<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1998
REGISTRATION NO. 333-42431
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CLARK REFINING & MARKETING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2911 43-1491230
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8182 MARYLAND AVENUE
ST. LOUIS, MISSOURI 63105
(314) 854-9696
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
KATHERINE D. KNOCKE, ESQ.
CLARK REFINING & MARKETING, INC.
8182 MARYLAND AVENUE
ST. LOUIS, MISSOURI 63105
(314) 854-9696
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
RICHARD S. MILLARD, ESQ.
EDWARD S. BEST, ESQ.
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CLARK REFINING & MARKETING, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATIONS S-K)
<TABLE>
<CAPTION>
FORM S-4 ITEM AND CAPTION LOCATION OR PROSPECTUS CAPTION
------------------------- ------------------------------
<S> <C>
1. Forepart of Registration
Statement and Outside Front Outside Front Cover Page of Prospectus;
Cover Page of Prospectus....... Cross Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Available Information
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other Prospectus Summary; Summary Financial Data;
Information.................... Risk Factors
4. Terms of the Transaction....... Prospectus Summary; The Exchange Offer;
Description of New Notes; Certain Federal
Income Tax Considerations
5. Pro Forma Financial
Information.................... Not Applicable
6. Material Contacts with the
Company Being Acquired......... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters................... Not Applicable
8. Interests of Named Experts and
Counsel........................ Not Applicable
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Not Applicable
10. Information with Respect to S-3
Registrants.................... Not Applicable
11. Incorporation of Certain
Information by Reference....... Not Applicable
12. Information with Respect to S-2
or S-3 Registrants............. Not Applicable
13. Incorporation of Certain
Information by Reference....... Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or Business; Selected Financial Data;
S-2 Registrants................ Quarterly Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Management; Certain
Transactions; Financial Statements
15. Information with Respect to S-3
Companies...................... Not Applicable
16. Information with Respect to S-2
or S-3 Companies............... Not Applicable
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies...................... Not Applicable
18. Information if Proxies,
Consents or Authorizations are
to be Solicited................ Not Applicable
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an Management; Principal Stockholders; Certain
Exchange Offer................. Transactions; The Exchange Offer
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY , 1998
PROSPECTUS CLARK REFINING & MARKETING, INC.
LOGO OFFER TO EXCHANGE ITS
8 7/8% NEW SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2007
8 3/8% NEW SENIOR NOTES DUE NOVEMBER 15, 2007 AND
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS OUTSTANDING
8 3/8% SENIOR NOTES DUE NOVEMBER 15, 2007 AND
8 7/8% SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
Clark Refining & Marketing, Inc., a Delaware corporation ("Clark" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal") to exchange (the "Exchange Offer")
$1,000 principal amount of its 8 3/8% New Senior Notes due November 15, 2007
(the "New Senior Notes") and its 8 7/8% New Senior Subordinated Notes due
November 15, 2007 (the "New Senior Subordinated Notes" and, together with the
New Senior Notes, the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount at maturity of its outstanding 8 3/8% Senior Notes due
November 15, 2007 (the "Old Senior Notes") and its 8 7/8% Senior Subordinated
Notes due November 15, 2007 (the "Old Senior Subordinated Notes" and, together
with the Old Senior Notes, the "Old Notes"). The form and terms of each series
of New Notes are identical in all material respects to the form and terms of
each respective series of Old Notes except that the New Notes have been
registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof. The New Senior Notes and the New Senior
Subordinated Notes will evidence the same debt as the Old Senior Notes and the
Old Senior Subordinated Notes, respectively, and will be entitled to the
benefits under the indentures governing the Old Notes (the "Indentures"). The
offering of the Old Notes is referred to herein as the "Debt Offering." The Old
Notes and the New Notes are collectively referred to herein as the "Notes." See
"The Exchange Offer" and "Description of the New Notes."
Clark will accept for exchange any and all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer." Old Notes may be tendered only in integral multiples of $1,000.
Interest on the New Senior Notes will be payable on May 15 and November 15 of
each year, commencing May 15, 1998. The New Senior Notes will mature on
November 15, 2007. The New Senior Notes will be redeemable at the option of the
Company, in whole or in part, at any time on and after November 15, 2002 at the
redemption prices set forth herein, plus accrued and unpaid interest, if any,
to the date of redemption. In addition, up to 35% in aggregate principal amount
of the New Senior Notes originally issued are redeemable at the option of the
Company out of the net cash proceeds of one or more Equity Offering (as defined
herein) at any time prior to November 15, 2001 at a redemption price equal to
108.375% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the redemption date.
Interest on the New Senior Subordinated Notes will be payable on May 15 and
November 15 of each year, commencing May 15, 1998. The New Senior Subordinated
Notes will mature on November 15, 2007. The New Senior Subordinated Notes will
be redeemable at the option of the Company, in whole or in part, at any time on
and after November 15, 2002 at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of redemption. In addition, up
to 35% in aggregate principal amount of the New Senior Subordinated Notes
originally issued are redeemable at the option of the Company out of the net
cash proceeds of one or more Equity Offering at any time prior to November 15,
2001 at a redemption price equal to 108.875% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a Change of Control that results in a Rating Decline
(each as defined herein), the Company will be required to offer to purchase all
of the New Notes at 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase.
The New Senior Notes will rank pari passu with all unsubordinated
indebtedness of the Company, including indebtedness under the Credit Agreement
and the Loan Agreement (each as defined herein). The obligations of the Company
under the Credit Agreement, however, are secured by a lien on substantially all
of the Company's cash and cash equivalents, receivables, crude oil, refined
product and other inventories and trademarks and other intellectual property
and, accordingly, such indebtedness will effectively rank senior in right of
payment to the New Senior Notes to the extent of such assets.
The New Senior Subordinated Notes will be subordