice that is mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the stockholder received such
notice, and failure duly to give such notice by mail, or any defect in such
notice, to any holder of Series A Junior Participating Preferred Stock shall not
affect the validity of the proceedings for the redemption of any other shares of
Series A Junior Participating Preferred Stock that are to be redeemed. On or
after the date fixed for redemption as stated in such notice, each holder of the
shares called for redemption shall surrender the certificate evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price. If fewer than
all the shares represented by any such surrendered certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
(D) The shares of Series A Junior Participating Preferred
Stock shall not be subject to the operation of any purchase, retirement or
sinking fund.
9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise, and shall rank senior to the Common Stock
as to such matters.
10. Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds or more of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate and does affirm the foregoing as true this 29th day of December,
1998.
/s/ LINDA F. CONDIT
------------------------------------
Linda F. Condit
Vice President
<PAGE> 1
EXHIBIT 10.1(b)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") dated as
of November 5, 1999, but to be effective as of September 30, 1999 (the "First
Amendment Effective Date"), is made and entered into by and among
PENNZOIL-QUAKER STATE COMPANY (formerly known as Pennzoil Products Company), a
Delaware corporation (the "Borrower"), the LENDERS party hereto (the "Lenders"),
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Administrative Agent (the
"Administrative Agent").
RECITALS
WHEREAS, the Borrower, the Administrative Agent and the Lenders are
parties to a Credit Agreement dated as of November 17, 1998 (the "Credit
Agreement");
WHEREAS, pursuant to Section 3.11 of the Credit Agreement, on the
Effective Date the Borrower represented that certain reprogramming procedures
necessary for the Borrower and its Material Subsidiaries to be materially year
2000 compliant would be completed by October 1, 1999;
WHEREAS, the Borrower has now determined that, as more fully set forth
below, such reprogramming procedures will not be completed by October 1, 1999;
and
WHEREAS, the Borrower, the Administrative Agent and the Lenders have
agreed, on the terms and conditions herein set forth, that the Credit Agreement
be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Terms used herein which are defined in the
Credit Agreement shall have the same meanings when used herein unless otherwise
provided herein.
Section 2. Waiver of Default. The Administrative Agent and the Lenders
hereby waive the default of the Borrower existing prior to the First Amendment
Effective Date with respect to a breach of its representation contained in
Section 3.11 of the Credit Agreement.
Section 3. Amendment to the Credit Agreement. Section 3.11 of the
Credit Agreement is hereby amended to read in its entirety as follows:
Any reprogramming required to permit the proper functioning, in and
following the year 2000, of (a) the Borrower's, or any Material
Subsidiary's, computer systems and (b) equipment containing embedded
microchips (including systems and equipment supplied by others or with
which Borrower's, or any Material Subsidiary's, systems interface) and
the testing of all such systems and equipment, as so reprogrammed, will
be completed by October 31, 1999, except (i) the point-of-sale systems
at less than 200 Q Lube Stores which are in the process of being sold
or converted to Jiffy Lube point-of-sale systems, which sale/conversion
process will be materially completed by December 31, 1999, provided
that those store that are converted to Jiffy Lube point-of-sale systems
will be programmed for
<PAGE> 2
proper functioning in and following the year 2000 at the time of such
conversion, and (ii) in connection with immaterial computer systems and
equipment containing embedded microchips that are not necessary in
primary lines of business. The cost to the Borrower and its Material
Subsidiaries of such reprogramming and testing and of the reasonably
foreseeable consequences of year 2000 to the Borrower will not result
in a Default or a Material Adverse Effect.
Section 4. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement (other
than as specifically set forth in Section 2 of this First Amendment), or (b)
except as expressly set forth herein, prejudice any right or rights which the
Lenders may now have or may have in the future under or in connection with the
Credit Agreement or any of the other documents referred to therein. Except as
expressly modified hereby or by express written amendments thereof, the terms
and provisions of the Credit Agreement or any other documents or instruments
executed in connection with the Credit Agreement are and shall remain in full
force and effect. In the event of a conflict between this First Amendment and
any of the foregoing documents, the terms of this First Amendment shall be
controlling.
Section 5. Representations and Warranties. On and as of the date
hereof, after giving effect to this First Amendment, the Borrower represents and
warrants the following:
(a) All of the representations and warranties in Article IV of the
Credit Agreement are true and correct in all material respects as if made on and
as of the date of this First Amendment, except to the extent any such
representation or warranty relates specifically to an earlier date;
(b) No Default or Event of Default has occurred and is continuing, or
would result from the effectiveness of this First Amendment; and
(c) The execution and delivery by the Borrower of this First Amendment
are within the Borrower's powers and have been duly authorized by all necessary
corporate or other action.
Section 6. Payment of Expenses. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Administrative Agent harmless from and against liability for the payment of all
reasonable substantiated out-of-pocket costs and expenses arising in connection
with the preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this First Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Administrative Agent, and all stamp taxes (including
interest and penalties, if any), recording taxes and fees, filing taxes and
fees, and other charges which may be payable in respect of, or in respect of any
modification of, the Credit Agreement. The provisions of this Section shall
survive the termination of the Credit Agreement and the repayment of the Loans.
Section 7. Governing Law. This First Amendment and the rights and
obligations of the parties hereunder and under the Credit Agreement shall be
construed in accordance with and be governed by the laws of the State of New
York and the United States of America.
Section 8. Descriptive Headings, etc. The descriptive headings of the
several Sections of this First Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
2
<PAGE> 3
Section 9. Entire Agreement. This First Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this First Amendment.
Section 10. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and all
of such counterparts shall together constitute one and the same instrument.
Section 11. Amended Definitions. As used in the Credit agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the First Amendment
Effective Date the term "Agreement" shall mean the Credit Agreement as amended
by this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered by their respective duly authorized officers
effective as of the First Amendment Effective Date.
PENNZOIL-QUAKER STATE COMPANY,
as Borrower
By /s/ LAURIE K. STEWART
----------------------------------------
Name: Laurie K. Stewart
Title: Vice President and Treasurer
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
individually, as Issuing Bank and
as Administrative Agent
By /s/ RUSSELL A. JOHNSON
----------------------------------------
Name: Russell A. Johnson
Title: Vice President
3
<PAGE> 4
CITIBANK, N.A.
individually and as Syndication Agent
By /s/ MARK STANFIELD PACKARD
----------------------------------------
Name: Mark Stanfield Packard
Title: Vice President
BANK OF AMERICA, N.A., formerly known as
NationsBank, N.A., individually and as
Documentation Agent
By /s/ JAMES R. ALLRED
----------------------------------------
Name: James R. Allred
Title: Managing Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, individually and as Syndication
Agent
By /s/ DENNIS WILCZEK
----------------------------------------
Name: Dennis Wilczek
Title: Associate
DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
By /s/ ALEXANDER KAROW
----------------------------------------
Name: Alexander Karow
Title: Assistant Vice President
By /s/ SUSAN L. PEARSON
----------------------------------------
Name: Susan L. Pearson
Title: Director
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ DEBORAH SLUSARCZYK
----------------------------------------
Name: Deborah Slusarczyk
Title: Vice President
By /s/ KEN HAMILTON
----------------------------------------
Name: Ken Hamilton
Title: Senior Vice President
ROYAL BANK OF CANADA
By /s/ GIL J. BENARD
----------------------------------------
Name: Gil J. Bernard
Title: Senior Manager
4
<PAGE> 5
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. ASHBY
----------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
BANK ONE, NA (Main Office Chicago),
formerly known as The First National Bank
of Chicago
By /s/ JEFF DALTON
----------------------------------------
Name: Jeff Dalton
Title: Authorized Officer
MELLON BANK, N.A.
By /s/ ROGER E. HOWARD
----------------------------------------
Name: Roger E. Howard
Title: Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By /s/ J. ALAN ALEXANDER
----------------------------------------
Name: J. Alan Alexander
Title: Vice President
BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By /s/ JOHN STACY
----------------------------------------
Name: John Stacy
Title: Vice President
THE BANK OF NEW YORK
By /s/ HELEN L. SARRO
----------------------------------------
Name: Helen L. Sarro
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ I. OTANI
----------------------------------------
Name: I. Otani
Title: Deputy General Manager
5
<PAGE> 6
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By /s/ FELICIA LA FORGIA
----------------------------------------
Name: Felicia La Forgia
Title: Vice President
By /s/ THOMAS LEE
----------------------------------------
Name: Thomas Lee
Title: Associate
SUNTRUST BANK, ATLANTA
By /s/ DEBORAH S. ARMSTRONG
----------------------------------------
Name: Deborah S. Armstrong
Title: Vice President
By /s/ RYAN SIMMONS
----------------------------------------
Name: Ryan Simmons
Title: Officer
6
<PAGE> 1
EXHIBIT 10.1(c)
================================================================================
[CHASE LOGO]
AMENDED & RESTATED CREDIT AGREEMENT
dated as of
November 16, 1999
among
PENNZOIL-QUAKER STATE COMPANY
as Borrower
The Lenders Party Hereto
and
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
as Administrative Agent
CITIBANK, N.A.
as Syndication Agent
BANK OF AMERICA, N.A.
as Documentation Agent
and
The Managing Agents and Co-Agents
Set Forth On Schedule 2.01 Hereto
---------------------------
CHASE SECURITIES INC.,
as Arranger
$600,000,000 Revolving Credit, Term and Competitive Bid Facility
================================================================================
<PAGE> 2
1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions..............................................................................................1
SECTION 1.01. Defined Terms.............................................................................1
SECTION 1.02. Classification of Loans and Borrowings...................................................13
SECTION 1.03. Terms Generally..........................................................................13
SECTION 1.04. Accounting Terms; GAAP...................................................................14
ARTICLE II
The Credits.............................................................................................14
SECTION 2.01. Commitments..............................................................................14
SECTION 2.02. Loans and Borrowings.....................................................................14
SECTION 2.03. Requests for Revolving Borrowings........................................................15
SECTION 2.04. Competitive Bid Procedure................................................................16
SECTION 2.05. Letters of Credit........................................................................18
SECTION 2.06. Funding of Borrowings....................................................................21
SECTION 2.07. Interest Elections.......................................................................22
SECTION 2.08. Termination and Reduction of Commitments.................................................23
SECTION 2.09. Repayment of Loans; Evidence of Debt.....................................................24
SECTION 2.10. Prepayment of Loans......................................................................24
SECTION 2.11. Fees.....................................................................................25
SECTION 2.12. Interest.................................................................................26
SECTION 2.13. Alternate Rate of Interest...............................................................27
SECTION 2.14. Increased Costs..........................................................................27
SECTION 2.15. Break Funding Payments...................................................................29
SECTION 2.16. Taxes....................................................................................29
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Setoffs...............................31
SECTION 2.18. Mitigation Obligations...................................................................32
SECTION 2.19. Limitation of Compensation if Applicable Lending Office is Changed.......................32
ARTICLE III
Representations and Warranties..........................................................................33
SECTION 3.01. Organization; Powers.....................................................................33
SECTION 3.02. Authorization; Enforceability............................................................33
SECTION 3.03. Governmental Approvals; No Conflicts.....................................................34
SECTION 3.04. No Material Adverse Change...............................................................34
</TABLE>
<PAGE> 3
2
<TABLE>
<S> <C> <C>
SECTION 3.05. Litigation and Environmental Matters.....................................................34
SECTION 3.06. Compliance with Laws and Agreements......................................................34
SECTION 3.07. Investment and Holding Company Status....................................................34
SECTION 3.08. Taxes....................................................................................34
SECTION 3.09. ERISA....................................................................................35
SECTION 3.10. Financial Information....................................................................35
SECTION 3.11. Year 2000................................................................................35
ARTICLE IV
Conditions..............................................................................................36
SECTION 4.01. Effective Date...........................................................................36
SECTION 4.02. Each Credit Event........................................................................36
ARTICLE V
Affirmative Covenants...................................................................................37
SECTION 5.01. Financial Statements and Other Information...............................................37
SECTION 5.02. Notices of Material Events...............................................................38
SECTION 5.03. Existence; Conduct of Business...........................................................38
SECTION 5.04. Payment of Obligations...................................................................39
SECTION 5.05. Maintenance of Properties; Insurance.....................................................39
SECTION 5.06. Books and Records; Inspection Rights.....................................................39
SECTION 5.07. Compliance with Laws.....................................................................40
SECTION 5.08. Use of Proceeds and Letters of Credit....................................................40
SECTION 5.09. Covenant for Cross Default Provision.....................................................40
ARTICLE VI
Negative Covenants......................................................................................40
SECTION 6.01. Liens....................................................................................41
SECTION 6.02. Fundamental Changes......................................................................42
SECTION 6.03. Investments, Loans, Advances, Guarantees and Acquisitions................................43
ARTICLE VII
Events of Default.......................................................................................43
ARTICLE VIII
The Administrative Agent................................................................................45
</TABLE>
<PAGE> 4
3
<TABLE>
<S> <C> <C>
ARTICLE IX
Miscellaneous...........................................................................................47
SECTION 9.01. Notices..................................................................................47
SECTION 9.02. Waivers; Amendments......................................................................48
SECTION 9.03. Expenses; Indemnity; Damage Waiver.......................................................48
SECTION 9.04. Successors and Assigns...................................................................50
SECTION 9.05. Survival.................................................................................52
SECTION 9.06. Counterparts; Integration; Effectiveness.................................................52
SECTION 9.07. Severability.............................................................................52
SECTION 9.08. Right of Setoff..........................................................................52
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process...............................53
SECTION 9.10. WAIVER OF JURY TRIAL.....................................................................53
SECTION 9.11. Headings.................................................................................54
SECTION 9.12. Confidentiality..........................................................................54
SECTION 9.13. Interest Rate Limitation.................................................................54
</TABLE>
SCHEDULES:
Schedule 2.01 -- Commitments
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Additional Commitment Assumption Agreement
<PAGE> 5
1
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 16,
1999, among PENNZOIL-QUAKER STATE COMPANY (formerly known as Pennzoil Products
Company), a Delaware corporation (the "Borrower"), the LENDERS party hereto (the
"Lenders"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Administrative
Agent (the "Administrative Agent").
INTRODUCTORY STATEMENT
The Borrower entered into that certain Credit Agreement dated as of
November 17, 1998 (as amended by the First Amendment to Credit Agreement, the
"Original Credit Agreement"), by and among Pennzoil Products Company (now known
as Pennzoil-Quaker State Company), as borrower, Chase Bank of Texas, National
Association, individually and as administrative agent and each of the lenders
parties thereto (collectively, the "Original Lenders"), pursuant to which the
Original Lenders provided credit facilities to the Borrower in an aggregate
amount of up to $1,000,000,000. Proceeds of the Original Credit Agreement were
used by the Borrower for its working capital and general corporate purposes.
The Borrower has requested, and the Original Lenders and the
administrative agent under the Original Credit Agreement (hereinafter the
"Original Administrative Agent") have agreed, that the Original Credit Agreement
be amended and restated.
The Borrower desires to reduce the aggregate commitment of the Original
Lenders available under the Original Credit Agreement.
In consideration of the mutual covenants and agreements herein
contained, the Borrower, the Administrative Agent, and the Lenders agree as
follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Additional Commitment" has the meaning assigned in Section
2.20.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing of Committed Loans for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO
Rate for such Interest Period multiplied by (b) the Statutory Reserve Adjustment
Factor.
<PAGE> 6
2
"Administrative Agent" means Chase Bank of Texas, National
Association, in its capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Agreement" means this Amended and Restated Credit Agreement,
as the same may, from time to time be amended or supplemented.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day, and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentage for any
Lender shall be the percentage of the total Committed Credit Exposure of all
Lenders represented by such Lender's Committed Credit Exposure, in each case as
of the date of determination.
"Applicable Rate" means, for any day, with respect to (a) the
facility fees payable hereunder, a rate per annum equal to 0.125%, (b) any
Eurodollar Revolving Loan, the applicable rate per annum set forth below under
the caption "Eurodollar Spread" based upon the Utilization Factor as of such
date, and (c) any Eurodollar Term Loan, the applicable rate per annum set forth
below under the caption "Eurodollar Spread" based upon the Utilization Factor in
effect immediately prior to conversion of the Revolving Loans to Term Loans
pursuant to Section 2.02(e):
<TABLE>
<CAPTION>
Eurodollar
Utilization Factor: Spread
------------------- ----------
<S> <C>
less than 0.5 0.625%
equal to or greater 0.750%
than 0.5
</TABLE>
<PAGE> 7
3
The term "Utilization Factor" means, for any day, the quotient of (i) the
aggregate amount of the Lenders' Revolving Credit Exposure on such day divided
by (ii) the aggregate amount of the Lenders' Commitments on such day
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Assuming Lender" has the meaning assigned in Section 2.20.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Revolving Loan Maturity Date
and the date of termination of the Commitments.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means Pennzoil-Quaker State Company (formerly known
as Pennzoil Products Company), a Delaware corporation.
"Borrowing" means (a) Committed Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Competitive Loan or
group of Competitive Loans of the same Type made on the same date and as to
which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City or Houston, Texas are
authorized or required by law to remain closed; provided that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
the Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of
such Lender or by such Lender's or the Issuing Bank's holding company, if any)
with any request, guideline or
<PAGE> 8
4
directive (whether or not having the force of law) of any Governmental Authority
made or issued after the date of this Agreement; excluding, in any event,
Changes in Law resulting in any increase in Excluded Taxes.
"Charges" has the meaning assigned to such term in Section
9.13.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Committed Loans or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Committed Credit Exposure" means, with respect to any Lender
at any time, the sum of the outstanding principal amount of such Lender's
Committed Loans and its LC Exposure at such time.
"Committed Loan" means a Revolving Loan or a Term Loan.
"Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans, to acquire participations in
Letters of Credit hereunder and to convert the Revolving Loans outstanding on
the Revolving Loan Maturity Date to Term Loans, expressed as an amount
representing the maximum aggregate amount of such Lender's Revolving Credit
Exposure hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08, (b) increased from time to time pursuant to Section
2.20, or (c) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 9.04. The initial amount of each Lender's
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Commitment, as applicable.
The initial aggregate amount of the Lenders' Commitments is $600,000,000.
"Competitive Bid" means an offer by a Lender to make a
Competitive Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive
Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making
such Competitive Bid.
"Competitive Bid Request" means a request by the Borrower for
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
"Consolidated Net Tangible Assets" means the total amount of
assets, including all cash received from asset sales during the 12 months prior
to the date of determination to the extent that such cash has not been
reinvested, of the Borrower and its Subsidiaries on a consolidated basis (less
applicable reserves and other properly deductible items) after deducting
therefrom (a) all current liabilities (excluding any which are, by their terms,
extendable or renewable at the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is being computed)
<PAGE> 9
5
and (b) all goodwill, trade names, trademarks, patents, unamortized debt premium
or discount and expense and other like intangible assets, determined in
accordance with GAAP.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"De Minimis Subsidiary" means any Subsidiary of the Borrower
whose percentage of Consolidated Net Tangible Assets represented by such
Subsidiary's portion of Consolidated Net Tangible Assets (before intercompany
eliminations) is less than 1% as of the end of the most recently-completed
fiscal quarter.
"dollars" or "$" refers to lawful money of the United States
of America.
"Duff & Phelps" means Duff & Phelps Credit Rating Company.
"EDGAR System" means the Electronic Data Gathering, Analysis
and Retrieval system owned and operated by the United States Securities and
Exchange Commission or any replacement system.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or,
<PAGE> 10
6
solely for purposes of Section 302 of ERISA and Section 412 of the Code, is
treated as a single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the
case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in
Article VII.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes (including penalties and interest payable in respect thereof)
imposed on (or measured by) its net income by the United States of America, or
by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.08(d)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section 2.16(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from the
Borrower with respect to such withholding tax pursuant to Section 2.16(a).
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published
<PAGE> 11
7
for any day that is a Business Day, the average (rounded upwards, if necessary,
to the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.
"Final Maturity Date" means November 14, 2001.
"Financial Officer" means the chief financial officer,
treasurer, any assistant treasurer or controller of the Borrower.
"Fixed Rate" means, with respect to any Competitive Loan
(other than a Eurodollar Competitive Loan), the fixed rate of interest per annum
specified by the Lender making such Competitive Loan in its related Competitive
Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at
a Fixed Rate.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
<PAGE> 12
8
"Home Webpage" means the Borrower's corporate home page on the
World Wide Web accessible through the Internet via the universal resource
locator identified as "http://www.pzlqs.com" or such other universal resource
locator that the Borrower shall designate in writing to the Administrative Agent
as its corporate home page on the World Wide Web.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness
for borrowed money of the Borrower that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Interest Election Request" means a request by the Borrower to
convert or continue a Committed Borrowing in accordance with Section 2.08.
"Interest Payment Date" means (a) with respect to any ABR
Loan, the last day of each March, June, September and December, (b) with respect
to any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period, and (c) with
respect to any Fixed Rate Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate
Borrowing with an Interest Period of more than 90 days' duration (unless
otherwise specified in the applicable Competitive Bid Request), each day prior
to the last day of such Interest Period that occurs at intervals of 90 days'
duration after the first day of such Interest Period, and any other dates that
are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing.
"Interest Period" means (a) with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months (or, with the consent of each Lender, nine or twelve
<PAGE> 13
9
months) thereafter, as the Borrower may elect, (b) with respect to any Fixed
Rate Borrowing, the period (which shall not be less than 1 day or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of a
Eurodollar Borrowing only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and, in
the case of a Committed Borrowing, thereafter shall be the effective date of the
most recent conversion or continuation of such Borrowing.
"Issuing Bank" means either Chase Bank of Texas, National
Association or The Chase Manhattan Bank, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.05(i).
"LC Disbursement" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Lender at any
time shall be its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"Letter of Credit" means any letter of credit issued pursuant
to this Agreement.
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Telerate Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
<PAGE> 14
10
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset and (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention agreement
(or any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset.
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Margin" means, with respect to any Competitive Loan bearing
interest at a rate based on the LIBO Rate, the marginal rate of interest, if
any, to be added to or subtracted from the LIBO Rate to determine the rate of
interest applicable to such Loan, as specified by the Lender making such Loan in
its related Competitive Bid.
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations or condition, financial or otherwise, of
the Borrower and the Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform any of its obligations under this Agreement or (c) the
rights of or benefits available to the Lenders under this Agreement.
"Material Indebtedness" means Indebtedness of any one or more
of the Borrower and its Subsidiaries in an aggregate principal amount exceeding
$50,000,000 of the type described in (i) clauses (a) and (b) of the definition
of Indebtedness and (ii) clause (g) of the definition of Indebtedness (to the
extent that clause (g) relates to Indebtedness described in clauses (a) or (b)
of such definition), but excluding the Loans and Letters of Credit.
"Material Subsidiary" means each of (a) any Subsidiary of the
Borrower whose percentage of the Consolidated Net Tangible Assets represented by
such Subsidiary's portion of such Consolidated Net Tangible Assets (after
intercompany eliminations) exceeds 10% as of the end of the most
recently-completed fiscal quarter, and (b) any other Subsidiary which at the
time shall have been designated by the Borrower as a Material Subsidiary in an
officers' certificate delivered to the Administrative Agent for such purpose. As
of the Closing Date, the only Subsidiary of the Borrower that qualifies as a
Material Subsidiary under clause (a) above is Jiffy Lube International, Inc., a
Nevada corporation.
"Maximum Rate" has the meaning assigned to such term in
Section 9.13.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
<PAGE> 15
11
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Permitted Investments" means:
(a) direct obligations of, or obligations on which the
principal of and interest are unconditionally guaranteed by, the United
States of America (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the date
of acquisition thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P, from
Moody's or from Duff & Phelps;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus
and undivided profits of not less than $1,000,000,000; and
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase Bank of Texas, National Association as its
prime rate in effect at its principal office in Houston, Texas; each change in
the Prime Rate shall be effective from and including the date such change is
publicly announced as being effective.
"Quaker State Cross Defaults" means the cross default
provisions contained in Section 501(4) of the Indenture dated October 23, 1995
between Quaker State Corporation and Chemical Bank, as Trustee, relating to
$100,000,000 6 5/8% Notes due 2005.
"Register" has the meaning set forth in Section 9.04.
<PAGE> 16
12
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having
Committed Credit Exposures and unused Commitments representing 66 2/3% or more
of the sum of the total Committed Credit Exposures and unused Commitments at
such time; provided that, for purposes of declaring the Loans to be due and
payable pursuant to Article VII, and for all purposes after the Loans become due
and payable pursuant to Article VII or the Commitments expire or terminate, the
outstanding Competitive Loans of the Lenders shall be added to their respective
Committed Credit Exposures and to the total Committed Credit Exposures in
determining the Required Lenders.
"Revolving Credit Exposure" means, with respect to any Lender
at any time, the sum of the outstanding principal amount of such Lender's
Revolving Loans and its LC Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"Revolving Loan Maturity Date" means November 14, 2000.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc.
"Statutory Reserve Adjustment Factor" means a fraction
(expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject with respect to the Adjusted LIBO Rate, for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those imposed
pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Adjustment Factor shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
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"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Loan" means a Revolving Loan that is converted to a term
Loan with a maturity of not greater than one year pursuant to Section 2.02(e).
"Transactions" means the execution, delivery and performance
by the Borrower of this Agreement, the borrowing of Loans, the use of the
proceeds thereof and the issuance of Letters of Credit hereunder.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate, the
Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO
Rate or a Fixed Rate.
"Wholly Owned Subsidiary" means a corporation all the
outstanding voting stock (other than any directors' qualifying shares) of which
is owned, directly or indirectly, by the Borrower or by one or more other Wholly
Owned Subsidiaries, or by the Borrower and one or more other Wholly Owned
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to
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any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to (i) make Revolving Loans to the Borrower
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Revolving Credit Exposure
exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit
Exposures plus the aggregate principal amount of outstanding Competitive Loans
exceeding the total Commitments; and (ii) at the election of the Borrower, to
convert the principal amount of any Revolving Loans remaining outstanding on the
Revolving Loan Maturity Date to a Term Loan. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Committed Loan
shall be made as part of a Borrowing consisting of Committed Loans made by the
Lenders ratably in accordance with their respective Commitments. Each
Competitive Loan shall be made in accordance with the procedures set forth in
Section 2.04. The failure of any Lender to make any Loan required to be made by
it shall not relieve any other Lender of its obligations hereunder; provided
that the Commitments and Competitive Bids of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.13, (i) each Committed Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
request in accordance herewith, and (ii) each Competitive Borrowing shall be
comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may
request in accordance herewith. Each Lender at its option may make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement.
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15
(c) At the commencement of each Interest Period for any
Eurodollar Committed Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $10,000,000;
provided that a Eurodollar Committed Borrowing may be in an aggregate amount
that is less than $10,000,000, but greater than $5,000,000, and that is equal to
the entire unused balance of the total Commitments. At the time that each ABR
Committed Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $5,000,000; provided
that an ABR Committed Borrowing may be in an aggregate amount that is equal to
the entire unused balance of the total Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e). Each Competitive Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $15,000,000. Borrowings of
more than one Type and Class may be outstanding at the same time; provided that
there shall not at any time be more than a total of ten Eurodollar Committed
Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, (i)
the Borrower shall not be entitled to request, or to elect to convert (except
for a conversion to a Term Loan pursuant to Section 2.02(e))or continue, any
Borrowing containing Revolving Loans if the Interest Period requested with
respect thereto would end after the Revolving Loan Maturity Date and (ii) the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing containing Term Loans if the Interest Period requested with
respect thereto would end after the Final Maturity Date.
(e) At the option of the Borrower, upon written notice
delivered to the Administrative Agent no later than 10 Business Days prior to
the Revolving Loan Maturity Date, so long as no Default has occurred and is
continuing, the aggregate principal amount of any Revolving Loans remaining
outstanding at the close of the Administrative Agent's business on the Revolving
Loan Maturity Date shall automatically convert to Term Loans with a maturity of
no greater than one year. Any portion of each Lender's Commitment not utilized
on or before the Revolving Loan Maturity Date shall be permanently canceled. Any
Term Loans that are prepaid may not be reborrowed.
SECTION 2.03. Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Borrower shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
11:00 a.m., Houston, Texas time, three Business Days before the date of the
proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., Houston, Texas time, on the date of the proposed Borrowing; provided that
any such notice of an ABR Revolving Borrowing to finance the reimbursement of an
LC Disbursement as contemplated by Section 2.05(e) may be given not later than
10:00 a.m., Houston, Texas time, on the date of the proposed Borrowing. Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
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(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of Section
2.06.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the
terms and conditions set forth herein, from time to time during the Availability
Period the Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; provided
that the sum of the total Committed Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans at any time shall not exceed
the total Commitments. To request Competitive Bids, the Borrower shall notify
the Administrative Agent of such request by telephone, in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., Houston, Texas time, four
Business Days before the date of the proposed Borrowing and, in the case of a
Fixed Rate Borrowing, not later than 10:00 a.m., Houston, Texas time, one
Business Day before the date of the proposed Borrowing. Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Administrative Agent of a written Competitive Bid Request in a form
approved by the Administrative Agent and signed by the Borrower. Each such
telephonic and written Competitive Bid Request shall specify the following
information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing
or a Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing,
which shall be a period contemplated by the definition of the term "Interest
Period"; and
(v) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of Section
2.07.
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to)
make one or more Competitive Bids to the Borrower in response to a Competitive
Bid Request. Each Competitive Bid by
<PAGE> 21
17
a Lender must be in a form approved by the Administrative Agent and must be
received by the Administrative Agent by telecopy, in the case of a Eurodollar
Competitive Borrowing, not later than 9:30 a.m., Houston, Texas time, three
Business Days before the proposed date of such Competitive Borrowing, and in the
case of a Fixed Rate Borrowing, not later than 9:30 a.m., Houston, Texas time,
on the proposed date of such Competitive Borrowing. Competitive Bids that do not
conform substantially to the form approved by the Administrative Agent may be
rejected by the Administrative Agent, and the Administrative Agent shall notify
the applicable Lender as promptly as practicable. Each Competitive Bid shall
specify (i) the principal amount (which shall be a minimum of $15,000,000 and an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or
Rates at which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than four decimal
places) and (iii) the Interest Period applicable to each such Loan and the last
day thereof.
(c) The Administrative Agent shall promptly notify the
Borrower by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Lender that shall have
made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, the
Borrower may accept or reject any Competitive Bid. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing,
not later than 10:30 a.m., Houston, Texas time, three Business Days before the
date of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., Houston, Texas time, on the proposed date
of the Competitive Borrowing; provided that (i) the failure of the Borrower to
give such notice by such required time shall be deemed to be a rejection of each
Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made
at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive
Bids accepted by the Borrower shall not exceed the aggregate amount of the
requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, the
Borrower may accept Competitive Bids at the same Competitive Bid Rate in part,
which acceptance, in the case of multiple Competitive Bids at such Competitive
Bid Rate, shall be made pro rata in accordance with the amount of each such
Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive
Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in
a minimum principal amount of $15,000,000 and an integral multiple of
$1,000,000; provided further that if a Competitive Loan must be in an amount
less than $15,000,000 because of the provisions of clause (iv) above, such
Competitive Loan may be for a minimum of $1,000,000 or any integral multiple
thereof, and in calculating the pro rata allocation of acceptances of portions
of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to
clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in
a manner determined by the Borrower. A notice given by the Borrower pursuant to
this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Lender by telecopy whether or not its Competitive Bid has been accepted
(and, if so, the amount and Competitive Bid Rate so accepted), and each
successful bidder will thereupon become bound, subject to the terms and
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conditions hereof, to make the Competitive Loan in respect of which its
Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such Competitive
Bid directly to the Borrower at least one quarter of an hour earlier than the
time by which the other Lenders are required to submit their Competitive Bids to
the Administrative Agent pursuant to paragraph (b) of this Section.
SECTION 2.05. Letters of Credit. (a) General. Subject to the
terms and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the Availability Period. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed
$150,000,000 and (ii) the sum of the total Revolving Credit Exposures plus the
aggregate principal amount of outstanding Competitive Loans shall not exceed the
total Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or
prior to the close of business on the date that is five Business Days prior to
the Revolving Loan Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Lender, and each Lender hereby acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Lender's
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and in furtherance of the foregoing, each
Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage
of each LC Disbursement made by the Issuing Bank and not reimbursed by the
Borrower on the date due as
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provided in paragraph (e) of this Section, or of any reimbursement payment
required to be refunded to the Borrower for any reason. Each Lender acknowledges
and agrees that its obligation to acquire participations pursuant to this
paragraph in respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance
of a Default or reduction or termination of the Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, Houston, Texas time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., Houston, Texas time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, Houston, Texas time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., Houston, Texas time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 that such payment be financed with an
ABR Revolving Borrowing in an equivalent amount and, to the extent so financed,
the Borrower's obligation to make such payment shall be discharged and replaced
by the resulting ABR Revolving Borrowing. If the Borrower fails to make such
payment when due, the Administrative Agent shall notify each Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and such Lender's Applicable Percentage thereof. Promptly following
receipt of such notice, each Lender shall pay to the Administrative Agent its
Applicable Percentage of the payment then due from the Borrower, in the same
manner as provided in Section 2.06 with respect to Loans made by such Lender
(and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of
the Lenders), and the Administrative Agent shall promptly pay to the Issuing
Bank the amounts so received by it from the Lenders. Promptly following receipt
by the Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear. Any payment made by a Lender pursuant to
this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Revolving Loans as contemplated above) shall not constitute a
Loan and shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a
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right of setoff against, the Borrower's obligations hereunder. Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related
Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or wilful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Committed Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.12(d) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing
Bank shall be for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(b). From
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and after the effective date of any such replacement, (i) the successor Issuing
Bank shall have all the rights and obligations of the Issuing Bank under this
Agreement with respect to Letters of Credit to be issued thereafter and (ii)
references herein to the term "Issuing Bank" shall be deemed to refer to such
successor or to any previous Issuing Bank, or to such successor and all previous
Issuing Banks, as the context shall require. After the replacement of an Issuing
Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such
replacement, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent or the Required Lenders (or, if the maturity of
the Loans has been accelerated, Lenders with LC Exposure representing at least
51% of the total LC Exposure) demanding the deposit of cash collateral pursuant
to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. Such deposit shall be
held by the Administrative Agent as collateral for the payment and performance
of the obligations of the Borrower under this Agreement. The Administrative
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits, which investments shall be Permitted Investments
and shall be made at the Borrower's risk and expense, such deposits shall not
bear interest. Interest or profits, if any, on such investments shall accumulate
in such account. Moneys in such account shall be applied by the Administrative
Agent to reimburse the Issuing Bank for LC Disbursements for which it has not
been reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated (but
subject to the consent of Lenders with LC Exposure representing at least 51% of
the total LC Exposure), be applied to satisfy other obligations of the Borrower
under this Agreement. If the Borrower is required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, such
amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three Business Days after all Events of Default have been cured
or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, Houston, Texas time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
Houston, Texas and designated by the Borrower in the applicable Borrowing
Request or Competitive Bid Request; provided that ABR Revolving Loans made to
finance the reimbursement of an LC Disbursement as provided in Section 2.05(e)
shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative
<PAGE> 26
22
Agent such Lender's share of such Borrowing, the Administrative Agent may assume
that such Lender has made such share available on such date in accordance with
paragraph (a) of this Section and may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. In such event, if a Lender has
not in fact made its share of the applicable Borrowing available to the
Administrative Agent, then the applicable Lender and the Borrower severally
agree to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such
amount is made available to the Borrower to but excluding the date of payment to
the Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of the Borrower, the interest rate applicable to ABR Loans. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Committed Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Committed Borrowing, may elect
Interest Periods therefor, all as provided in this Section. The Borrower may
elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing. This Section shall
not apply to Competitive Borrowings which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were requesting a Revolving Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to clauses
(iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
<PAGE> 27
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(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term "Interest
Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Committed Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Committed Borrowing may be converted to or continued as a Eurodollar Borrowing
and (ii) unless repaid, each Eurodollar Committed Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments. (a)
Unless previously terminated, the Commitments shall terminate on the Revolving
Loan Maturity Date as provided in Section 2.02(e).
(b) The Borrower may at any time terminate, or from time to
time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $10,000,000
and (ii) the Borrower shall not terminate or reduce the Commitments if, after
giving effect to any concurrent prepayment of the Loans in accordance with
Section 2.10, the sum of the Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans would exceed the total
Commitments.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
(d) The Borrower may, at its sole expense and effort, upon
notice to any Lender and the Administrative Agent, require such Lender to assign
and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests, rights and
obligations under
<PAGE> 28
24
this Agreement (other than any outstanding Competitive Loans held by it) to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) for all
assignees that are not at the time of such assignment a Lender, the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Commitment is being assigned, the Issuing Bank), which consent shall not
unreasonably be withheld and (ii) such assigning Lender shall have received
payment of an amount equal to the outstanding principal of its Loans (other than
Competitive Loans) and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts).
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan on the Revolving Loan Maturity Date, unless the same are
converted to Term Loans, (ii) to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Competitive Loan on the
last day of the Interest Period applicable to such Loan, and (iii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Term Loan on the Final Maturity Date.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, subject to prior notice in
<PAGE> 29
25
accordance with paragraph (b) of this Section; provided that the Borrower shall
not have the right to prepay any Competitive Loan without the prior consent of
the Lender thereof.
(b) The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Committed Borrowing, not later than 11:00 a.m.,
Houston, Texas time, three Business Days before the date of prepayment, or (ii)
in the case of prepayment of an ABR Committed Borrowing, not later than 11:00
a.m., Houston, Texas time, one Business Day before the date of prepayment. Each
such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided
that, if a notice of prepayment is given in connection with a conditional notice
of termination of the Commitments as contemplated by Section 2.08, then such
notice of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.08. Promptly following receipt of any such notice
relating to a Committed Borrowing, the Administrative Agent shall advise the
Lenders of the contents thereof. Each partial prepayment of any Committed
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Committed Borrowing of the same Type as provided in Section 2.02.
Each prepayment of a Committed Borrowing shall be applied ratably to the Loans
included in the prepaid Borrowing. Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.12.
(c) If at any time the sum of the Revolving Credit Exposures
plus the aggregate principal amount of outstanding Competitive Loans is in
excess of the total Commitments, the Borrower shall immediately pay to the
Administrative Agent, for the account of the Banks, the amount of such excess to
be applied as a prepayment of the Revolving Loans and LC Disbursements
outstanding. Any such prepayment shall be payable in full on the date on which
the applicable reduction or termination of the Commitments pursuant to Section
2.08 becomes effective.
SECTION 2.11. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility fee, which shall
accrue at the Applicable Rate on the daily amount of the Commitment of such
Lender (whether used or unused) during the period from and including the date of
this Agreement to but excluding the date on which such Commitment terminates;
provided that, if such Lender continues to have any Committed Credit Exposure
after its Commitment terminates, then such facility fee shall continue to accrue
on the daily amount of such Lender's Committed Credit Exposure from and
including the date on which its Commitment terminates to but excluding the date
on which such Lender ceases to have any Committed Credit Exposure. Accrued
facility fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the date hereof;
provided that any facility fees accruing after the date on which the Committed
Loans have matured, whether by acceleration or otherwise, shall be payable on
demand. All facility fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).
(b) The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Committed Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which
<PAGE> 30
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such Lender's Commitment terminates and the date on which such Lender ceases to
have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall
accrue at the rate of 0.125% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure, as well as the Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on such day, commencing on
the first such date to occur after the Effective Date; provided that all such
fees shall be payable on the date on which the Commitments terminate and any
such fees accruing after the date on which the Commitments terminate shall be
payable on demand. Any other fees payable to the Issuing Bank pursuant to this
paragraph shall be payable within 10 days after demand. All participation fees
and fronting fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
facility fees and participation fees, to the Lenders. Fees paid shall not be
refundable under any circumstances.
SECTION 2.12. Interest. (a) The Loans comprising each ABR
Borrowing shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest (i) in the case of a Eurodollar Committed Loan, at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Applicable
Rate, or (ii) in the case of a Eurodollar Competitive Loan, at the LIBO Rate for
the Interest Period in effect for such Borrowing plus (or minus, as applicable)
the Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.
(e) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Commitments;
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27
provided that (i) interest accrued pursuant to paragraph (d) of this Section
shall be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than a prepayment of an ABR Committed Loan prior to the end of
the Availability Period), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment and (iii)
in the event of any conversion of any Eurodollar Committed Loan prior to the end
of the current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.
SECTION 2.13. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO
Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender
that is required to make such Loan) that the Adjusted LIBO Rate or the
LIBO Rate, as applicable, for such Interest Period will not adequately
and fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for
such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Committed Borrowing to, or
continuation of any Committed Borrowing as, a Eurodollar Borrowing shall be
ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving
Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any
request by the Borrower for a Eurodollar Competitive Borrowing shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
do not affect all the Lenders, then requests by the Borrower for Eurodollar
Competitive Borrowings may be made to Lenders that are not affected thereby and
(B) if the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.
SECTION 2.14. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
<PAGE> 32
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(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter
of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to increase the cost to
such Lender or the Issuing Bank of participating in, issuing or maintaining any
Letter of Credit or to reduce the amount of any sum received or receivable by
such Lender or the Issuing Bank hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as
the case may be, such additional amount or amounts as will compensate such
Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender's
or the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section and setting forth in reasonable detail the calculation
thereof shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate within 30 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such compensation;
provided that the Borrower shall not be required to compensate a Lender or the
Issuing Bank pursuant to this Section for any increased costs or reductions
incurred more than 90 days prior to the date that such Lender or the Issuing
Bank, as the case may be, notifies the Borrower of the Change in Law giving rise
to such increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 90-day period referred to above shall be extended to include the period of
retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section,
a Lender shall not be entitled to compensation pursuant to this Section in
respect of any Competitive Loan if the Change in Law that would otherwise
entitle it to such compensation shall have been publicly announced prior to
submission of the Competitive Bid pursuant to which such Loan was made.
<PAGE> 33
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SECTION 2.15. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on
the last day of an Interest Period applicable thereto (including as a result of
an Event of Default), (b) the conversion of any Eurodollar Loan other than on
the last day of the Interest Period applicable thereto, (c) the Borrower's
failure to borrow, convert, continue or prepay any Revolving Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice may be revoked under Section 2.10(b) and is revoked in accordance
therewith), (d) the Borrower's failure to borrow any Competitive Loan after
accepting the Competitive Bid to make such Loan, or (e) the assignment of any
Eurodollar Loan or Fixed Rate Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.08(d), then, in any such event, the Borrower shall compensate each
Lender for the loss, cost and expense attributable to such event. In the case of
a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section and setting forth in
reasonable detail the calculation thereof shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay such Lender
the amount shown as due on any such certificate within 30 days after receipt
thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on account
of any obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes
(including, without limitation, any Other Tax which Borrower is required to pay
pursuant to Section 2.16(a)(iii)) to the relevant Governmental Authority in
accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
each Lender and the Issuing Bank, within 20 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable and documented expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly
<PAGE> 34
30
or legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive
absent manifest error. To the extent that the Administrative Agent, any Lender,
or the Issuing Bank is reimbursed by a Governmental Authority and such
reimbursement is clearly identified as specifically relating to any Indemnified
Tax or Other Tax that was incorrectly or illegally asserted in connection with
this Agreement, such Person shall return to the Borrower the amount of such
reimbursement, together with any interest that may have been paid by the
Governmental Authority with respect thereto, to the extent the Borrower has
actually paid such Person with respect thereto.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Each of the Administrative Agent, Lenders, and the Issuing
Bank represents that it is either (i) a corporation organized under the laws of
the United States of America or any state thereof or (ii) it is entitled to
complete exemption from United States withholding tax imposed on or with respect
to any payments, including fees, to be made to it pursuant to this Agreement (A)
under an applicable provision of a tax convention to which the United States of
America is a party or (B) because it is acting through a branch, agency or
office in the United States of America and any payment to be received by it
hereunder is effectively connected with a trade or business in the United States
of America. Each of the Administrative Agent, Lenders, and the Issuing Bank that
is not a corporation organized under the laws of the United States of America or
any state thereof either represents that it has previously furnished to the
Borrower (with a copy to the Administrative Agent) or agrees to provide to the
Borrower (with a copy to the Administrative Agent) on the date of this
Agreement, or on the date which it becomes a party to this Agreement, two
accurate and complete original signed copies of either (1) Internal Revenue
Service Form 4224 (or successor form) certifying that all payments to be made to
it hereunder will be effectively connected to a United States trade or business,
(2) Internal Revenue Service Form 1001 (or successor form) certifying that it is
entitled to the benefit of a tax convention to which the United States of
America is a party which completely exempts from United States withholding tax
all payments to be made to it hereunder, or (3) such properly completed and
executed documentation prescribed by applicable law or reasonably requested by
the Borrower as will permit such payments to be made without withholding; and
each of the Administrative Agent, Lenders and Issuing Bank further agrees to
provide to Borrower, at the time or times prescribed by applicable law, such
properly completed and executed documentation prescribed by applicable law or
reasonably requested by the Borrower as will permit such payments to be made
without withholding. If any of the Administrative Agent, Lenders, or Issuing
Bank determines that it is unable to submit any form or certificate that it is
obligated to submit pursuant to this Section 2.16(e), or that is required to
withdraw or cancel any such form or certificate previously submitted, it shall
promptly notify the Borrower (with copy to the Administrative Agent) of such
fact. In the event that such person fails to deliver any forms required under
this Section 2.16(e) upon its initially becoming a party hereunder, the
Borrower's obligation to pay additional amounts shall be reduced to the amount
that it would have been obligated to pay had such forms been provided.
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(f) Any Lender claiming any additional amounts payable
pursuant to this Section 2.16 shall use its reasonable efforts to change the
jurisdiction of its lending office so as to avoid the imposition of any
Indemnified Taxes or Other Taxes or to otherwise eliminate the amount of any
such additional amounts which may thereafter accrue.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Sections 2.14, 2.15 or 2.16, or
otherwise) prior to 12:00 noon, Houston, Texas time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 600 Travis Street,
Houston, Texas, except payments to be made directly to the Issuing Bank as
expressly provided herein and except that payments pursuant to Sections 2.14,
2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Committed Loans or participations in LC Disbursements
resulting in such Lender receiving payment of a greater proportion of the
aggregate amount of its Committed Loans and participations in LC Disbursements
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Committed Loans and participations in LC
Disbursements of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective
Committed Loans and participations in LC Disbursements; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this paragraph shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under
<PAGE> 36
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applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Sections 2.05(d) or (e), 2.06(b) or 2.17(d), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.18. Mitigation Obligations. Each Lender will notify
the Borrower of any event occurring after the date of this Agreement which will
entitle such Lender to compensation pursuant to Sections 2.14, 2.15 and 2.16 as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation, provided that such Lender shall not be liable for the
failure to provide such notice. If any Lender requests compensation under
Section 2.14, or if the Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.16, then such Lender shall use reasonable efforts to avoid or minimize
the amounts payable, including, without limitation, the designation of a
different lending office for funding or booking its Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16,
as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender. The Borrower hereby agrees to pay all reasonable and documented costs
and expenses incurred by any Lender in connection with any such designation or
assignment.
SECTION 2.19. Limitation of Compensation if Applicable Lending
Office is Changed. Notwithstanding anything herein to the contrary, in the event
that any Lender designates a different lending office other than as set forth on
the signature pages hereof, the Borrower shall not be liable to pay or
compensate such Lender under any provision of Sections 2.14 or 2.16 in an amount
in excess of that for which the Borrower would have been liable had such
designation not been made unless such designation was made (1), so long as no
Default has occurred and is continuing, with the Borrower's prior written
consent or (2) by reason of such Lender's having been required by Section 2.18
to designate a new lending office.
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SECTION 2.20. Additional Loan Commitments. At any time on and
after the Effective Date and prior to the Revolving Loan Maturity Date, the
Borrower may request one or more Lenders, or other lending institutions, to
assume an additional Commitment ("Additional Commitment") and to make Committed
Loans to the Borrower as provided in Section 2.02 in the amount of such
Additional Commitment and in the sole discretion of each such Lender or other
lending institution, any such Lender or other lending institution may agree to
so commit; provided that (i) no Default or Event of Default then exists or would
result therefrom, (ii) each requested Additional Commitment shall be in an
amount equal to at least $5,000,000, and (iii) after giving effect to each such
increase, the sum of the total aggregate amount of the Lenders' Commitments does
not exceed $700,000,000; provided, that if the Borrower shall make any such
request of a lending institution that is not a Lender or an Affiliate of a
Lender at the time of such request, the Borrower shall obtain the prior written
consent of the Administrative Agent, which consent shall not be unreasonably
withheld. The Borrower and each such Lender or other lending institution (each
an "Assuming Lender") which agrees to assume an Additional Commitment shall
execute and deliver to the Administrative Agent an Additional Commitment
Assumption Agreement substantially in the form of Exhibit C (with the increase
in or, in the case of an Assuming Lender that is not then a Lender, assumption
of such Assuming Lender's Commitment to be effective upon delivery of such
Additional Commitment Assumption Agreement to the Administrative Agent). The
Administrative Agent shall promptly notify each Lender as to the occurrence of
each delivery to it of an Additional Commitment Assumption Agreement. Upon the
delivery to the Administrative Agent of each Additional Commitment Assumption
Agreement, (x) Schedule I to this Agreement shall be deemed to be modified to
reflect the Additional Commitments of such Assuming Lenders, (y) if requested by
such Assuming Lender, the Borrower shall deliver a promissory note in accordance
with the terms of Section 2.09(e) evidencing such Additional Commitments, and
(z) the Borrower shall pay to each such Assuming Lender such up front fee (if
any) as may have been agreed between the Borrower and such Assuming Lender.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and
its Material Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite corporate, partnership or other requisite power and authority to carry
on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions
are within the Borrower's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. This Agreement has
been duly executed and delivered by the Borrower and constitutes a legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting
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34
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require the Borrower or any Material Subsidiary to
obtain any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except such as have been obtained or made
and are in full force and effect, (b) will not violate any applicable law or
regulation or the charter, by-laws or other organizational documents of the
Borrower or any of its Material Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
material agreement or other instrument binding upon the Borrower or any of its
Material Subsidiaries or its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any of its Material
Subsidiaries, and (d) will not result in the creation or imposition of any Lien
on any asset of the Borrower or any of its Subsidiaries.
SECTION 3.04. No Material Adverse Change. At the Effective
Date, there has been no material adverse change in the financial condition,
operations or business of the Borrower and its Material Subsidiaries, taken as a
whole, since December 31, 1998.
SECTION 3.05. Litigation and Environmental Matters. (a) At the
Effective Date, there are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries that could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect.
(b) Except for any matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii) has
become subject to any Environmental Liability, (iii) has received notice of any
claim with respect to any Environmental Liability or (iv) knows of any basis for
any Environmental Liability.
SECTION 3.06. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
SECTION 3.07. Investment and Holding Company Status. Neither
the Borrower nor any of its Subsidiaries is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.08. Taxes. Each of the Borrower and its Subsidiaries
has timely filed or caused to be filed all Tax returns and reports required to
have been filed and has paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside
<PAGE> 39
35
on its books adequate reserves or (b) to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.09. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $50,000,000 the fair market value of the assets of such
Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$50,000,000 the fair market value of the assets of all such underfunded Plans.
SECTION 3.10. Financial Information. The Borrower has
disclosed to the Lenders all agreements, instruments and corporate or other
restrictions to which it or any of its Material Subsidiaries is subject, and all
other matters known to it (other than industry-wide risks normally associated
with the types of business conducted by the Borrower and its Subsidiaries) that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or other written information furnished by or on behalf of the Borrower to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) when considered as a whole contains any material
misstatement of fact or omits to state any material fact (other than industry
wide risks normally associated with the types of business conducted by the
Borrower and its Subsidiaries) necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading as of the
date made or deemed made; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time, it
being recognized by the Lenders that such projections as they relate to future
events are not to be viewed as fact and that actual results during the period or
periods covered by such projections may differ from the projected results set
forth therein by a material amount.
SECTION 3.11. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of (a) the Borrower's,
or any Material Subsidiary's, computer systems and (b) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which Borrower's, or any Material Subsidiary's, systems interface) and the
testing of all such systems and equipment, as so reprogrammed, will be completed
by October 31, 1999, except (i) the point-of-sale systems at less than 200 Q
Lube Stores which are in the process of being sold or converted to Jiffy Lube
point-of-sale systems, which sale/conversion process will be materially
completed by December 31, 1999, provided that those stores that are converted to
Jiffy Lube point-of-sale systems will be programed for proper functioning in and
following the year 2000 at the time of such conversion, and (ii) in connection
with immaterial computer systems and equipment containing embedded microchips
that are not necessary in primary lines of business. The cost to the Borrower
and its Material Subsidiaries of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Borrower will not result
in a Default or a Material Adverse Effect.
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ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders
to make the initial Loans and of the Issuing Bank to issue the initial Letters
of Credit hereunder shall not become effective until the date on which each of
the following conditions is satisfied (or waived in accordance with Section
9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this Agreement
signed on behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart of
this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Baker & Botts L.L.P., counsel for the Borrower, in the
form of Exhibit B. The Borrower hereby requests such counsel to deliver such
opinion.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel may
reasonably request on or before the Effective Date relating to the organization,
existence and good standing of the Borrower, the authorization of the
Transactions and any other legal matters relating to the Borrower, this
Agreement or the Transactions, all in form and substance reasonably satisfactory
to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a Vice
President or a Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 4.02.
(e) On or prior to November 16, 1999, The Administrative Agent
shall have received all fees and other amounts due and payable by the Borrower
on or prior to the Effective Date, including, to the extent invoiced at least 3
days prior to November 16, 1999, reimbursement or payment of all reasonable and
documented out-of-pocket expenses required to be reimbursed or paid by the
Borrower hereunder.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02).
SECTION 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing (which is not a conversion or a
continuation of a Loan as provided in Section 2.07), and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit which increases the LC
Exposure, is subject to the satisfaction of the following conditions (unless
waived in accordance with Section 9.02):
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(a) The representations and warranties of the Borrower set
forth in Article III of this Agreement (except those that by their terms are
limited to a specified date which shall be true and correct as of such specified
date) shall be true and correct on and as of the date of such Borrowing or the
date of issuance, amendment, renewal or extension of such Letter of Credit, as
applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.
Each such Borrowing and each such issuance, amendment, renewal or extension of a
Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired, terminated or
are fully cash collateralized and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Borrower will:
(a) make available on either the EDGAR System or its Home
Webpage, within five Business Days after filing the Annual Report on Form 10-K
of the Borrower for the fiscal year then ended with the Securities and Exchange
Commission, but in no event later than 120 days after the end of such fiscal
year, the financial statements for such fiscal year as contained in such Annual
Report on Form 10-K, and, as soon as it shall become available, the annual
report to shareholders of the Borrower for the fiscal year then ended;
(b) make available on either the EDGAR System or its Home
Webpage, within five Business Days after filing the Quarterly Report on Form
10-Q of the Borrower for the fiscal quarter of the Borrower then ended with the
Securities and Exchange Commission, but in no event later than 60 days after the
end of such fiscal quarter, copies of the financial statements for such fiscal
quarter as contained in such Quarterly Report on Form 10-Q, and, as soon as it
shall become available, the quarterly report to shareholders of the Borrower for
the fiscal quarter then ended;
(c) furnish to the Administrative Agent and with a copy for
each Lender, concurrently with making available the financial statements
referred to in clause (a) or (b) above, a certificate of a Financial Officer of
the Borrower certifying as to whether a Default has occurred and, if a Default
has occurred, specifying the details thereof and any action taken or proposed to
be taken with respect thereto;
<PAGE> 42
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(d) make available on either the EDGAR System or its Home
Webpage, promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by the
Borrower or any Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, under the Exchange Act;
(e) promptly following any request therefor, such other
information regarding the operations, business affairs and financial condition
of the Borrower or any Material Subsidiary, or compliance with the terms of this
Agreement, as the Administrative Agent or any Lender may reasonably request; and
(f) if, for any reason, the EDGAR System and its Home Webpage
are not available to the Borrower as required for making available the financial
statements or reports referred to in clauses (a), (b), and (d) above, then
furnish a copy of such financial statements or reports to the Administrative
Agent and with a copy for each Lender.
SECTION 5.02. Notices of Material Events. Upon any Financial
Officer obtaining knowledge thereof, the Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any Affiliate thereof that could reasonably be
expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, result in, or could reasonably
be expected to result in, a Material Adverse Effect;
(d) any other development that results in, or could reasonably
be expected to result in, a Material Adverse Effect; and
(e) the initial issuance of commercial paper supported by the
availability of Loan proceeds.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower
will, and will cause each of its Material Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges and franchises
used or useful in the conduct of its business, except where the failure to
preserve, renew and keep in full force and effect such rights, licenses,
permits, privileges and franchises could not reasonably be expected
<PAGE> 43
39
to result in a Material Adverse Effect; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 6.02.
SECTION 5.04. Payment of Obligations. The Borrower will, and
will cause each of its Material Subsidiaries to, pay its obligations, including
Tax liabilities, that, if not paid, could reasonably be expected to result in a
Material Adverse Effect before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, and for which the Borrower or such Material
Subsidiary has set aside on its books adequate reserves with respect thereto in
accordance with GAAP or (b) the failure to make payment pending such contest
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The
Borrower will, and will cause each of its Material Subsidiaries to, (a) keep and
maintain all property used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted; provided that the
foregoing shall not prohibit any sale, lease, transfer, merger, consolidation,
liquidation, or dissolution permitted under Section 6.02; and provided further,
that nothing in this Section 5.05 shall prevent the Borrower or any Subsidiary
from discontinuing the operation or maintenance of any property if such
discontinuance is, in the reasonable judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary, and (b) maintain,
with financially sound and reputable insurance companies, insurance in such
amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.
SECTION 5.06. Books and Records; Inspection Rights. The
Borrower will, and will cause each of its Material Subsidiaries to, keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities as
required by GAAP. The Borrower will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Administrative Agent or any Lender,
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers, directors and its independent
accountants, all at such reasonable times and as often as reasonably requested
provided however, that with respect to discussions with the Borrower's
independent accountants, the Borrower shall be given the opportunity to have a
representative present during such discussions; provided, further,
notwithstanding the provisions of Section 9.03 the Administrative Agent or the
Lender making such inspection and visitation hereby releases the Borrower, its
Affiliates, and their officers, directors, employees, and agents against any
claim for injury to the Administrative Agent or such Lender (or the
representatives thereof) during such inspection and visitation; provided,
further, that neither the Borrower nor any of its Subsidiaries shall be required
to disclose to the Administrative Agent, any Lender or any agents or
representatives thereof any information which is the subject of attorney-client
privilege or attorney's work-product privilege properly asserted by the
applicable Person to prevent the loss of such privilege in connection with such
information. The Borrower shall pay or reimburse the reasonable and documented
expenses of the inspections and visitations made by the Administrative Agent and
any Lender pursuant to this Section 5.06, except that such expenses shall not be
the responsibility of the Borrower more than once per calendar year, unless a
Default has occurred and is continuing at the time of the inspection and
visitation, in which case the Borrower shall pay or reimburse such expenses.
<PAGE> 44
40
SECTION 5.07. Compliance with Laws. The Borrower will, and
will cause each of its Material Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority (including, without
limitation, Environmental Laws) applicable to it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on the Borrower and its Material
Subsidiaries, taken as a whole.
SECTION 5.08. Use of Proceeds and Letters of Credit. The
proceeds of the Loans will be used only for general corporate purposes, to
provide back-up support for commercial paper issued by the Borrower and for the
issuance of Letters of Credit. No part of the proceeds of any Loan will be used,
whether directly or indirectly, for any purpose that entails a violation of any
of the Regulations of the Board, including Regulations U and X. Letters of
Credit will be issued only to support the general corporate requirements of the
Borrower and its Subsidiaries.
SECTION 5.09. Covenant for Cross-Default Provision. Prior to
the Borrower or any Material Subsidiary entering into any agreement containing a
Covenant Cross-Default Provision, the Borrower shall execute an instrument in
form reasonably satisfactory to the Administrative Agent agreeing that the
occurrence of any of the events or conditions that would result in an
Acceleration Right pursuant to the applicable Covenant Cross-Default Provision
shall also constitute an Event of Default under this Agreement. As used in this
Section, the term "Covenant Cross-Default Provision" means a provision in any
agreement to which the Borrower or any Material Subsidiary is subject and that
exists in connection with Material Indebtedness of the Borrower or any Material
Subsidiary, which provision grants to (a) the holder or holders of such Material
Indebtedness or any trustee or agent on its or their behalf an Acceleration
Right as to such Material Indebtedness as a result of the occurrence of any
event or condition (other than payment, including of principal or interest)
giving (b) a Third Party Lender an Acceleration Right with regard to Material
Indebtedness of the Borrower or any Material Subsidiary held by such Third Party
Lender; provided that (i) the Quaker State Cross Default provisions, and (ii)
provisions that provide that secured Indebtedness becomes due as a result of the
voluntary sale or transfer of the property or assets securing such Indebtedness,
shall not constitute Covenant Cross-Defaults Provisions hereunder. As used in
this Section, the term "Third Party Lender" means any holder or holders of
additional Material Indebtedness of the Borrower or any Material Subsidiary
other than the holder or holders of the Material Indebtedness referred to in
clause (a) above; provided that if any such additional Material Indebtedness is
held by a group of lenders that includes some but not all of the holders
referred to in clause (a) above, the entire group of such lenders (including the
lenders that are holders of both such Material Indebtedness obligations) shall
constitute Third Party Lenders. As used in this Section, the term "Acceleration
Right" means a contractual right that enables or permits the holder of holders
of Indebtedness or any trustee or agent on its or their behalf to cause such
Indebtedness to become due, or to require the prepayment, repurchase, redemption
or defeasance thereof, prior to its scheduled maturity.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired,
<PAGE> 45
41
terminated or are fully cash collateralized and all LC Disbursements shall have
been reimbursed, the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Liens. The Borrower will not, and will not
permit any Material Subsidiary to pledge, mortgage, hypothecate or grant a
security interest in, or permit any Lien upon, any property or assets owned by
the Borrower or any Material Subsidiary to secure any Indebtedness, without
making effective provision whereby the outstanding Loans shall (so long as such
other Indebtedness shall be so secured) be equally and ratably secured with any
and all such other Indebtedness and any other indebtedness similarly entitled to
be equally and ratably secured; provided, however, that this restriction shall
not apply to nor prevent the creation or existence of:
(a) any Lien upon any property or assets (together with
receivables and intangibles related to such property or assets and the cash
proceeds thereof) created at the time of the acquisition or construction of such
property or assets by the Borrower or any Material Subsidiary or within one year
after such time to secure all or a portion of the purchase price or construction
costs (or Indebtedness incurred to finance such purchase price or construction
costs) for such property or assets;
(b) any Lien upon any property or assets (together with
receivables and intangibles related to such property or assets and the cash
proceeds thereof) existing thereon at the time of the acquisition thereof by the
Borrower or any Material Subsidiary (whether or not the obligations secured
thereby are assumed by the Borrower or any Subsidiary);
(c) any Lien upon any property or assets (together with
receivables and intangibles related to such property or assets and the cash
proceeds thereof), whenever acquired, of any Person that becomes a Material
Subsidiary after the date hereof, provided that (i) the instrument creating such
Lien shall be in effect prior to the time such Person becomes a Material
Subsidiary and (ii) such Lien shall only apply to properties or assets (together
with receivables and intangibles related to such property or assets and the cash
proceeds thereof) owned by such Person at the time it becomes a Material
Subsidiary or thereafter acquired by it from sources other than the Borrower or
another Material Subsidiary;
(d) any extension, renewal or refunding of any Lien permitted
by Subsection (a), (b) or (c) above on substantially the same property or assets
theretofore subject thereto;
(e) any Lien in favor of the Borrower and any Lien created or
assumed by a Subsidiary in favor of another Subsidiary;
(f) any Lien created or assumed by the Borrower or a Material
Subsidiary in connection with the issuance of debt securities the interest on
which is excludable from gross income of the holder of such security pursuant to
the Internal Revenue Code of 1986, as amended, for the purpose of financing, in
whole or in part, the acquisition or construction of property or assets to be
used by the Borrower or a Subsidiary;
(g) any Lien securing any Indebtedness in an amount which,
together with all other Indebtedness secured by a Lien that is not otherwise
permitted by the provisions of this Section 6.01 does not at the time of the
incurrence of the Indebtedness so secured exceed 15% of Consolidated Net
<PAGE> 46
42
Tangible Assets of the Borrower and its Material Subsidiaries as at the end of
the most recent quarter; or
(h) any Lien existing in connection with any sale,
securitization or monetization of receivables or other rights to receive payment
of the Borrower and any of its Subsidiaries, so long as such sale,
securitization or monetization is treated as a sale pursuant to the Statement on
Financial Accounting Standards No. 125.
In case the Borrower or any Material Subsidiary shall propose to
pledge, mortgage, hypothecate or grant a security interest in any property or
assets owned by the Borrower or any Material Subsidiary to secure any
Indebtedness, other than as permitted by subdivisions (a) to (h), inclusive, of
this Section 6.01, the Borrower will prior thereto give written notice thereof
to the Administrative Agent, and the Borrower will, or will cause such Material
Subsidiary to, prior to or simultaneously with such pledge, mortgage,
hypothecation or grant of security interest, by executed instrument in form
satisfactory to the Administrative Agent, effectively secure (for so long as
such other Indebtedness shall be so secured) all the Loans equally and ratably
with such Indebtedness and with any other indebtedness similarly entitled to be
equally and ratably secured. Such instrument shall contain provisions concerning
the possession, control, release and substitution of mortgaged and pledged
property and Loans and other appropriate matters as the Borrower and the
Administrative Agent shall deem advisable or appropriate or as the
Administrative Agent shall deem necessary in connection with such pledge,
mortgage, hypothecation or grant of security interest.
For the purpose of this Section 6.01 the term "Lien" shall include the
interest of the lessor under a lease with a term of three years or more that
should be, in accordance with GAAP, recorded as a capital lease and incurred
after the Effective Date, and any such lease of property or assets not acquired
from the Borrower or any Material Subsidiary in contemplation of such lease
shall be treated as though the lessee had purchased such property or assets from
the lessor.
SECTION 6.02. Fundamental Changes. (a) The Borrower will not,
and will not permit any Material Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate with
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of related transactions) all or substantially all of its assets, or all
or substantially all of the stock of any of its Material Subsidiaries (in each
case, whether now owned or hereafter acquired), or liquidate or dissolve, except
that, if at the time thereof and immediately after giving effect thereto no
Default shall have occurred and be continuing (i) any Person may merge into or
consolidate with the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) the Borrower may merge into or consolidate with any
Person if the surviving Person is a domestic entity and expressly assumes the
obligations of the Borrower under this Agreement, (iii) the Borrower may sell,
transfer, lease or otherwise dispose of (in one transaction or in a series of
related transactions) all or substantially all of its assets to any Person if
the acquiring Person is a domestic entity and expressly assumes the obligations
of the Borrower under this Agreement or is a Wholly Owned Subsidiary of the
Borrower, (iv) any Person may merge into or consolidate with any Subsidiary in a
transaction in which the surviving entity is a Subsidiary, (v) any Subsidiary
may sell, transfer, lease or otherwise dispose of its assets to the Borrower or
to another Subsidiary and (vi) any Subsidiary may liquidate or dissolve if the
Borrower determines in good faith that such liquidation or dissolution is in the
best interests of the Borrower and is not materially disadvantageous to the
Lenders; provided that any such merger involving
<PAGE> 47
43
a Person that is not a Wholly Owned Subsidiary immediately prior to such merger
shall not be permitted unless also permitted by Section 6.03.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business that would change
the character of the business of the Borrower and its Subsidiaries, taken as a
whole, from that in existence on the Merger Date.
SECTION 6.03. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any of its Material
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a Wholly Owned Subsidiary prior to such merger) any
capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, if any such loan
advance, Guarantee, acquisition or investment would change the character of the
business of the Borrower and its Subsidiaries, taken as a whole, from that in
existence on the Effective Date.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when and as
the same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan
when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of five Business Days or the Borrower shall
fail to pay any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement, when and as the same
shall become due and payable, and such failure shall continue unremedied for a
period of fifteen Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of the Borrower or any Subsidiary in this Agreement shall prove to
have been incorrect in any material respect when made or deemed made;
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with respect
to the Borrower's existence) or 5.08 or in Article VI;
(e) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article), and such failure shall
continue unremedied for a period of 30 days after notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender);
<PAGE> 48
44
(f) the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and payable
after giving effect to any period of grace with respect thereto;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that results in any
Material Indebtedness being required to be prepaid, repurchased, redeemed or
defeased prior to its scheduled maturity; provided that this clause (g) shall
not apply to secured Indebtedness that becomes due as a result of the voluntary
sale or transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization or
other relief in respect of the Borrower or any Subsidiary that is not a De
Minimis Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower or any
Subsidiary that is not a De Minimis Subsidiary or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) the Borrower or any Subsidiary that is not a De Minimis
Subsidiary shall (i) voluntarily commence any proceeding or file any petition
seeking liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of this
Article, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower or any
Subsidiary that is not a De Minimis Subsidiary or for a substantial part of its
assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) the Borrower or any Subsidiary that is not a De Minimis
Subsidiary shall become unable, admit in writing its inability or fail generally
to pay its debts as they become due;
(k) one or more judgments by a court of competent jurisdiction
for the payment of money in an aggregate amount in excess of $50,000,000 in
excess of insurance in respect thereof shall be rendered against the Borrower,
any Subsidiary that is not a De Minimis Subsidiary or any combination thereof
and the same shall remain undischarged for a period of 45 consecutive days
during which execution shall not be effectively stayed, or any action shall be
legally taken (and not stayed) by a judgment creditor to attach or levy upon any
assets of the Borrower or any Subsidiary that is not a De Minimis Subsidiary to
enforce any such judgment; or
(l) an ERISA Event shall have occurred that when taken
together with all other ERISA Events that have occurred, could reasonably be
expected to result in a Material Adverse Effect;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative
<PAGE> 49
45
Agent may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the
Borrower described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrower accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 9.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Borrower or any of its Subsidiaries that is communicated to or obtained by the
bank serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable to the Lenders for any action taken
or not taken by it with the consent or at the request of the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 9.02) or in the absence of its own
gross negligence or wilful misconduct. The Administrative Agent shall be deemed
not to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrower or a Lender, and
<PAGE> 50
46
the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement, (ii) the contents of any certificate,
report or other document delivered hereunder or in connection herewith, (iii)
the performance or observance of any of the covenants, agreements or other terms
or conditions set forth herein, (iv) the validity, enforceability, effectiveness
or genuineness of this Agreement or any other agreement, instrument or document,
or (v) the satisfaction of any condition set forth in Article IV or elsewhere
herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable to the
Lenders for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right to appoint
a successor and, if there is no Default or Event of Default, the Borrower shall
have the right to consent, in writing, prior to the appointment of a successor,
provided that such consent shall not be unreasonably withheld. If no successor
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within 30 days after the retiring Administrative Agent gives
notice of its resignation, then the retiring Administrative Agent may, on behalf
of the Lenders and the Issuing Bank, appoint a successor Administrative Agent
which shall be a commercial bank having a combined capital and surplus of at
least $500,000,000 engaged or licensed to conduct banking business under the
laws of the United States or a state thereof with an office in New York, New
York, or an Affiliate of any such bank that maintains an office in the United
States and will administer this Agreement from such office. Upon the acceptance
of its appointment as Administrative Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 9.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents
<PAGE> 51
47
and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder. Each
Lender acknowledges that Vinson & Elkins L.L.P. is acting in the Transactions as
special counsel to the Administrative Agent only. Each Lender will consult with
its own legal counsel to the extent that is deems necessary in connection with
the Transactions.
None of the Documentation Agent, the Syndication Agent or any Co-Agent
shall have any duties or responsibilities hereunder in its capacity as such.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 700 Milam, Houston,
Texas 77002, Attention: Assistant Treasurer (Telecopy
No. (713) 546-6040);
(b) if to the Administrative Agent, to it at Chase Bank
of Texas, National Association, c/o Chase Securities
Inc., 600 Travis Street, 20th Floor, Houston, Texas
77002 Attention: Peter Licalzi, (Telecopy No. (713)
216-4117);
(c) if to the Issuing Bank, to it at Chase Bank of Texas,
National Association, 712 Main Street, Mezzanine
South, Houston, Texas 77002, Attention: Mary Ellen
Coffey (Telecopy No. (713) 216-4499); and
(d) if to any other Lender, to it at its address (or
telecopy number) set forth in its Administrative
Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
<PAGE> 52
48
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by
the Administrative Agent, the Issuing Bank or any Lender in exercising any right
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent, the Issuing Bank and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, or (v) change any of the provisions of this
Section or the definition of "Required Lenders" or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Issuing Bank hereunder without the prior written
consent of the Administrative Agent or the Issuing Bank, as the case may be.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The
Borrower shall pay (i) all reasonable and documented out-of-pocket expenses
incurred by the Administrative Agent and its Affiliates, including the
reasonable and documented fees, charges and disbursements of counsel for the
Administrative Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of this
Agreement or any amendments, modifications or waivers of the provisions hereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable and documented out-of-pocket expenses incurred
by the Issuing Bank in connection with the issuance, amendment, renewal or
extension of any Letter of Credit or any demand for payment thereunder and (iii)
all out-of-pocket expenses incurred by the Administrative Agent, the Issuing
Bank or any Lender, including the reasonable and documented fees, charges and
disbursements of any counsel for the Administrative Agent, the Issuing Bank or
any Lender, in connection with the enforcement or protection of its rights in
connection with this Agreement, including its rights under this Section, or in
connection with the Loans made or Letters of Credit issued hereunder, including
all such
<PAGE> 53
49
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) The Borrower shall indemnify the Administrative Agent, the
Issuing Bank and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable and documented fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use
of the proceeds therefrom (including any refusal by the Issuing Bank to honor a
demand for payment under a Letter of Credit if the documents presented in
connection with such demand do not strictly comply with the terms of such Letter
of Credit), (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of any Indemnitee or arise between Indemnitees.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent or the Issuing Bank under
paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent or the Issuing Bank, as the case may be, such Lender's
Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent or the Issuing Bank in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
(f) Each Indemnitee shall give prompt notice to the Borrower
of any claim for indemnification under this Section 9.03 by such Indemnitee and
shall consult with the Borrower in the conduct of such Indemnitee's legal
defense of such claim; provided, however, that an Indemnitee's failure to give
such prompt notice to the Borrower or to seek such consultation with the
Borrower shall not constitute a defense to any claim for indemnification by such
Indemnitee unless, and only to the extent that, such failure materially
prejudices the Borrower.
<PAGE> 54
50
SECTION 9.04. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby (including
any Affiliate of the Issuing Bank that issues any Letter of Credit), except that
the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be
null and void). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent (and, in the case of an
assignment of all or a portion of a Commitment or any Lender's obligations in
respect of its LC Exposure, the Issuing Bank) must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; and provided further that any consent of
the Borrower otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.14, 2.15, 2.16 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the
<PAGE> 55
51
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register"). The
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.17(c) as though it were a
Lender. Each Lender that sell participations pursuant to this Section 9.04(e)
shall deliver a notice of such participation setting forth the purchaser thereof
to the Borrower, provided that such Lender shall not be liable for the failure
to provide such notice.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14, 2.15 or 2.16 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant. A Participant that would be a Foreign Lender if it were a Lender
shall not be entitled to the benefits of Section 2.16 unless the Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as
though it were a Lender. Except as expressly provided in this Section 9.04(f),
no Participant shall be a third-party beneficiary of or have any rights under
this Agreement.
<PAGE> 56
52
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent, the Issuing Bank or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
or any Letter of Credit is outstanding and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.14, 2.15, 2.16, and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If: (i) an Event of Default
shall have occurred and be continuing (ii) the Loans shall have been declared
due and payable pursuant to the provisions of Article VII, each Lender and each
of its Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by such Lender
<PAGE> 57
53
or Affiliate to or for the credit or the account of the Borrower against any of
and all the obligations of the Borrower now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such obligations may be
unmatured. Each Lender exercising its right of setoff under this Section 9.08
agrees to notify promptly the Borrower after such setoff and application made by
such Lender, provided that the failure to give such notice shall not affect
either the validity of such setoff and application or the liability of such
Lender with respect thereto. The rights of each Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service
of Process. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent,
the Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement against the Borrower or its properties in
the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
<PAGE> 58
54
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative
Agent, the Issuing Bank and the Lenders agrees to maintain (and use reasonable
efforts to cause its respective agents and representatives to maintain) the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates' directors, officers, employees
and agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Borrower or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis from a source other
than the Borrower. For the purposes of this Section, "Information" means all
information received from the Borrower relating to the Borrower, its
Subsidiaries, its Affiliates or their respective businesses, other than any such
information that is available to the Administrative Agent, the Issuing Bank or
any Lender on a nonconfidential basis prior to disclosure by the Borrower. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information. The provisions of this Section 9.12 shall remain
operative and in full force and effect for a period of three years following the
expiration and termination of this Agreement.
SECTION 9.13. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
<PAGE> 59
55
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
PENNZOIL-QUAKER STATE COMPANY,
as Borrower
By /s/ LAURIE K. STEWART
-----------------------------------------
Name: Laurie K. Stewart
Title: Vice President and Treasurer
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
individually, as Issuing Bank and
as Administrative Agent
By /s/ RUSSELL A. JOHNSON
-----------------------------------------
Name: Russell A. Johnson
Title: Vice President
[Signature Page-1]
<PAGE> 60
CITIBANK, N.A.
individually and as Syndication Agent
By /s/ MARK STANFIELD PACKARD
-----------------------------------------
Name: Mark Stanfield Packard
Title: Vice President
BANK OF AMERICA, N.A.,
individually and as Documentation Agent
By /s/ JAMES R. ALLRED
-----------------------------------------
Name: James R. Allred
Title: Managing Director
BANK ONE, NA (Main Office Chicago)
By /s/ JEFF DALTON
-----------------------------------------
Name: Jeff Dalton
Title: Authorized Officer
DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
By /s/ ALEXANDER KAROW
-----------------------------------------
Name: Alexander Karow
Title: Assistant Vice President
By /s/ SUSAN L. PEARSON
-----------------------------------------
Name: Susan L. Pearson
Title: Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ DENNIS WILCZEK
-----------------------------------------
Name: Dennis Wilczek
Title: Associate
ROYAL BANK OF CANADA
By /s/ GIL J. BENARD
-----------------------------------------
Name: Gil J. Benard
Title: Senior Manager
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. ASHBY
-----------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
[Signature Page-2]
<PAGE> 61
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ DEBORAH SLUSARCZYK
-----------------------------------------
Name: Deborah Slusarczyk
Title: Vice President
By /s/ KEN HAMILTON
-----------------------------------------
Name: Ken Hamilton
Title: Senior Vice President
MELLON BANK, N.A.
By /s/ ROGER E. HOWARD
-----------------------------------------
Name: Roger E. Howard
Title: Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By /s/ J. ALAN ALEXANDER
-----------------------------------------
Name: J. Alan Alexander
Title: Vice President
BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By /s/ JOHN STACY
-----------------------------------------
Name: John Stacy
Title: Vice President
SUNTRUST BANK, ATLANTA
By /s/ DEBORAH S. ARMSTRONG
-----------------------------------------
Name: Deborah S. Armstrong
Title: Vice President
By /s/ RYAN SIMMONS
-----------------------------------------
Name: Ryan Simmons
Title: Officer
THE BANK OF NEW YORK
By /s/ HELEN L. SARRO
-----------------------------------------
Name: Helen L. Sarro
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ I. OTANI
-----------------------------------------
Name: I. Otani
Title: Deputy General Manager
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By /s/ FELICIA LA FORGIA
-----------------------------------------
Name: Felicia La Forgia
Title: Vice President
By /s/ THOMAS LEE
-----------------------------------------
Name: Thomas Lee
Title: Associate
[Signature Page-3]
<PAGE> 62
SCHEDULE 2.01
<TABLE>
<CAPTION>
============================================================================================================
LENDER COMMITMENT TITLE
============================================================================================================
<S> <C> <C>
Chase Bank of Texas, National Association $55,000,000 Administrative Agent
- ------------------------------------------------------------------------------------------------------------
Citibank, N.A. $55,000,000 Syndication Agent
- ------------------------------------------------------------------------------------------------------------
Bank of America, N.A. $55,000,000 Documentation Agent
- ------------------------------------------------------------------------------------------------------------
Bank One, NA $45,000,000 Managing Agent
- ------------------------------------------------------------------------------------------------------------
Deutsche Bank AG $45,000,000 Managing Agent
- ------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust Company of New York $45,000,000 Managing Agent
- ------------------------------------------------------------------------------------------------------------
Royal Bank of Canada $45,000,000 Managing Agent
- ------------------------------------------------------------------------------------------------------------
The Bank of Nova Scotia $45,000,000 Managing Agent
- ------------------------------------------------------------------------------------------------------------
Dresdner Bank AG $30,000,000 Co-Agent
- ------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. $30,000,000 Co-Agent
- ------------------------------------------------------------------------------------------------------------
Wells Fargo Bank (Texas), National Association $30,000,000 Co-Agent
- ------------------------------------------------------------------------------------------------------------
Banque Nationale de Paris $24,000,000
- ------------------------------------------------------------------------------------------------------------
SunTrust Bank $24,000,000
- ------------------------------------------------------------------------------------------------------------
The Bank of New York $24,000,000
- ------------------------------------------------------------------------------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd. $24,000,000
- ------------------------------------------------------------------------------------------------------------
Westdeutsche Landesbank Girozentrale $24,000,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 63
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Credit Agreement
dated as of November 16, 1999 (as amended and in effect on the date hereof, the
"Credit Agreement"), among Pennzoil - Quaker State Company, formerly known as
Pennzoil Products Company, the Lenders named therein and Chase Bank of Texas,
National Association, as Administrative Agent for the Lenders. Terms defined in
the Credit Agreement are used herein with the same meanings.
The Assignor named on the reverse hereof hereby sells and
assigns, without recourse, to the Assignee named on the reverse hereof, and the
Assignee hereby purchases and assumes, without recourse, from the Assignor,
effective as of the Assignment Date set forth on the reverse hereof, the
interests set forth on the reverse hereof (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement, including, without
limitation, the interests set forth on the reverse hereof in the Commitment of
the Assignor on the Assignment Date and Competitive Loans and Committed Loans
owing to the Assignor which are outstanding on the Assignment Date, together
with the participations in Letters of Credit and LC Disbursements held by the
Assignor on the Assignment Date, but excluding accrued interest and fees to and
excluding the Assignment Date. The Assignee hereby acknowledges receipt of a
copy of the Credit Agreement. From and after the Assignment Date (i) the
Assignee shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the Assigned Interest, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of
the Assigned Interest, relinquish its rights and be released from its
obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.17(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee
payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit
Agreement.
This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
Exhibit A--1
<PAGE> 64
("Assignment Date"):
<TABLE>
<CAPTION>
===========================================================================================================
Percentage Assigned of
Facility/Commitment (set forth,
to at least 8 decimals, as a
Principal Amount percentage of the
Assigned (and Facility and the aggregate
identifying information Commitments of all Lenders
as to individual thereunder)
Competitive Loans) -------------------------------
-----------------------
Facility
- --------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitment Assigned: $ %
- -----------------------------------------------------------------------------------------------------------
Committed Loans:
- -----------------------------------------------------------------------------------------------------------
Competitive Loans:
===========================================================================================================
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor] , as Assignor
By:
------------------------------------
Name:
Title:
[Name of Assignee] , as Assignee
By:
------------------------------------
Name:
Title:
Exhibit A--2
<PAGE> 65
The undersigned hereby consent to the within assignment:1/
Pennzoil - Quaker State Company, Chase Bank of Texas, National
as Borrower Association, as Administrative Agent,
By: By:
--------------------------------- -----------------------------------
Name: Name:
Title: Title:
Chase Bank of Texas, National
Association, as Issuing Bank
By:
---------------------------------
Name:
Title:
- -----------------
1/ Consents to be included to the extent required by Section 9.04(b) of
the Credit Agreement.
Exhibit A--3
<PAGE> 66
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
[Effective Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o Chase Bank of Texas, National Association, as
Administrative Agent
600 Travis Street
Houston, Texas 77002
Ladies and Gentlemen:
We have acted as counsel for Pennzoil-Quaker State Company, a
Delaware corporation formerly known as Pennzoil Products Company (the
"Borrower"), in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement dated as of November 16, 1999 (the "Credit
Agreement"), among the Borrower, the banks and other financial institutions
identified therein as Lenders, Chase Bank of Texas, National Association, as
Administrative Agent, Citibank, N.A., as Syndication Agent, and Bank of America,
N.A., as Documentation Agent. Terms defined in the Credit Agreement are used
herein with the same meanings. This opinion is furnished to you pursuant to
Section 4.01(b) of the Credit Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing and subject to the
qualifications set forth herein, we are of the opinion that:
1. The Borrower (a) is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and (b) has all requisite corporate power and authority to execute and deliver
the Credit Agreement and the promissory notes delivered in connection therewith
(collectively, the "Loan Documents") and to borrow Loans and obtain Letters of
Credit thereunder.
2. The execution and delivery of the Loan Documents and the
borrowing of Loans and the obtaining of Letters of Credit thereunder are within
the Borrower's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action. The Credit Agreement has been
duly executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
Exhibit B--1
<PAGE> 67
3. The execution and delivery of the Loan Documents and the
borrowing of Loans and the obtaining of Letters of Credit thereunder (a) do not
require the Borrower or any Subsidiary thereof to obtain any consent or approval
of, registration or filing with, or any other action by, any Governmental
Authority under federal or New York statutes or regulations or the General
Corporation Law of the State of Delaware, except such as have been obtained or
made and are in full force and effect, (b) will not breach any federal or New
York statute or regulation or the General Corporation Law of the State of
Delaware or the charter, by-laws or other organizational documents of the
Borrower or any of its Subsidiaries or, insofar as we are aware, any order of
any Governmental Authority, (c) insofar as we are aware, will not breach or
result in a default under any material indenture, agreement or other instrument
binding upon the Borrower or any of its Subsidiaries or its assets, or give rise
to a right thereunder to require any payment to be made by the Borrower or any
of its Subsidiaries, and (d) will not result in the creation or imposition of
any Lien on any asset of the Borrower or any of its Subsidiaries.
4. Neither the Borrower nor any of its Subsidiaries is (a) an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (b) a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.
5. Except as may be set forth in filings made by the Borrower
under the Securities Exchange Act of 1934, as amended, we do not know of any
action, suit or proceeding pending or threatened against the Borrower or any of
its Subsidiaries before any arbitrator or Governmental Authority (a) which is
material to the Borrower and its Subsidiaries viewed as a whole or (b) that
involves the Credit Agreement or the Transactions.
The foregoing opinions are subject to the following additional
assumptions and qualifications:
a. We have assumed the due organization and existence of all
parties to the Loan Documents other than the Borrower. We have also
assumed the corporate power and authority of all parties to the Loan
Documents other than the Borrower to execute and deliver, and to
consummate the transactions contemplated by, the Loan Documents to
which they are parties and the due authorization, execution and
delivery of the Loan Documents by all parties to the Loan Documents
other than the Borrower. Finally, we have assumed that the Loan
Documents constitute the legal, valid and binding obligations of all
parties thereto other than the Borrower and are enforceable against
such parties in accordance with their terms. We also express no opinion
as to whether the credit facilities contemplated in the Credit
Agreement comply with any statutory, regulatory or other debt limits
applicable to any member of the Lenders or comply with any other
statutes, laws, rules or regulations which prescribe permissible and
lawful investments for any member of the Lenders (either as to type,
amount, percentage of total investments or otherwise).
b. As to the opinions expressed in paragraph 1(a) as to the
existence and good standing of the Borrower, we have relied solely upon
certificates issued by the Office of the Secretary of State of the
State of Delaware.
c. Reference in this opinion to "our knowledge" or words of
similar import shall mean the conscious awareness of facts or other
information by the attorneys in this firm who
Exhibit B--2
<PAGE> 68
have participated in the negotiation and preparation of the Loan
Documents and the preparation of this opinion.
d. We express no opinion with respect to the following
provisions to the extent contained in the Credit Agreement: (i)
provisions purporting to affect the jurisdiction or venue of courts or
purporting to waive trial by jury; (ii) provisions releasing,
exculpating or exempting a party from, or requiring the indemnification
of a party for, liability for its own action or inaction, to the extent
that the same are inconsistent with public policy; (iii) provisions
that decisions by a party are conclusive; (iv) provisions purporting to
waive rights to notice, legal defenses, or other benefits that cannot
be waived under applicable law; (v) provisions granting powers of
attorney or authority to execute documents or to act by power of
attorney on behalf of any Person, (vi) provisions purporting to
establish any evidentiary standard or to waive either illegality as a
defense to the performance of contract obligations or any other defense
to the performance that cannot, as a matter of law, be effectively
waived; (vii) provisions purporting to sever provisions in the Credit
Agreement; (viii) provisions restricting access to legal or equitable
remedies; and (ix) provisions relating to delay or omissions of
enforcement of remedies, election of remedies or setoff. No opinion is
expressed herein as to the creation, perfection or priority of any lien
or security interest purported to be created by the Credit Agreement.
We are members of the bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States of America. This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other Person (other than your successors and assigns as
Lenders) without our prior written consent.
Very truly yours,
Exhibit B--3
<PAGE> 69
EXHIBIT C
[FORM OF]
ADDITIONAL COMMITMENT ASSUMPTION AGREEMENT
Pennzoil-Quaker State Company
700 Milam
Houston, Texas 77002
Re: Additional Commitment
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement
dated as of November 16, 1999 (as amended and in effect on the date hereof, the
"Credit Agreement"), among Pennzoil - Quaker State Company, formerly known as
Pennzoil Products Company, the Lenders named therein and Chase Bank of Texas,
National Association, as Administrative Agent for the Lenders. Terms defined in
the Credit Agreement are used herein with the same meanings.
We hereby commit to provide an Additional Commitment of
$_______________ (our "Commitment"), on the terms and subject to the conditions
set forth in the Credit Agreement.
[We (i) confirm that we have received a copy of the Credit
Agreement, together with copies of the financial statements referred to therein
and such other documents and information as we have deemed appropriate to make
our own credit analysis and decision to enter into this Additional Commitment
Assumption Agreement; (ii) agree that we will, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as we shall deem appropriate at the time, continue to
make our own credit decisions in taking or not taking action under the Credit
Agreement; (iii) appoint and authorize the Administrative Agent to take such
action as agent on our behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; [and] (iv) agree
that we will perform in accordance with their terms all of the obligations which
by the terms of the Credit Agreement are required to be performed by us as a
Lender[; and (v) attach the forms prescribed by the Internal Revenue Service of
the United States, certifying as to our entitlement to a complete exemption from
United States withholding taxes with respect to all payments to be made under
the Credit Agreement].1/ Upon the delivery of a fully executed original of this
Additional Commitment Assumption Agreement to the Administrative Agent, we shall
be a party to the Credit Agreement and, to the extent provided in this
Additional Commitment Assumption Agreement, have the rights and obligations of a
Lender thereunder with respect to our Commitment.]2/
- --------
1/ Insert bracketed language of clause (y) if the lending institution
is organized under the laws of a jurisdiction outside the United States.
2/ Insert bracketed language of the third paragraph if the lending
institution is not already a Lender.
Exhibit C--1
<PAGE> 70
You may accept this letter by signing the enclosed copies in
the space provided below, and returning one copy of same to us and delivering
one copy of same to the Administrative Agent before the close of business on
____________, ______. If you do not so accept this letter, our Commitment shall
be deemed canceled.
This Additional Commitment Assumption Agreement may only be
changed, modified or varied by written instrument signed by the undersigned and
the Borrower.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
[NAME OF ASSUMING LENDER]
By:
-----------------------------------------
Name:
Title:
The terms set forth above are hereby agreed to this __________ day of
__________________, ____:
PENNZOIL-QUAKER STATE COMPANY
By:
-----------------------------------------
Name:
Title:
Exhibit C--2
<PAGE> 71
The undersigned hereby consents to the above assumption:3/
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
as Administrative Agent,
By:
------------------------------------
Name:
Title:
- -----------------
3/ Consent to be included to the extent required by Section 2.20 of the
Amended & Restated Credit Agreement.
Exhibit C--3
<PAGE> 1
EXHIBIT 10.3
PENNZOIL-QUAKER STATE COMPANY
1999 LONG TERM PERFORMANCE INCENTIVE COMPENSATION PROGRAM
March 15, 1999
OVERVIEW
o The basic concept of the plan design is to target long-term incentive
values at market (e.g., 50th percentile pay for 50th percentile
performance, 55th percentile pay for 55th percentile performance, etc.).
The weighting of compensation delivered under different long-term devices
for senior management is as follows:
<TABLE>
<CAPTION>
% OF EXPECTED VALUE DELIVERED
PLAN ELEMENT BY DEVICE
------------ -----------------------------
<S> <C>
Stock Options 40%
Conditional Stock 20%
Long-Term Performance Plan 40%
Total 100%
</TABLE>
o The employees participating in this plan structure for 1999 are the
Executive Tier, Tiers E-1 through E-7 and Tier X-1.
o Pennzoil-Quaker State employees below those listed above will continue to
have the same mix of stock options and conditional stock used in 1998
(i.e., 70% stock options and 30% conditional stock).
o The remainder of this report discusses the following aspects of the
recommended long-term performance plan design:
- -- Plan objectives;
- -- Basic plan design concept;
- -- Eligibility;
- -- Performance measurement;
- -- Performance standards;
- -- Award opportunities;
- -- Plan payouts;
<PAGE> 2
- -- Retirement/terminations;
- -- Tax treatment;
- -- Accounting treatment;
- -- Plan administration;
- -- Plan costs; and
- -- Award calculations.
PLAN OBJECTIVES
o Motivate participants to achieve outstanding company performance relative
to peers.
o Enable Pennzoil-Quaker State to attract and retain key employees by having
this plan serve as part of a competitive total pay package.
o Be easy to administer.
o Be reasonable in terms of company cash requirements and overall cost.
o Provide a tax-effective means for the Company to help participants
accumulate capital on a tax-deferred basis.
BASIC PLAN DESIGN CONCEPT
o Under the plan, participants will be provided an opportunity to receive an
award payment based on Pennzoil-Quaker State's total shareholder return
relative to industry peers during overlapping 3-year cycles.
o New performance cycles begin every year following the year the plan is
established.
o In addition to the initial and ongoing awards with 3-year cycles, two
additional awards will be made in 1999. One of the additional awards will
have a 1-year cycle and the other additional award will have a 2-year
cycle. The award opportunity for a 1-year cycle award should be one-third
of the opportunity of a 3-year cycle award, while the award opportunity for
a 2-year cycle award should be two-thirds of the opportunity of a 3-year
cycle award. However, the performance measures and standards would be the
same. The reason for these additional awards is to keep total award
opportunities, in aggregate, competitive for the next three year period.
o The recommended performance/payout cycle relationship is shown in Exhibit
1.
2
<PAGE> 3
Exhibit 1
PENNZOIL-QUAKER STATE COMPANY
PERFORMANCE/PAYOUT CYCLE RELATIONSHIP
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
---- X
---------------------- X
---------------------------------------- X
-------------------------------------- X
-------------------------------------- X
--------------------------------------- X
</TABLE>
X = Award earned at end of year shown
3
<PAGE> 4
ELIGIBILITY
o Eligibility for the plan will be reviewed and determined annually by
Pennzoil-Quaker State's CEO and the Compensation Committee of
Pennzoil-Quaker State's Board.
o Plan participation will be extended to key executives that can directly
impact the long-term success of the Company.
o Based on the Company's business needs and competitive market practices,
plan eligibility will be limited to executives in Tiers E-1 through E-7,
and Tier X-1*.
PERFORMANCE MEASUREMENT
o The recommended plan performance measure is Pennzoil-Quaker State's total
shareholder return compared to the industry peers listed in Exhibit 2.
o Total shareholder return will be defined using the same method required in
the total shareholder return graph of the proxy statement. Specifically,
$100 invested in Pennzoil-Quaker State stock on the first day of the
performance cycle, with dividends reinvested, compared to $100 invested in
each of the peer companies, with dividend reinvestment during the same
period.
4
<PAGE> 5
Exhibit 2
PENNZOIL-QUAKER STATE COMPANY
LISTING OF PEER COMPANIES CONSIDERED FOR TSR
CALCULATIONS FOR LONG-TERM PERFORMANCE PLAN
Church & Dwight Inc. Newell
Clorox Oneida LTD
Colgate Palmolive Procter & Gamble
Dial Ralston Purina Co.
General Housewares Revlon Inc.
Kimberly-Clark Corp. Samsonite Corp.
Lancaster Colony Scotts Company
Libbey Inc. Sunbeam
5
<PAGE> 6
PERFORMANCE STANDARDS
o At the start of each new performance cycle, Pennzoil-Quaker State will
define threshold, target, and maximum performance on the total shareholder
return objective.
o The standards shown in the table below will be used for the 1999-2001
performance cycle and for the 1-year and 2-year cycle awards to be made in
1999.
<TABLE>
<CAPTION>
PENNZOIL-QUAKER STATE TSR
PERFORMANCE LEVEL DEFINITION RANKING RELATIVE TO PEERS*
----------------- ---------- --------------------------
<S> <C> <C>
Maximum Outstanding performance 3rd of 17 (88th %ile)
Target Expected or budgeted performance 8th of 17 (56th %ile)
Threshold** Minimal acceptable performance for incentive 13th of 17 (25th %ile)
payout
</TABLE>
* If mergers/acquisitions result in a reduction in the number of
peer companies during the cycle, these rankings will be converted
to equivalent percentiles to calculate awards.
** Pennzoil-Quaker State must also achieve a minimum actual total
shareholder return of 6% per year (averaged over the performance
cycle) before any payouts may be made under the plan.
6
<PAGE> 7
AWARD OPPORTUNITIES
o The long-term performance plan award opportunities for the plan eligible
positions (by performance level) are shown below.
<TABLE>
<CAPTION>
AWARDS AS % OF BASE SALARY, BY EXECUTIVE TIER*
CORPORATE ----------------------------------------------------------------------------------------------
PERFORMANCE E-7 E-6 E-5 E-4 E-3 E-2 E-1 X1
----------- --- --- --- --- --- --- --- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum 282% 240% 192% 162% 150% 129% 90% 75%
Target 94% 80% 64% 54% 50% 43% 30% 25%
Threshold 24% 20% 16% 14% 13% 11% 8% 6%
Below Threshold 0% 0 0 0 0 0 0 0
</TABLE>
o These award ranges are for each 3-year performance cycle and assume that a
new cycle is established each year.
o Awards for performance between stated levels would be calculated using the
awards matrix described later in this report.
* The long-term performance awards will be calculated using the
percentages shown in the table and the participant's base salary on
the last day of the applicable performance cycle. These award levels,
at target, represent market 55th percentile rates when combined with
recommended stock option and conditional stock awards.
PLAN PAYOUTS
o Payouts under the plan will be made as soon as possible after the
completion of each performance cycle.
o As a rule, the payouts will be made within three months after the
completion of the cycle.
o All awards typically will be paid as one-time lump-sum cash payments with
taxes withheld at a flat rate of 28%.
o Payouts under the plan are both savings and investment plan and retirement
plan eligible.
7
<PAGE> 8
RETIREMENT AND TERMINATIONS
o To receive an award under the plan, the participant must generally be
employed on the last day of the performance cycle.
o Exceptions to this policy will be made for retirement, long-term
disability, death, or involuntary termination during the cycle for reasons
other than cause, in which case the award will be prorated to reflect the
actual months of service during the cycle. Award payouts under these
exceptions would still be made at the end of the performance cycle.
TAX TREATMENT
o The employee will have to pay ordinary income tax on all awards when they
are paid to the participant (not when they are earned).
o The company will receive a tax deduction in the amount of income realized
by the participant in the year the award is paid.
ACCOUNTING TREATMENT
o The Company's projected obligation under the long-term performance cash
plan will be an expense that will be estimated and accrued periodically on
its financial statements.
PLAN ADMINISTRATION
o The plan will be administered by Pennzoil-Quaker State's CEO for all
positions except his own, in which case the Compensation Committee will
administer the plan.
o The Compensation Committee will be responsible for approving award
opportunities, performance measures, performance standards, and actual
award payments.
o Also, any modifications or amendments to the plan will be made at the sole
discretion of the Compensation Committee.
o In addition, the company will retain the right to terminate or modify the
plan at any time. (However, cycles that have already begun are a
contractual obligation of the company.)
8
<PAGE> 1
EXHIBIT 12.1
PENNZOIL-QUAKER STATE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before equity income from partnerships $ (46,772) $ 4,980 $ (4,948) $ (78,755) $(347,464)
Distribution of income from partnerships -- -- 4,359 32,888 26,533
Amortization of capitalized interest 337 575 1,292 1,904 1,510
Income tax provision (24,043) (1,103) 6,245 (38,338) (194,447)
Interest charges 79,632 73,468 80,167 90,552 111,786
--------- --------- --------- --------- ---------
Income before income tax provision
and interest charges $ 9,154 $ 77,920 $ 87,115 $ 8,251 $(402,082)
========= ========= ========= ========= =========
Fixed charges $ 82,677 $ 83,571 $ 87,608 $ 90,807 $ 111,786
========= ========= ========= ========= =========
Amount by which fixed charges exceed earnings $ 73,523 $ 5,651 $ 493 $ 82,556 $ 513,868
========= ========= ========= ========= =========
DETAIL OF INTEREST AND FIXED CHARGES
Interest charges per Consolidated Statement
of Income which includes amortization of
debt discount, expense and premium $ 63,861 $ 65,174 $ 69,221 $ 70,198 $ 80,588
Add: portion of rental expense
representative of interest factor (1) 18,816 18,397 18,387 20,609 31,198
--------- --------- --------- --------- ---------
Total fixed charges $ 82,677 $ 83,571 $ 87,608 $ 90,807 $ 111,786
Less: interest capitalized per Consolidated
Statement of Income 3,045 10,103 7,441 255 --
--------- --------- --------- --------- ---------
Total interest charges $ 79,632 $ 73,468 $ 80,167 $ 90,552 $ 111,786
========= ========= ========= ========= =========
</TABLE>
- --------------
(1) Interest factor based on management's estimates and approximates one-third
of rental expense.
<PAGE> 1
Exhibit 21.1
Subsidiaries and Affiliates of Pennzoil-Quaker State Company
as of December 31, 1999
<TABLE>
<CAPTION>
Ownership Domicile
--------- --------
<S> <C> <C>
Pennzoil-Quaker State Company n/a DELAWARE
Atlas Processing Company 100% DELAWARE
Excel Paralubes 50% TEXAS GP
Pennzoil Wax Partner Company 100% NEVADA
Bareco Products 50% S. CAROLINA GP
Penreco 50% TEXAS GP
Red River Terminals, L.L.C. 50% LOUISIANA LLC
Jiffy Lube International, Inc. 100% NEVADA
American Oil Change Corporation 100% DELAWARE
Heritage Merchandising Co., Inc. 100% VIRGINIA
Jiffy Lube International of Maryland, Inc. 100% MARYLAND
Lube Acquisition Corporation 100% DELAWARE
Lubricantes Pennzoil Argentina S.A. 99% ARGENTINA
Medo Industries Canada Ltd. 100% CANADA
Medo Industries de Mexico, S.A. de C.V. 99% MEXICO
Pennzoil Deutschland GmbH Mineralolvertrieb 100% GERMANY
Pennzoil Products International Company 100% MAURITIUS
Pennzoil India Limited 96.40% INDIA
Pennzoil Products South Africa (PTY) Ltd. 77.49% SOUTH AFRICA
Pennzoil-Quaker State International Corporation 100% DELAWARE
Pennzoil Products Company de Mexico 100% NEVADA
Pennzoil-Quaker State Asia Pacific Company 100% NEVADA
Pennzoil-Quaker State Australia Company 100% NEVADA
Pennzoil-Quaker State Benelux Company 100% NEVADA
Pennzoil-Quaker State Canada Holding Company 100% DELAWARE
Pennzoil-Quaker State Canada Company 100% NOVA SCOTIA
Quaker State Japan Co., Ltd. 100% JAPAN
Pennzoil-Quaker State Investment Company 100% DELAWARE
Blue Coral, Inc. 100% DELAWARE
Blue Coral-Slick 50, Inc. 100% DELAWARE
Petrolon International Limited 100% ISLE OF MAN
Pennzoil-Quaker State, Limited 100% UNITED KINGDOM
Petrolon Europe Limited 99.4% ISLE OF MAN
Quaker State France S.A. 90.929% FRANCE
Medo Industries, Inc. 100% NEW YORK
Q Lube, Inc. 100% DELAWARE
Pennzoil-Quaker State Mediterraneo, S.L. 100% SPAIN
Pennzoil Receivables Company 100% DELAWARE
PZ Shareowner Services, Inc. 100% DELAWARE
Quaker State Corporation 100% DELAWARE
Quaker State France S.A. 9.07% FRANCE
Quaker State Investment Corporation 100% DELAWARE
The Valley Camp Coal Company 100% DELAWARE
Donaldson Mine Company 100% WEST VIRGINIA
Elm Grove Coal Company 100% WEST VIRGINIA
The Helen Mining Company 100% PENNSYLVANIA
Kanawha and Hocking Coal and Coke Company 100% WEST VIRGINIA
Kelley's Creek and Northwestern Railroad Company 100% WEST VIRGINIA
Shrewsbury Coal Company 100% WEST VIRGINIA
Valley Camp of Utah, Inc. 100% UTAH
Valley Camp, Inc. 100% CANADA
Rain-X Corporation 100% ARIZONA
Savannah Company Limited 100% BERMUDA
South Penn Oil Company 100% DELAWARE
Specialty Environmental Services of Texas, Inc. 50% TEXAS
Viscosity Oil of Canada Ltd. 100% CANADA
Wolf's Head Oil Refining Company, Incorporated 100% DELAWARE
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 29, 2000, included in this Form 10-K, into
Pennzoil-Quaker State Company's previously filed Registration Statements on Form
S-8 Nos. 333-69833, 333-69835, 333-69839, 333-69837, 333-72835, 333-96385 and on
Form S-3 No. 333-65909.
ARTHUR ANDERSEN LLP
Houston, Texas
March 3, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-69833, 333-69835, 333-69839, 333-69837,
333-72835, and 333-96385) and on Form S-3 (No. 333-65909) of the Pennzoil-Quaker
State Company of our report dated February 10, 2000 relating to the financial
statements of Excel Paralubes, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Houston, Texas
March 3, 2000
<PAGE> 1
EXHIBIT 24.1
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Howard H. Baker, Jr.
Howard H. Baker, Jr.
<PAGE> 2
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ W.L. Lyons Brown, Jr.
W.L. Lyons Brown, Jr.
<PAGE> 3
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Ernest H. Cockrell
Ernest H. Cockrell
<PAGE> 4
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Alfonso Fanjul
Alfonso Fanjul
<PAGE> 5
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Forrest R. Haselton
Forrest R. Haselton
<PAGE> 6
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Charles Berdon Lawrence
Berdon Lawrence
<PAGE> 7
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ James Postl
James J. Postl
<PAGE> 8
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
9th day of March, 2000.
/s/ Terry L. Savage
----------------------------------------
Terry L. Savage
<PAGE> 9
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Brent Scowcroft
Brent Scowcroft
<PAGE> 10
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ Gerald B. Smith
Gerald B. Smith
<PAGE> 11
PENNZOIL-QUAKER STATE COMPANY
POWER OF ATTORNEY
WHEREAS, PENNZOIL-QUAKER STATE COMPANY, a Delaware corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "Act"),
an Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as
prescribed by the Commission pursuant to the act and the rules and regulations
of the Commission promulgated thereunder, with such amendments, supplements or
appendices thereto as may be necessary or appropriate, together with any and all
exhibits and other documents having relation to said Annual Report;
NOW, THEREFORE, the undersigned in his capacity as a director or officer,
or both, as the case may be, of the Company, does hereby appoint MICHAEL J.
MARATEA, LAURIE K. STEWART and JAMES L. PATE and each of them severally, his
true and lawful attorney or attorneys with power to act with or without the
others, and with full power of substitution and resubstitution, to execute in
his name, place and stead, in his capacity as a director or officer, or both, as
the case may be, of the Company, said Annual Report and any and all amendments,
supplements or appendices thereto as said attorneys or any of them shall deem
necessary or incidental in connection therewith and to file the same or cause
the same to be filed with the Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
8th day of March, 2000.
/s/ L. Waxlax
Lorne R. Waxlax
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 20,155
<SECURITIES> 0
<RECEIVABLES> 331,157
<ALLOWANCES> 18,837
<INVENTORY> 298,202
<CURRENT-ASSETS> 686,038
<PP&E> 1,751,345
<DEPRECIATION> 1,249,244
<TOTAL-ASSETS> 2,733,221
<CURRENT-LIABILITIES> 369,403
<BONDS> 1,094,939
0
0
<COMMON> 7,829
<OTHER-SE> 942,039
<TOTAL-LIABILITY-AND-EQUITY> 2,733,221
<SALES> 2,951,356
<TOTAL-REVENUES> 2,988,932
<CGS> 2,182,632
<TOTAL-COSTS> 2,182,632
<OTHER-EXPENSES> 140,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,588
<INCOME-PRETAX> (515,378)
<INCOME-TAX> (194,447)
<INCOME-CONTINUING> (320,931)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (320,931)
<EPS-BASIC> (4.12)
<EPS-DILUTED> (4.12)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
EXCEL PARALUBES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Excel Paralubes
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of Excel
Paralubes (the Partnership) at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Notes 7 and 10 to the consolidated financial statements, the
Partnership has significant transactions with its partners.
PricewaterhouseCoopers LLP
Houston, Texas
February 10, 2000
<PAGE> 3
EXCEL PARALUBES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 444,598 $ 587,935
Accounts receivable - related parties 54,309,277 39,704,186
Inventory 11,405,294 12,176,257
Other current assets 1,077,024 804,666
------------- -------------
Total current assets 67,236,193 53,273,044
Property, plant and equipment, net 395,742,089 406,348,515
Intangible assets and deferred charges, net 34,147,022 36,414,904
------------- -------------
$ 497,125,304 $ 496,036,463
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities -
related party $ 5,865,824 $ 5,766,179
Short-term notes payable 84,501,000 69,200,000
Interest payable 5,945,833 5,945,833
------------- -------------
Total current liabilities 96,312,657 80,912,012
Long-term debt 490,000,000 490,000,000
Long-term liabilities 33,888,637 28,765,025
Partners' deficit (123,075,990) (103,640,574)
------------- -------------
$ 497,125,304 $ 496,036,463
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
EXCEL PARALUBES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Net sales-related parties $ 306,353,812 $ 269,663,968 $ 254,726,101
Processing fees-related party 9,675,680 9,665,420 9,662,000
Other 354,370 433,563
------------- ------------- -------------
Total revenues 316,029,492 279,683,758 264,821,664
------------- ------------- -------------
Costs and expenses:
Cost of goods sold - related party 196,893,691 145,882,471 164,487,535
Operating expense 46,798,951 47,712,610 48,549,398
General and administrative expense 1,098,486 1,064,681 1,057,665
Project construction expenses 368,532
Depreciation and amortization 17,661,409 17,281,029 17,738,395
Interest expense 38,888,051 38,046,184 38,133,795
Taxes other than Income 124,320 208,663 163,284
------------- ------------- -------------
Total costs and expenses 301,464,908 250,195,638 270,498,604
------------- ------------- -------------
Net Income (loss) $ 14,564,584 $ 29,488,120 $ (5,676,940)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
EXCEL PARALUBES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ATLAS
CONOCO, PROCESSING
INC. CO. TOTAL
<S> <C> <C> <C>
Balance, December 31, 1996 $ (34,350,877) $ (34,350,877) $ (68,701,754)
Contributions 12,500,000 12,500,000 25,000,000
Distributions (12,700,000) (12,700,000) (25,400,000)
Net loss for the year ended
December 31, 1997 (2,838,470) (2,838,470) (5,676,940)
------------- ------------- -------------
Balance, December 31, 1997 (37,389,347) (37,389,347) (74,778,694)
Distributions (29,175,000) (29,175,000) (58,350,000)
Net income for the year ended
December 31, 1998 14,744,060 14,744,060 29,488,120
------------- ------------- -------------
Balance, December 31, 1998 (51,820,287) (51,820,287) (103,640,574)
Distributions (17,000,000) (17,000,000) (34,000,000)
Net income for the year ended
December 31, 1999 7,282,292 7,282,292 14,564,584
------------- ------------- -------------
Balance, December 31, 1999 $ (61,537,995) $ (61,537,995) $(123,075,990)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
EXCEL PARALUBES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,564,584 $ 29,488,120 $ (5,676,940)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 17,661,409 17,281,029 17,738,395
(Increase) decrease in accounts
receivable (14,605,091) 2,011,862 (21,565,500)
(Increase) decrease in inventory 770,963 1,721,292 (3,544,858)
Increase in other current assets (272,358) (18,924) (49,193)
Increase (decrease) in accounts
payable and accrued liabilities 99,645 (17,105,118) (12,023,980)
Increase in interest payable 190,000
Increase in long-term liabilities 5,123,612 11,601,197 11,913,828
Other, net 56,955 (48,069)
------------- ------------- -------------
Net cash provided by (used in)
operating activities 23,342,764 45,036,413 (13,066,317)
------------- ------------- -------------
Cash flows from investing activities:
Additions to property, plant
and equipment (4,787,101) (2,557,498) (10,602,742)
Acquisition of license agreements (8,260,140)
Proceeds from sale of asset 12,500 1,286,759
------------- ------------- -------------
Net cash used in investing activities (4,787,101) (2,544,998) (17,576,123)
------------- ------------- -------------
Cash flows from financing activities:
Cash distributions to partners (34,000,000) (58,350,000) (25,400,000)
Cash contributions from partners 25,000,000
Net proceeds from issuance of
commercial paper 15,301,000 16,400,000 31,000,000
------------- ------------- -------------
Net cash provided by (used in)
financing activities (18,699,000) (41,950,000) 30,600,000
------------- ------------- -------------
Net increase (decrease) in cash (143,337) 541,415 (42,440)
Cash balance at beginning of year 587,935 46,520 88,960
------------- ------------- -------------
Cash balance at end of year $ 444,598 $ 587,935 $ 46,520
============= ============= =============
Supplementary cash flow information:
Cash paid for interest $ 39,160,407 $ 38,096,674 $ 37,943,795
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION
Excel Paralubes (Excel or the Partnership), a general partnership, was
formed pursuant to the laws of the state of Texas on August 2, 1994 and was
created for the purpose of constructing and operating a $500 million lube
oil hydrocracker facility. Excel is a partnership which is equally owned by
Conoco Inc. (Conoco) and Atlas Processing Company (Atlas Processing), a
100%-owned subsidiary of Pennzoil-Quaker State Company (Pennzoil). Excel
Paralubes Funding Corporation (Excel Funding), a Delaware corporation, was
formed to execute and administer the financing arrangements of the
Partnership and is a wholly-owned subsidiary of Excel.
As more fully described in Notes 7 and 10, Excel and its partners have
entered into several long-term purchase and supply contracts, processing
agreements and partner guarantees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles.
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Excel and its
wholly-owned subsidiary. All Intercompany accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash consists of cash on deposit at financial institutions and cash
equivalents in the form of time deposits with original maturities of three
months or less. There were time deposits of $244,000 and $387,000 at
December 31, 1999 and 1998, respectively.
INVENTORIES
Inventories consist principally of feedstocks. All inventories are valued
at lower of cost or market, cost being determined by the last-in,
first-out (LIFO) method. The total LIFO reserves required at December 31,
1999 and 1998 were $1,376,006 and $5,591,252, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and consists primarily of
roads, parking lots, buildings, furniture and refining equipment in
service at year end. Property, plant and equipment is being depreciated on
a straight-line basis principally over 28 years, the estimated life of the
assets.
CATALYST RECLAMATION AND TURNAROUND COSTS
Catalyst reclamation and turnaround costs are accrued as long-term
liabilities over the period between reclamations and turnarounds based on
estimates of the scope and the future costs for these activities.
-1-
<PAGE> 8
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges consist of license fees, deferred
bond termination fees and debt issue costs. License fees are being
amortized on a straight-line basis principally over the life of the license
agreement. Deferred bond termination fees and debt issue costs are being
amortized over the life of the bonds using a method which approximates the
interest method. Intangible assets are reassessed annually to determine
whether any potential impairment exists.
REVENUE RECOGNITION
Revenues from the sale of base oil and co-products are recognized in the
period of delivery.
OPERATING COSTS
Operating costs are expensed as incurred and consist primarily of labor,
utilities, maintenance, turnaround accruals, catalyst replacement, pilot
plant, environmental remediation, land rental and other miscellaneous
costs associated with operating the hydrocracker facility.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are recorded in operating expenses
and primarily represent pilot plant costs surrounding the operating
activities of the hydrocracker facility. For the years ended December 31,
1999, 1998, 1997, Excel recorded $1,371,836, $1,029,216, and $763,943,
respectively, for research and development expenditures.
INCOME TAXES
Excel is treated as a tax partnership under the provisions of Subchapter K
of the Internal Revenue Code. Accordingly, the accompanying financial
statements do not reflect a provision for income taxes since Excel's
results of operations and related credits and deductions will be passed
through to and taken into account by its partners in computing their
respective tax liabilities. No income taxes have been recorded for Excel's
wholly-owned subsidiary as it has had no taxable income or temporary
differences since its inception.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated.
CONCENTRATION OF RISK
All of Excel's trade receivables are from Conoco and Atlas Processing.
Although collection of these receivables could be influenced by economic
factors affecting the petroleum industry, the risk of significant loss is
considered remote.
-2-
<PAGE> 9
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 is summarized
below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Plant and equipment $ 416,665,463 $ 413,618,376
Buildings 6,673,213 6,673,213
Improvements 17,241,508 17,241,508
Office furniture and equipment 1,710,774 1,700,343
Construction in progress 2,462,020 732,508
------------- -------------
444,752,978 439,965,948
Less - accumulated depreciation 49,010,889 33,617,433
------------- -------------
$ 395,742,089 $ 406,348,515
============= =============
</TABLE>
Depreciation expense was $15,014,760, $15,439,073 and $15,049,612 for the
years ended December 31, 1999, 1998 and 1997, respectively.
4. INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges at December 31, 1999 and 1998 are
summarized below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
License fees $ 27,650,202 $ 27,650,202
Deferred bond termination fees (Note 6) 6,756,133 6,756,133
Debt issue costs 7,339,309 7,339,309
------------- -------------
41,745,644 41,745,644
Less - accumulated amortization 7,598,622 5,330,740
------------- -------------
$ 34,147,022 $ 36,414,904
============= =============
</TABLE>
Amortization cost associated with intangible assets and deferred charges
was $2,267,882, $2,231,417 and $2,299,322 in 1999, 1998 and 1997,
respectively.
5. DEBT
On November 5, 1996, Excel Funding issued $240 million of 7.125% senior
bonds. These bonds are due in 2011 with interest payable on May 1 and
November 1 each year. The first interest payment was paid on May 1, 1997
and the first principal payments of $1,828,800 are due on May 1 and
November 1, 2001. Proceeds were applied to repay outstanding short-term
borrowings of $202 million and to finance operations through December 1996.
-3-
<PAGE> 10
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
On November 6, 1995, Excel Funding issued $250 million of 7.43% senior
bonds. These bonds are due in 2015 with interest payable on May 1 and
November 1 each year. The first interest payment was paid on May 1, 1996
and the first principal payments of $19,375,000 are due on May 1 and
November 1, 2011. Proceeds were applied to repay outstanding short-term
borrowings of $201 million and to finance operations through December 1995.
Maturities of Excel's senior bonds are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
<S> <C>
2001 $ 3,657,600
2002 13,348,800
2003 15,691,200
2004 20,073,600
2005 21,734,400
Thereafter 415,494,400
-------------
$ 490,000,000
=============
</TABLE>
Recourse under the bonds is limited to the revenues and assets of Excel.
Certain restrictive covenants may limit the ability of Excel to incur debt,
make distributions to the partners, make investments or create liens.
On May 22, 1995, Excel entered into a variable rate $300 million line of
credit with a syndicate of banks which was reduced to $145 million during
1997. The line of credit was extended through May 1999. At December 31,
1999 and 1998, the line of credit remained unused. This credit facility is
intended for support of commercial notes. Through the credit facility, the
commercial notes can be converted to term loans with the related bank
syndicate at the Company's discretion for a period not to exceed one year.
On June 21, 1995, Excel began issuing commercial paper as short-term
financing for the construction of the lube oil hydrocracker. Additional
commercial paper was sold during 1999 and 1998. The weighted-average
interest rate on the $84.5 million and $69.2 million of commercial paper
outstanding at December 31, 1999 and 1998, respectively, was 6.5%.
Interest costs incurred in 1999, 1998 and 1997 totaled $38,888,051,
$38,046,184 and $38,133,795, respectively. Interest costs incurred during
the period required to bring assets to the condition and location for their
intended use are capitalized as part of acquisition costs. In 1999, 1998
and 1997, there were no interest costs capitalized.
6. DERIVATIVES AND OTHER HEDGING INSTRUMENTS
Excel Funding entered into certain forward treasury contracts as part of
its program to hedge the interest rate risk related to the 1995 senior bond
offering. These contracts were primarily forward contracts with a syndicate
of investment banks to sell 30-year treasury
-4-
<PAGE> 11
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
bonds at 7.625%. On October 30, 1995, Excel Funding locked in the
lower rate of 7.43% on the issuance of $250 million of senior bonds
and, hence, terminated the contracts for a fee of approximately $6.7
million. Excel Funding capitalized the termination fee as a deferred
asset and is amortizing the balance over the life of the bonds as an
adjustment to interest expense. Deferred bond termination fees
amortized during 1999, 1998, and 1997 were $378,767, $378,769 and
$378,767, respectively.
7. RELATED PARTY TRANSACTIONS
One of Excel's partners, Conoco, has been designated as the operator
of the partnership and, in that capacity, provides substantially all
technical and administrative assistance and services in connection
with Excel's operations. Charges for these services were approximately
$9,700,000, $9,400,000 and $8,400,000 during 1999, 1998 and 1997,
respectively, and are included in administrative expenses and
operating costs. Included in such charges are the costs of the
operators' salaries and wages, which include related benefits such as
pensions and other postretirement benefits, allocable to Excel. Excel
has no employees.
Excel and Conoco have joint ownership of certain processing units
constructed at or adjacent to Conoco's Lake Charles Refinery. Variable
costs associated with certain of these units are allocated on the
basis of usage. Fixed costs are allocated based on the ownership
percentage of the applicable units.
As operator, Conoco is responsible for processing and paying Excel's
invoices. Disbursements made by the partner on Excel's behalf are
reimbursed semimonthly by Excel. At December 31, 1999 Excel had
prepaid Conoco by a net amount of $1,050,692. This amount will be used
to offset future amounts owed Conoco. Such amounts due Conoco totaled
$3,326,797 at December 31, 1998.
On May 12, 1995, Excel entered into a long-term sale and purchase
agreement whereby Conoco and Atlas Processing have agreed to purchase
from Excel all base oil production (within certain specifications) and
at least the amount taken by the other party, up to a maximum of 50%
each of Excel's expected output, at a market-based price (less an
annual rebate which is subordinate in right of payment to the senior
debt of Excel). If either Conoco or Atlas Processing fails to purchase
its required amount of Excel's output, that party is obligated to pay
to Excel the amount that Excel would have earned had the party made
such purchases. Base oil sales made to the partners, net of rebates,
were $213,887,942, $198,884,886 and $166,093,946 for 1999, 1998 and
1997, respectively.
Excel and Conoco entered into a long-term sale and purchase agreement
dated May 12, 1995 which requires Conoco to purchase all co-products
(within certain specifications) produced by Excel, with the exception
of sulfur, at market-based prices as specified in the agreement.
Co-product sales made to Conoco were $90,300,000, $70,779,082 and
$87,499,331 during 1999, 1998 and 1997.
On May 12, 1995, Excel and Conoco entered into a long-term feedstock
sale and purchase agreement whereby Excel agrees to purchase from
Conoco all of the required volume of vacuum gas oil (VGO) and hydrogen
needed by the hydrocracker facility. These feedstocks must meet
certain quality specifications and are purchased at a market-based
price as specified in the agreement. Feedstocks purchased by Excel
under the
-5-
<PAGE> 12
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
agreement were $196,122,727, $143,959,735 and $168,032,993 during 1999,
1998 and 1997, respectively.
Excel and Conoco entered into long-term processing agreements dated May 12,
1995 which require Conoco to pay processing fees for the use of the vacuum
unit and hydrogen supply facilities. The fee for the vacuum unit is equal
to $1.50 for each barrel of VGO produced from the unit, not to exceed
$6,740,000 in any one year. Fees for the hydrogen supply facilities are
$23,000 per day for each day the facilities are utilized, not to exceed
$4,202,000 in any one year. Processing fees received for these facilities
were $9,675,680, $9,665,420 and $9,662,000 during 1999, 1998 and 1997,
respectively.
In accordance with a long-term agreement between Excel and Conoco dated
October 24, 1994, Excel agreed to pay Conoco a fixed monthly fee of $58,850
for use of Conoco's wastewater facility. The fee was increased in May 1998
to $73,875 per month. This adjusted fee will continue through December 31,
2024 and amounted to $886,500, $826,400 and $706,200 in 1999, 1998 and
1997, respectively.
Excel leases the project site land from Conoco. The lease expires on
December 31, 2024; at which time, the lease will automatically be extended
for successive renewal terms of five years each unless either the lessee or
lessor elects to terminate the lease. The following details the future
lease payments required of Excel for the five succeeding years:
<TABLE>
<S> <C>
2000 $ 2,481,600
2001 $ 2,481,600
2002 $ 2,481,600
2003 $ 2,481,600
2004 $ 2,481,600
Thereafter 49,632,000
------------
$ 62,040,000
============
</TABLE>
Rental expense under operating leases was $2,481,600 for 1999, 1998 and
1997.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1999 and 1998, Excel had outstanding long-term debt with a
carrying value of $490 million. Based on borrowing rates currently
available, the fair value of this debt approximates $450 million. The
reported amounts of financial instruments such as cash equivalents,
accounts receivable and short-term notes payable approximate fair value
because of their short maturities.
9. COMMITMENTS AND CONTINGENCIES
Excel does not maintain general liability (including sudden and accidental
pollution) insurance coverage. However, Excel's respective partners
maintain general insurance policies and/or are self-insured.
- 6 -
<PAGE> 13
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
On July 31, 1995, a Petition for Class Action was filed in the 14th
Judicial District Court, Parish of Calcasieu, State of Louisiana, against
Conoco and a contractor that excavated soil from the project site, by
persons upon whose property such soil was placed, alleging that the soil
contained harmful and dangerous materials, including asbestos and/or lead.
The plaintiffs seek unspecified damages, including punitive or exemplary,
compensatory and clean-up damages and attorneys' fees. Conoco intends to
vigorously defend the litigation. Conoco is voluntarily removing and
replacing contaminated soils from affected properties. Based on the
agreements that Excel has with Conoco, management of Excel determined that
Excel was potentially obligated to Conoco for a portion of the amounts
paid by Conoco in connection with this litigation and related remediation.
As such, management agreed to reimburse Conoco for a portion of the costs.
Excel paid $70,456, $136,015 and $368,532 in 1999, 1998 and 1997,
respectively. Excel has accrued $829,544 and $900,000 as of December 31,
1999 and 1998, respectively, for anticipated remediation costs for this
matter. Management does not believe that the litigation or future
remediation expenses will have a material adverse effect on Excel's
financial condition or results of operations.
10. GUARANTEES
Conoco and Atlas Processing have entered into a Partner Loan Agreement
with Excel and the First National Bank of Chicago, as agent on behalf of
holders of certain debt of Excel, pursuant to which Conoco and Atlas
Processing agreed to provide liquidity support to Excel up to an aggregate
amount of $60 million outstanding at any time during the existence of a
liquidity cash flow deficit.
Pennzoil has guaranteed all of Atlas Processing's obligations and E.I.
duPont de Nemours and Company (DuPont) has guaranteed all of Conoco's
obligations under all Excel offtake and operating agreements as described
in Note 7.
In August 1999, DuPont completed the final step in its planned divestiture
of its ownership interest in Conoco. As a result of DuPont's ownership
interest in Conoco falling below 50%, the DuPont guarantee of Conoco's
obligations to Excel may be terminated if (i) the ratings of the Excel
senior bonds, after giving effect to DuPont's divestiture, are affirmed to
be at least the lower of (a) A3/A- or (b) the ratings in effect just prior
to divestiture; (ii) all of Excel's senior bonds are paid in full or (iii)
66-2/3% of the senior bond holders agree to a change in the terms of the
guarantee. As of December 31, 1999, the DuPont guarantee of Conoco's
obligations to Excel as described in Note 7 remained in place.
- 7 -
<PAGE> 14
PENNZOIL-QUAKER STATE COMPANY
1999 LONG TERM PERFORMANCE INCENTIVE COMPENSATION PROGRAM
March 15, 1999
OVERVIEW
o The basic concept of the plan design is to target long-term incentive
values at market (e.g., 50th percentile pay for 50th percentile
performance, 55th percentile pay for 55th percentile performance etc.).
The weighting of compensation delivered under different long-term devices
for senior management is as follows:
<TABLE>
================================================================================
PLAN ELEMENT % OF EXPECTED VALUE DELIVERED BY
DEVICE
- --------------------------------------------------------------------------------
<S> <C>
Stock Options 40%
Conditional Stock 20%
Long-Term Performance Plan 40%
- --------------------------------------------------------------------------------
Total 100%
================================================================================
</TABLE>
o The employees participating in this plan structure for 1999 are the
Executive Tier, Tiers E-1 through E-7 and Tier X-1.
o Pennzoil-Quaker State employees below those listed above will continue to
have the same mix of stock options and conditional stock used in 1998
(i.e., 70% stock options and 30% conditional stock).
o The remainder of this report discusses the following aspects of the
recommended long-term performance plan design:
- -- Plan objectives;
- -- Basic plan design concept;
- -- Eligibility;
- -- Performance measurement;
- -- Performance standards;
- -- Award opportunities;
- -- Plan payouts;
<PAGE> 15
- -- Retirement/terminations;
- -- Tax treatment;
- -- Accounting treatment;
- -- Plan administration;
- -- Plan costs; and
- -- Award calculations.
PLAN OBJECTIVES
o Motivate participants to achieve outstanding company performance relative
to peers.
o Enable Pennzoil-Quaker State to attract and retain key employees by having
this plan serve as part of a competitive total pay package.
o Be easy to administer.
o Be reasonable in terms of company cash requirements and overall cost.
o Provide a tax-effective means for the Company to help participants
accumulate capital on a tax-deferred basis.
BASIC PLAN DESIGN CONCEPT
o Under the plan, participants will be provided an opportunity to receive an
award payment based on Pennzoil-Quaker State's total shareholder return
relative to industry peers during overlapping 3-year cycles.
o New performance cycles begin every year following the year the plan is
established.
o In addition to the initial and ongoing awards with 3-year cycles, two
additional awards will be made in 1999. One of the additional awards will
have a 1-year cycle and the other additional award will have a 2-year
cycle. The award opportunity for a 1-year cycle award should be one-third
of the opportunity of a 3-year cycle award, while the award opportunity for
a 2-year cycle award should be two-thirds of the opportunity of a 3-year
cycle award. However, the performance measures and standards would be the
same. The reason for these additional awards is to keep total award
opportunities, in aggregate, competitive for the next three year period.
o The recommended performance/payout cycle relationship is shown in
Exhibit 1.
2
<PAGE> 16
EXHIBIT 1
PENNZOIL-QUAKER STATE COMPANY
PERFORMANCE/PAYOUT CYCLE RELATIONSHIP
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
_________X
________________________X
________________________________________X
____________________________________X
_________________________________X
_______________________________x
</TABLE>
X = Award earned at end of year shown
3
<PAGE> 17
ELIGIBILITY
o Eligibility for the plan will be reviewed and determined annually by
Pennzoil-Quaker State's CEO and the Compensation Committee of
Pennzoil-Quaker State's Board.
o Plan participation will be extended to key executives that can directly
impact the long-term success of the Company.
o Based on the Company's business needs and competitive market practices,
plan eligibility will be limited to executives in Tiers E-1 through E-7,
and Tier X-1*.
PERFORMANCE MEASUREMENT
o The recommended plan performance measure is Pennzoil-Quaker State's total
shareholder return compared to the industry peers listed in Exhibit 2.
o Total shareholder return will be defined using the same method required in
the total shareholder return graph of the proxy statement. Specifically,
$100 invested in Pennzoil-Quaker State stock on the first day of the
performance cycle, with dividends reinvested, compared to $100 invested in
each of the peer companies, with dividend reinvestment during the same
period.
4
<PAGE> 18
EXHIBIT 2
PENNZOIL-QUAKER STATE COMPANY
LISTING OF PEER COMPANIES CONSIDERED FOR TSR
CALCULATIONS FOR LONG-TERM PERFORMANCE PLAN
Church & Dwight Inc. Newell
Clorox Oneida LTD
Colgate Palmolive Procter & Gamble
Dial Ralston Purina Co.
General Housewares Revlon Inc.
Kimberly-Clark Corp. Samsonite Corp.
Lancaster Colony Scotts Company
Libbey Inc. Sunbeam
5
<PAGE> 19
PERFORMANCE STANDARDS
o At the start of each new performance cycle, Pennzoil-Quaker State will
define threshold, target, and maximum performance on the total shareholder
return objective.
o The standards shown in the table below will be used for the 1999-2001
performance cycle and for the 1-year and 2-year cycle awards to be made in
1999.
<TABLE>
<CAPTION>
=====================================================================================================
PENNZOIL-QUAKER STATE TSR
RANKING RELATIVE TO
PERFORMANCE LEVEL DEFINITION PEERS*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Outstanding performance 3rd of 17 (88th %ile)
Target Expected or budgeted performance 8th of 17 (56th %ile)
Threshold** Minimal acceptable performance for
incentive payout 13th of 17 (25th %ile)
=====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
* If mergers/acquisitions result in a reduction in the number of peer
companies during the cycle, these rankings will be converted to equivalent
percentiles to calculate awards.
** Pennzoil-Quaker State must also achieve a minimum actual total
shareholder return of 6% per year (averaged over the performance cycle)
before any payouts may be made under the plan.
- --------------------------------------------------------------------------------
6
<PAGE> 20
AWARD OPPORTUNITIES
o The long-term performance plan award opportunities for the plan eligible
positions (by performance level) are shown below.
<TABLE>
<CAPTION>
===================================================================================================================
AWARDS AS % OF BASE SALARY, BY EXECUTIVE TIER*
CORPORATE ---------------------------------------------------------------------------------------------
PERFORMANCE E-7 E-6 E-5 E-4 E-3 E-2 E-I X1
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum 282% 240% 192% 162% 150% 129% 90% 75%
Target 94% 80% 64% 54% 50% 43% 30% 25%
Threshold 24% 20% 16% 14% 13% 11% 8% 6%
Below Threshold 0% 0 0 0 0 0 0 0
===================================================================================================================
</TABLE>
o These award ranges are for each 3-year performance cycle and assume that a
new cycle is established each year.
o Awards for performance between stated levels would be calculated using the
awards matrix described later in this report.
- --------------------------------------------------------------------------------
* The long-term performance awards will be calculated using the percentages
shown in the table and the participant's base salary on the last day of the
applicable performance cycle. These award levels, at target, represent
market 55th percentile rates when combined with recommended stock option
and conditional stock awards.
- --------------------------------------------------------------------------------
PLAN PAYOUTS
o Payouts under the plan will be made as soon as possible after the
completion of each performance cycle.
o As a rule, the payouts will be made within three months after the
completion of the cycle.
o All awards typically will be paid as one-time lump-sum cash payments with
taxes withheld at a flat rate of 28%.
o Payouts under the plan are both savings and investment plan and retirement
plan eligible.
7
<PAGE> 21
RETIREMENT AND TERMINATIONS
o To receive an award under the plan, the participant must generally be
employed on the last day of the performance cycle.
o Exceptions to this policy will be made for retirement, long-term
disability, death, or involuntary termination during the cycle for reasons
other than cause, in which case the award will be prorated to reflect the
actual months of service during the cycle. Award payouts under these
exceptions would still be made at the end of the performance cycle.
TAX TREATMENT
o The employee will have to pay ordinary income tax on all awards when they
are paid to the participant (not when they are earned).
o The company will receive a tax deduction in the amount of income realized
by the participant in the year the award is paid.
ACCOUNTING TREATMENT
o The Company's projected obligation under the long-term performance cash
plan will be an expense that will be estimated and accrued periodically on
its financial statements.
PLAN ADMINISTRATION
o The plan will be administered by Pennzoil-Ouaker State's CEO for all
positions except his own, in which case the Compensation Committee will
administer the plan.
o The Compensation Committee will be responsible for approving award
opportunities, performance measures, performance standards, and actual
award payments.
o Also, any modifications or amendments to the plan will be made at the sole
discretion of the Compensation Committee.
o In addition, the company will retain the right to terminate or modify the
plan at any time. (However, cycles that have already begun are a
contractual obligation of the company.)
8
<PAGE> 1
EXHIBIT 99.2(a)
PENNZOIL-QUAKER STATE COMPANY
SAVINGS AND INVESTMENT PLAN
(As Established January 1, 1999)
First Amendment
Pennzoil-Quaker State Company, a Delaware corporation ("Pennzoil"),
having established the Pennzoil-Quaker State Company Savings and Investment
Plan, effective January 1, 1999, (the "Plan") and having reserved the right
under Section 10.4 thereof to amend the Plan does hereby amend the Plan,
effective as herein provided, as follows:
1. The Plan is hereby amended, effective August 16, 1999, by changing
all references to PennzEnergy Company stock therein to Devon Energy Corporation
stock.
2. Article I of the Plan is hereby amended, effective January 1, 1999,
by amending the definition of Prior Plan Account therein to read as follows:
"Prior Plan Account": The account maintained for a Prior Plan Member
pursuant to the provisions of the Prior Plan and transferred to this Plan
pursuant to Section 4.10, as well as adjustments relating thereto."
3. Section 4.10 of the Plan is hereby amended, effective January 1,
1999, to read as follows:
"4.10 Prior Plan Account: The Committee shall instruct the Trustee to
accept a transfer of a Member's Prior Plan Account. That portion of a
Member's Prior Plan account consisting of full shares of PennzEnergy
Company common stock ("PennzEnergy Stock"), Battle Mountain Gold Company
common stock ("BMGC Stock"), and that Pennzoil-Quaker State Company common
stock ("Pennzoil-Quaker State Stock") held in a frozen account by the
Member in the Prior Plan shall be maintained in the Trust Fund on behalf of
the Member as a separate account under this Plan, which shall be designated
as a Prior Plan Account and, with respect to the BMGC Stock, shall at all
times remain invested in such stock. Except as provided below, no portion
of any such Prior Plan Account may be co-mingled with other assets of the
Trust Fund for investment purposes and any cash dividends or other income
paid with respect to the Account shall be reinvested in Pennzoil-Quaker
State Stock. Such Prior Plan Account shall at all times be 100% vested in
the Employee or Member and shall not share in the Income of the Trust Fund
in accordance with
<PAGE> 2
Section 5.2 or in Employer Matching Contribution Allocations. Subject to
such rules and procedures as may be adopted by the Committee and
communicated to the Member, any Member may withdraw any or all of that
portion of the Member's Prior Plan Account attributable to employer
contributions (the "Prior Plan Employer Account") by giving the Committee
appropriate timely written notice of withdrawal. Upon termination of
employment, the total amount of the Prior Plan Account shall be distributed
in kind and accordance with Article VIII. As provided under Section 9.2,
9.3 and 9.4 of the Plan, a Member who has a Prior Plan Account may elect to
invest all or any part of such Prior Plan Account other than those assets
held in the Prior Plan Employer Account and BMGC Stock in any of the
Investment Funds authorized under Section 9.3."
4. Section 6.3 of the Plan is hereby amended effective January 1,
1999, amending Section 6.3 to read as follows:
"6.3 Limitation on Withdrawals: Any provision of Section 6.2 hereof to
the contrary notwithstanding, an Employee on suspended status may not make
a withdrawal and an Employee must withdraw the entire amount in his Prior
Plan Employer Account, After-Tax Contribution Account and Rollover Account,
if any, prior to exercising the right to withdraw from the Employee's
Employer Contribution Account."
IN WITNESS WHEREOF, Pennzoil-Quaker State Company has caused
these presents to be executed by its duly authorized officers in a number of
copies, all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy thereof, this 1st day of October,
1999, but effective as herein provided.
PENNZOIL-QUAKER STATE COMPANY
By: /s/ RAYMOND T. FISCHER
-------------------------------------
Raymond T. Fischer
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- ----------------------------
Secretary
[SEAL]
-2-
<PAGE> 1
EXHIBIT 99.2(b)
PENNZOIL-QUAKER STATE COMPANY
SAVINGS AND INVESTMENT PLAN
(As Established January 1, 1999)
Second Amendment
Pennzoil-Quaker State Company, a Delaware corporation ("Pennzoil"),
having established the Pennzoil-Quaker State Company Savings and Investment
Plan, effective January 1, 1999, (the "Plan") and having reserved the right
under Section 10.4 thereof to amend the Plan does hereby amend the Plan,
effective as herein provided, as follows:
1. Article I of the Plan is hereby amended, effective January 1, 1999,
by replacing the first two sentences in the definition of compensation with a
single sentence to read as follows:
"Compensation": The total compensation of an Employee as stated in the
payroll records of the Employer, including salary, wages, commissions and
any amounts paid for time served over the basic work week, or paid as
bonuses, severance pay (but only if paid in normal bi-weekly installments),
or as other special pay (other than foreign service premium, hardship
allowance or other non-incentive types of payments for foreign employment)
and including any amounts by which a Member's normal remuneration is
reduced pursuant to a voluntary salary reduction plan qualified under
Section 125 of the Code or a cash or deferred arrangement qualified under
Section 401(k) of the Code; provided, however, that the Compensation of
each Member taken into account under the Plan for any Plan Year shall not
exceed $160,000 (or such adjusted amount as provided under Code Section
401(a)(17)."
2. Article I of the Plan is hereby further amended, effective January
1, 2000, by adding a definition thereto to read as follows:
"Thrift Plan: The Pennzoil-Quaker State Corporation Thrift and Stock
Purchase Plan as amended and restated, effective January 1, 1997, and as
thereafter amended and in effect on December 31, 1999."
<PAGE> 2
3. Section 3.1 is hereby amended, effective January 1, 2000, by adding
a paragraph thereto, to read as follows:
"Except as provided below, effective January 1, 2000, all Employees
who, on December 15, 1999, were eligible for and participating in the
Thrift Plan shall automatically become Members of this Plan. Any other
Employee who was eligible for but was not participating in the Thrift Plan
on December 15, 1999 shall be eligible to commence participation on the
first Entry Date thereafter coincident with or next following his
completion of one year of continuous Service. Notwithstanding anything
herein to the contrary, the following Employees or individuals shall not be
eligible to become a Member of this Plan: any Employee or former employee
of Quaker State Corporation who terminated or terminates employment under
the terms of a Quaker State Corporation severance plan; any Employee of
Blue Coral, Inc., any Employee of the Company's Canadian subsidiaries,
including Quaker State, Inc. and Valley Camp, Inc. and any Employee
employed on an hourly basis.
4. Section 3.10 of the Plan is hereby amended, effective January 1,
2000, by adding a subsection (d) thereto to read as follows:
"(d) Employees Transferred from the Quaker State Thrift Plan:
Employees who were, on December 31, 1999, eligible to participate in the
Thrift Plan and, who, under Section 3.1 herein became eligible to
participate in this Plan on January 1, 2000, shall be credited with all
periods of service credited to such Employees under the Thrift Plan for
purposes of determining the Employee's Service and Vesting Service under
this Plan."
-2-
<PAGE> 3
IN WITNESS WHEREOF, Pennzoil-Quaker State Company has caused these
presents to be executed by its duly authorized officers in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy thereof, this 14th day of December,
1999, but effective as herein provided.
PENNZOIL-QUAKER STATE COMPANY
By: /s/ RAYMOND T. FISCHER
------------------------------------------
Raymond T. Fischer
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- -----------------------------
Secretary
[SEAL]
<PAGE> 1
EXHIBIT 99.3(a)
PENNZOIL COMPANY
SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
(As Amended and Restated Effective October 1, 1994)
First Amendment
Pennzoil Company, a Delaware corporation (the "Company"), having
established the Pennzoil Company Savings and Investment Plan for Hourly
Employees, effective January 1, 1989, as having thereafter amended and restated
said Plan effective October 1, 1994 (the "Plan"), and having reserved the right
under Section 10.4 thereof to amend the Plan, does hereby amend the Plan,
effective as of October 1, 1994, as follows:
1. The first sentence of Section 4.1 of the Plan is hereby deleted and
replaced with the following:
"Except as provided below, each eligible Employee, who elects to make
Pre-Tax Contributions for a Plan Year shall initially elect to defer a
portion of his Compensation in whole percentages of not less than one
percent (1%) and not more than twelve percent (12%), subject to the
limitations set forth in the following schedule:
<TABLE>
<CAPTION>
Maximum Pre-Tax
Years of and After-Tax
Participation Contribution Rate
------------------ -----------------
<S> <C>
Less than 5 years 9%
5 - 10 years 10%
More than 10 years 12%
</TABLE>
Each eligible Employee, represented by either Local #175 International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America
or Local #699 United Electrical, Radio and Machine Workers of America who
elects to make Pre-Tax Contributions for a Plan Year shall initially elect
to defer a portion of his Compensation in whole percentages of not less
than one percent (1%) and not
<PAGE> 2
more than six percent (6%), subject to the limitations set forth in the
following schedule:
<TABLE>
<CAPTION>
Maximum Pre-Tax
Years of and After-Tax
Participation Contribution Rate
------------------ -----------------
<S> <C>
Less than 5 years 3%
5 - 10 years 4%
More than 10 years 6%"
</TABLE>
2. The first sentence of Section 4.2 of the Plan is hereby deleted and
replaced with the following:
"Except as provided below, each eligible Employee, regardless of
whether he has elected to defer any percentage of his salary in the form of
Pre-Tax Contributions to the Plan, may elect to make After-Tax
Contributions of not less than one percent (1%) and not more than twelve
percent (12%) of his Compensation; provided, however, that the aggregate of
a Member's Pre-Tax Contributions and After-Tax Contributions shall be
limited to the maximum rate based on Years of Participation as set forth in
Section 4.1 and shall not total, in any event, more than twelve percent
(12%) of the Member's Compensation.
Each eligible Employee represented by either Local #175, International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America
or Local #699 United Electrical Radio and Machine Workers of America,
regardless of whether he has elected to defer any percentage of his salary
in the form of Pre-Tax Contributions to the Plan, may elect to make
After-Tax Contributions of not less than one percent (1%) and not more than
six percent (6%) of his compensation provided, however, that the aggregate
of a Member's Pre-Tax Contributions and After-Tax Contributions shall be
limited to the maximum rate based on Years of Participation as set forth in
Section 4.1 and shall not total, in any event, more than six percent (6%)
of the Member's Compensation."
IN WITNESS WHEREOF, Pennzoil Company has caused these presents to be
executed by its duly authorized officers in a number of copies, all of which
shall constitute one and
- 2 -
<PAGE> 3
the same instrument, which may be sufficiently evidenced by any executed copy
thereof, this 16th day of May, 1996, but effective as of April 1, 1994.
PENNZOIL COMPANY
By: /s/ WILLIAM B. ST. CLAIR
------------------------
William B. St. Clair
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- -------------------
Secretary
[SEAL]
- 3 -
<PAGE> 1
EXHIBIT 99.3(b)
PENNZOIL COMPANY
SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
(As Amended and Restated Effective October 1, 1994)
Second Amendment
Pennzoil Company, a Delaware corporation (the "Company"), having
established the Pennzoil Company Savings and Investment Plan for Hourly
Employees, effective January 1, 1989, as having thereafter amended and restated
said Plan effective October 1, 1994 (the "Plan"), and having reserved the right
under Section 10.4 thereof to amend the Plan, does hereby amend the Plan,
effective as of October 1, 1997, as follows:
1. The definition of Employer in Article I is hereby amended in its
entirety to read as follows:
"Employer: The Company, any Affiliate and any other corporation or
organization with employees which shall adopt this Plan pursuant to the
provisions of Section 10.1 and the successors, if any, to such entities."
2. Article III of the Plan is hereby amended to add a new Section 3.11
to read as follows:
"3.11 Special Eligibility and Benefits for Certain Employees: Penreco
Employees: Conoco, Inc., a wholly owned subsidiary of Dupont ("Conoco"),
entered into a joint venture agreement (the "Agreement") which created a
new entity, Penreco, a general partnership, 50% of which is owned by the
Company and 50% by Conoco. Under the Agreement, Conoco and the Company
agreed to the adoption of the Plan and Trust by Penreco for the benefit of
eligible salaried employees of Penreco. Effective October 1, 1997, all
Penreco hourly employees employed by Penreco on October 1, 1997 shall
automatically become Members of this Plan subject to the eligibility
requirements under Section 3.1. Any period of employment with Conoco, an
affiliate of Conoco, the Company, an Employer or an Affiliate prior to
October 1, 1997 shall be considered for purposes of determining a Member's
Service
<PAGE> 2
and Vesting Service under this Plan to the extent such employment otherwise
qualifies under the relevant provisions of the Plan."
3. The fourth paragraph of Section 9.2 is hereby amended by adding a
sentence to the fourth paragraph therein to read as follows:
"Notwithstanding the foregoing, Matching Contributions on behalf of
each Member who is employed by Penreco shall be invested, during the
Member's employment by Penreco, proportionately among those Investment
Funds selected by the Member for the investment of such Member's After-Tax
and Pre-Tax Contribution Account."
IN WITNESS WHEREOF, Pennzoil Company has caused these presents to be
executed by its duly authorized officers in a number of copies, all of which
shall constitute one and the same instrument, which may be sufficiently
evidenced by any executed copy thereof, this 17th day of September, 1997, but
effective as of October 1, 1997.
PENNZOIL COMPANY
By: /s/ WILLIAM B. ST. CLAIR
------------------------
William B. St. Clair
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- -------------------
Secretary
[SEAL]
- 2 -
<PAGE> 1
EXHIBIT 99.3(c)
PENNZOIL COMPANY
SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
(As Amended and Restated Effective October 1, 1994)
Third Amendment
Pennzoil Company, a Delaware corporation (the "Company"), having
established the Pennzoil Company Savings and Investment Plan for Hourly
Employees, effective January 1, 1989, as having thereafter amended and restated
said Plan effective October 1, 1994 (the "Plan"), and having reserved the right
under Section 10.4 thereof to amend the Plan, does hereby amend the Plan,
effective as herein provided, as follows:
1. Article I of the Plan is hereby amended, effective January 1, 1997,
by adding the following definition thereto to read as follows:
"Prior Savings Plan Account: The account maintained by a Member who
previously participated in the Pennzoil Company Savings and Investment Plan
pursuant to the provisions of such plan and which has been transferred to
this Plan pursuant to Section 4.11 and adjustments relating thereto."
2. Article IV of the Plan is hereby amended effective January 1, 1997,
by adding a new Section 4.11 to read as follows:
"4.11 Prior Savings Plan Accounts: At the Member's request, the
Committee shall instruct the Trustee to accept a transfer of full shares of
Pennzoil Company Common Stock, Battle Mountain Gold Company Common stock
("BMGC Stock"), and cash in lieu of fractional shares from the Prior Savings
Plan, which assets are attributable to the Member's interest in such Prior
Savings Plan. Any such transferred assets shall be maintained in the Trust
Fund on behalf of the Member as a separate account under this Plan, which
shall be designated as a Prior Savings Plan Account. Except as provided
below, a Member who has a Prior Savings Plan Account may elect to invest all
or any part of such Prior Savings Plan Account, other than those assets held
in the BMGC Stock Fund, in any of the Investment Funds
<PAGE> 2
authorized under Section 9.2. No portion of those assets held in the BMGC
Stock Fund may be commingled with other assets of the Trust Fund for
investment purposes and any cash dividends or other income paid with
respect to such fund shall be reinvested in Pennzoil Company Common Stock.
Such Prior Savings Plan Account shall at all times be 100% vested in the
Employee or Member, and shall not share in the Income of the Trust Fund in
accordance with Section 5.2 or in Employer Matching Contribution
allocations. Subject to such rules and procedures as may be adopted by the
Committee and communicated to Members, any Member who has a Prior Savings
Plan Account may withdraw all of such account by giving the Committee
appropriate timely written notice of such withdrawal. Upon termination of
employment, the total amount of the Prior Savings Plan Account shall be
distributed in kind in accordance with Article VIII. The Prior Savings Plan
Account shall have two subaccounts, the first to be known as the Prior
Savings Plan Employee Account and representing the Member's balance in his
Employee Account held under the Prior Savings Plan and transferred to this
Plan, and the second to be known as the Prior Savings Plan Employer Account
and representing the balance of the Company Account held for such Member
under the Prior Savings Plan and transferred to this Plan."
3. The first sentence of the second paragraph of Section 8.1B is hereby
amended in its entirety, effective January 1, 1998, to read as follows:
"If the amount to which a terminated Member is entitled is not more
than $5,000, such amount shall be paid to the Member as soon as practicable
after his Distribution Date; if such amount is in excess of $5,000, the
distribution shall be made only if the Member so consents."
IN WITNESS WHEREOF, Pennzoil Company has caused these presents to be
executed by its duly authorized officers in a number of copies, all of which
shall constitute one and the same instrument, which may be sufficiently
evidenced by any executed copy thereof, this 9th day of February, 1998, but
effective as of the dates provided herein. PENNZOIL COMPANY
By: /s/ WILLIAM B. ST. CLAIR
------------------------
William B. St. Clair
Agent and Attorney-in-Fact
-2-
<PAGE> 3
ATTEST:
/s/ LINDA F. CONDIT
- -------------------
Secretary
[SEAL]
-3-
<PAGE> 1
EXHIBIT 99.3(d)
PENNZOIL COMPANY
SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
(As Amended and Restated Effective October 1, 1994)
Fourth Amendment
Pennzoil Company, a Delaware corporation ("Pennzoil"), having
established the Pennzoil Company Savings and Investment Plan for Hourly
Employees, effective January 1, 1989, and having thereafter amended and restated
said Plan effective October 1, 1994 (the "Plan"), by action of the Board of
Directors of Pennzoil on December 2, 1998 transferred the Plan to Pennzoil
Products Company (the "Company"), and concurrent therewith transferred the right
under Section 10.4 thereof to amend the Plan. Therefore, the Company does hereby
amend the Plan, effective as herein provided, as follows:
1. The Plan is hereby amended, effective December 31, 1998, to change
the name of the Plan to Pennzoil-Quaker State Company Savings and Investment
Plan for Hourly Employees.
2. Article I of the Plan is hereby amended, effective December 31,
1998, by amending the definition of Company in its entirety to read as follows:
"Company: Pennzoil-Quaker State Company, a Delaware corporation, and
its predecessors and successors."
3. Section 5.1 of the Plan is hereby amended, effective November 30,
1998, by adding a paragraph thereto to read as follows:
<PAGE> 2
"From and after November 30, 1998 those Accounts maintained on behalf
of those Members or Prior Plan Members who are represented by Chauffeurs,
Teamsters and Helpers Local Union No. 175 affiliated with the International
Brotherhood of Teamsters, AFL-C10 shall be transferred to the PennzEnergy
Company Savings and Investment Plan. Upon transfer of such Accounts, such
Members shall cease to be eligible to participate in or make further
contributions to this Plan."
4. The first paragraph of Section 9.2 is hereby amended, effective
December 31, 1998, in its entirety to read as follows:
"The Trustee shall divide the Trust Fund into the Company Stock Fund
and the PennzEnergy Company Stock Fund, as hereinafter defined. `The
PennzEnergy Company Stock Fund' is a frozen fund established effective as
of December 31, 1998, consisting only of shares of common stock of
PennzEnergy Company, cash in lieu of fractional shares and shares of
PennzEnergy Company Common Stock representing the reinvestment of
dividends, earnings and/or income attributable to this fund."
5. Section 9.2 is further amended, effective December 31, 1998, by
amending the fifth paragraph therein in its entirety to read as follows:
"Each member who has attained age 55 may direct that all or a part of
his existing Employer Contribution Account consisting of full shares of
common stock of the Company or of his existing PennzEnergy Company Stock
Fund consisting of full shares of common stock of PennzEnergy Company be
liquidated and the proceeds invested among the various Investment Funds as
provided in Section 9.3."
6. Section 12.1 of the Plan is hereby amended, effective January 1,
1997, to delete subsection (d) therein, to redesignate the subsequent
subsections in Section 12.1 accordingly and to amend the new subsection (d) in
its entirety to read as follows:
"(d) `Highly Compensated Employee' shall mean any Employee and any
employee of an Affiliate who is a highly compensated employee under Section
414(q) of the Code, including any Employee and any employee of an Affiliate
who during the Plan Year:
(i) was a 5% owner at any time during the Plan Year or the
preceding Plan Year; or
(ii) received Compensation (as defined in Section 5.3(IV)(5)) in
excess of $80,000 for the preceding Plan Year (or such other amount as
determined by the
-2-
<PAGE> 3
Secretary of the Treasury in accordance with the provisions of Code
Section 414(q)(1)."
7. Article XIII of the Plan is hereby amended, effective January 1,
1997, by deleting the second full paragraph in Section 12.3, Section 12.7 and
Section 12.11 in their entirety (all referring to aggregation of Family Members)
and renumbering the Sections accordingly.
IN WITNESS WHEREOF, Pennzoil Company has caused these presents to be
executed by its duly authorized officers in a number of copies, all of which
shall constitute one and the same instrument, which may be sufficiently
evidenced by any executed copy thereof, this 22nd day of December, 1998, but
effective as herein provided.
PENNZOIL PRODUCTS COMPANY
By: /s/ RAYMOND T. FISCHER
----------------------------------------
Raymond T. Fischer
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- ------------------------------
Secretary
[SEAL]
-3-
<PAGE> 1
EXHIBIT 99.3(e)
PENNZOIL-QUAKER STATE COMPANY
SAVINGS AND INVESTMENT PLAN
FOR HOURLY EMPLOYEES
(As Amended and Restated Effective October 1, 1994)
Fifth Amendment
Pennzoil Company, a Delaware corporation ("Pennzoil"), having
established the Pennzoil Company Savings and Investment Plan for Hourly
Employees, effective January 1, 1989, and having thereafter amended and restated
said Plan effective October 1, 1994 (the "Plan"), by action of the Board of
Directors of Pennzoil on December 2, 1998 transferred the Plan to Pennzoil
Products Company, renamed the company Pennzoil-Quaker State Company (the
"Company"), and concurrent therewith transferred the right under Section 10.4
thereof to amend the Plan. Therefore, the Company does hereby amend the Plan,
effective as herein provided, as follows:
1. The Plan is hereby amended, effective August 16, 1999, by changing
all references to PennzEnergy Company stock therein to Devon Energy Corporation
stock.
2. Article I of the Plan is hereby amended, effective January 1, 1999,
by amending the following definition to read as follows:
"Prior Savings Plan Account: The account maintained by a Member who
previously participated in the Pennzoil-Quaker State Company Savings and
Investment Plan pursuant to the provisions of such plan and which has been
transferred to this Plan pursuant to Section 4.11 and adjustments relating
thereto."
3. Section 4.11 of the Plan is hereby amended, to read as follows:
"4.11 Prior Savings Plan Accounts: The Committee shall instruct the
Trustee to accept a transfer of a Member's Prior Savings Plan Account
including full shares of PennzEnergy Company common stock ("PennzEnergy
Stock"), Battle Mountain Gold Company Common Stock ("BMGC Stock"), and cash
in lieu of fractional shares from the Prior Savings Plan, which assets are
attributable to the Member's interest in such Prior Savings Plan. Any such
transferred assets shall be maintained in the Trust Fund on behalf of the
Member as a separate account under
<PAGE> 2
this Plan, which shall be designated as a Prior Savings Plan Account and,
with respect to the BMGC Stock, shall at all times remain invested in such
stock. Except as provided below, no portion of any such Prior Savings Plan
Account may be commingled with other assets of the Trust Fund for
investment purposes and any cash dividends or other income paid with
respect to such stock funds shall be reinvested in Pennzoil-Quaker State
Company Common Stock. Such Prior Savings Plan Account shall at all times be
100% vested in the Employee or Member, and shall not share in the Income of
the Trust Fund in accordance with Section 5.2 or in Employer Matching
Contribution allocations. Subject to such rules and procedures as may be
adopted by the Committee and communicated to Members, any Member may
withdraw any or all of that portion of the Member's Prior Savings Plan
Account attributable to employer contributions (the "Prior Plan Employer
Account") by giving the Committee appropriate timely written notice of such
withdrawal. Upon termination of employment, the total amount of the Prior
Savings Plan Account invested in the BMGC or PennzEnergy Stock Funds shall
be distributed in kind in accordance with Article VIII. A Member who has a
Prior Savings Plan Account may elect to invest all or any part of such
Prior Savings Plan Account, other than those assets held in the Prior
Savings Plan Employer Account and BMGC Stock, in any of the Investment
Funds authorized under Section 9.2."
4. Sections 6.1 and 6.3 of Article VI are hereby amended, effective
January 1, 1999, changing any references to Prior Plan Account therein to Prior
Savings Plan Employer Account.
5. The first paragraph of Section 9.2 of the Plan is hereby amended in
its entirety, effective October 15, 1999, to read as follows:
"The Trustee shall divide the Trust Fund into the Company Stock Fund
and the PennzEnergy Company Stock Fund as hereinafter defined. `The
PennzEnergy Company Stock Fund' is a frozen fund established effective as
of December 31, 1998, consisting only of shares of common stock of
PennzEnergy Company, cash in lieu of fractional shares and shares of
PennzEnergy Company Common Stock representing the reinvestment of
dividends, earnings and/or income attributable to this fund. Each Member's
assets held in the PennzEnergy Company Stock Fund shall be further divided
into two sub-accounts the PennzEnergy Employee Account and the PennzEnergy
Employer Account. Except as provided below, no portion of the PennzEnergy
Company Stock Fund may be comingled with other assets of the Trust Fund for
investment purposes and any cash dividends or other income paid with
respect to the Fund shall be reinvested in Pennzoil-Quaker State Stock. A
Member who has a PennzEnergy Employee Account may elect to invest all or
any part of such PennzEnergy Employee Account in any of the Investment
Funds authorized herein. Subject to such rules and procedures as may be
adopted by the
- 2 -
<PAGE> 3
Committee and communicated to Members, any Member who has a PennzEnergy
Employer Account may withdraw all of such account by giving the Committee
appropriate timely written notice of such withdrawal."
IN WITNESS WHEREOF, Pennzoil-Quaker State Company has caused these
presents to be executed by its duly authorized officers in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy thereof, this 1st day of October,
1999, but effective as herein provided.
PENNZOIL-QUAKER STATE COMPANY
By: /s/ RAYMOND T. FISCHER
--------------------------
Raymond T. Fischer
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- -------------------
Secretary
[SEAL]
- 3 -
<PAGE> 1
EXHIBIT 99.4(a)
QUAKER STATE CORPORATION
THRIFT AND STOCK PURCHASE PLAN
(As Amended and Restated Effective January 1, 1997)
First Amendment
Quaker State Corporation, a Delaware corporation (the "Company"),
having established the Quaker State Corporation Thrift and Stock Purchase Plan,
effective July 1, 1960, having thereafter amended and restated said Plan, the
latest such amendment and restatement being effective January 1, 1997, having
merged the Quaker State Employee Stock Ownership Plan into said Plan, effective
January 1, 1998 (the "Plan"), and having reserved the right under Section 11.01
thereof to amend the Plan, does hereby amend the Plan, effective as of December
31, 1998 to read as follows:
1. The Plan is hereby amended to change the name of the Plan to the
Pennzoil-Quaker State Company Thrift and Stock Purchase Plan and to change all
references in the Plan from Quaker State to Pennzoil-Quaker State, except as
specifically noted below.
2. Section 2.30 of the Plan is hereby amended by amending the
definition of Fund B in its entirety to read as follows:
"FUND B means the `Pennzoil-Quaker State Stock Fund' to be comprised
of Pennzoil-Quaker State Stock in which Participants may invest Tax
Deferred Contributions, Thrift Contributions, Rollover Contributions and
contributions held in the Prior Blue Coral 401(k) Account and the Prior
Slick 50 Match Account and in which all Company Matching Contributions,
Company Profit-Sharing Contributions, contributions held in the ESOP
Contribution Account and contributions held in the Tye-Profit Sharing
Account shall be invested, together with all dividends or other allocations
of property received with respect to such Pennzoil-Quaker State Stock."
-1-
<PAGE> 2
3. Article II is hereby amended by deleting Sections 2.49 and 2.50 in
their entirety, by inserting Sections 2.40 and 2.41 to read as follows and by
renumbering Sections 2.40 through 2.48 as Sections 2.42 through 2.50:
"2.40 PENNZOIL-QUAKER STATE means Pennzoil-Quaker State Company."
"2.41 PENNZOIL-QUAKER STATE STOCK means the class of Common Stock of
Pennzoil-Quaker State existing on the effective date of the merger of
Pennzoil-Quaker State and Quaker State Corporation."
4. Section 3.01 of the Plan is hereby amended by adding a paragraph
thereto to read as follows:
"Any individual who is a Member, as such term is defined in the
Pennzoil-Quaker State Savings and Investment Plan (the "Pennzoil-Quaker
State Plan"), or who becomes a Member in the Pennzoil-Quaker State Plan
shall not be eligible to participate in or make contributions to this
Plan."
5. Article XIX of the Plan is hereby amended by adding a Section 19.02
thereto to read as follows:
"19.02 VESTING OF ALL ACCOUNTS. Notwithstanding anything herein to the
contrary, any Participant who terminated employment with the Company on or
after January 1, 1997 and who on the date of such termination had a Prior
Slick 50 Match Account is fully vested in such Account."
IN WITNESS WHEREOF, Quaker State Corporation has caused
these presents to be executed by its duly authorized officers in a number of
copies, all of which shall constitute one
-2-
<PAGE> 3
and the same instrument, which may be sufficiently evidenced by any executed
copy thereof, this 13th day of January, 1999, but effective as herein provided.
QUAKER STATE CORPORATION
By: /s/ KEITH KRZEMINSKI
------------------------------------------
Keith Krzeminski
Vice President and Controller
-3-
<PAGE> 1
EXHIBIT 99.4(b)
PENNZOIL-QUAKER STATE COMPANY
THRIFT AND STOCK PURCHASE PLAN
(As Amended and Restated Effective January 1, 1997)
Second Amendment
Pennzoil-Quaker State Company, a Delaware corporation (the "Company"),
having assumed sponsorship of the Quaker State Corporation Thrift and Stock
Purchase Plan, as amended and restated, effective January 1, 1997, which plan
was merged with the Quaker State Employee Stock Ownership Plan, effective
January 1, 1998 and renamed the Pennzoil-Quaker State Company Thrift and Stock
Purchase Plan, effective December 31, 1998 (the "Plan"), and having reserved the
right under Section 11.01 thereof to amend the Plan, does hereby amend the Plan,
effective as of January 1, 2000 to read as follows:
1. The last paragraph of Section 3.01 of the Plan is hereby amended by
adding a sentence thereto to read as follows:
"Notwithstanding anything herein to the contrary, from and after
January 1, 2000, only those Employees employed by Blue Coral, Inc., or by
one of the Company's Canadian subsidiaries, including Quaker State, Inc.
and Valley Camp, Inc., shall be eligible to make contributions to this
Plan."
2. Section 6.02 of the Plan is hereby amended by deleting the last
sentence therein and adding a sentence thereto to read as follows:
"From and after January 1, 2000, each Participant who has attained age
55 may direct that full shares of common stock of the Company held in his
or her Company Matching Contribution Account, Profit Sharing Account, Tye
Profit Sharing Account and ESOP Account be liquidated and the proceeds
invested among the funds in Fund A Group as provided in Section 6.01."
-1-
<PAGE> 2
3. The second subsection (b) under Section 8.06 of the Plan shall be
amended in its entirety to read as follows:
"(b) The Participant has obtained all distributions and all nontaxable
(at the time of the loan) loans currently available under all plans
maintained by the Company provided, however, that the Participant must
request and receive a hardship withdrawal under this Plan, prior to
requesting a hardship withdrawal under the Pennzoil-Quaker State Savings
and Investment Plan;"
4. The last paragraph of Section 8.07 is hereby amended in its
entirety, to read as follows:
"From and after January 1, 2000, a Participant may not initiate a loan
more than once every six months; may not have more than one loan
outstanding at a time under this Plan and may not refinance an outstanding
loan. If on January 1, 2000 a Participant has one or more outstanding loans
under this Plan, such Participant may not make application for a loan until
all outstanding loans are repaid in full."
5. Section 20.03 of the Plan is hereby amended in its entirety to read
as follows:
"Qualified Participant's Diversification Election. From and after
January 1, 2000, a Participant who has attained age 55 shall be referred to
as a "Qualified Participant" and shall be eligible to direct the
diversification of his or her ESOP Contribution Account as provided in
Section 6.02 of the Plan."
IN WITNESS WHEREOF, Pennzoil-Quaker State Company has caused these
presents to be executed by its duly authorized officers in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy thereof, this 14th day of December,
1999, but effective as herein provided.
PENNZOIL-QUAKER STATE COMPANY
By: /s/ RAYMOND T. FISCHER
--------------------------
Raymond T. Fischer
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- -------------------
Secretary
[SEAL]
- 2 -
<PAGE> 1
EXHIBIT 99.4(c)
PENNZOIL-QUAKER STATE COMPANY
THRIFT AND STOCK PURCHASE PLAN
(As Amended and Restated Effective January 1, 1997)
Third Amendment
Pennzoil-Quaker State Company, a Delaware corporation (the "Company"),
having adopted the Pennzoil-Quaker State Company Thrift and Stock Purchase Plan,
as amended and restated effective January 1, 1997, and thereafter amended (the
"Plan"), and having reserved the right under Section 11.01 thereof to amend the
Plan, does hereby amend the Plan, effective as of February 1, 2000, to read as
follows:
1. The first sentence in section 8.01 of the Plan is hereby amended to read
as follows:
"Except as provided in Article XIV, Article XVI, Article XVII, Article
XVIII, or Article XX, a Participant whose Employment with the Company and
all members of the Control Group terminates by reason of Disability,
Voluntary Termination of Employment, Involuntary Termination of Employment,
or by reason of having attained his or her Retirement Date and having
retired from Employment, shall receive in a single lump sum payment all Tax
Deferred Contribution Units, Thrift Contribution Units, Company
Profit-Sharing Contributions Units, Company Matching Contribution Units,
Prior Blue Coral 401(k) Units, vested Prior Slick 50 Match Units, Tye
Profit-Sharing Units, ESOP Contribution Units, and Rollover Contribution
Units credited to his or her Accounts; provided, however, that except as
otherwise provided in Code Section 401(k)(10) or applicable law, a
Participant's Employment shall not be considered to have terminated in the
event of a sale of the assets or stock of the Company or another member of
the Control Group if the Participant continues in employment with the
purchaser."
<PAGE> 2
2. The last sentence in the second paragraph of Section 8.08 of the Plan is
hereby amended to read as follows:
"All loans made to a Participant must be repaid upon his or her death,
or, if earlier, upon his or her termination of Employment with the Company
and all members of the Control Group."
3. The first sentence of the second paragraph of Section 8.12 of the Plan
is hereby amended to read as follows:
"If the Participant's Account Balance (other than the portion
attributable to his or her Loan Account) may be withdrawn from the Plan
pursuant to Sections 8.03 and 8.04 or the date the Participant has
terminated Employment, the units against which the loan was made will be
deemed to be withdrawn or distributed from the Plan to the Participant
(whether or not the Participant has elected a withdrawal or consented to a
distribution) to the extent of the unpaid balance of the promissory note as
of the first day of the month following the date on which the promissory
note became due and payable, and the promissory note will be deemed to be
repaid."
IN WITNESS WHEREOF, Pennzoil-Quaker State Company has caused these
presents to be executed by its duly authorized officers in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy thereof, this 17th day of February,
2000, but effective as herein provided.
PENNZOIL-QUAKER STATE COMPANY
By: /s/ RAYMOND T. FISCHER
------------------------------------
Raymond T. Fischer
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- ---------------------------------
Secretary
[SEAL]
-2-
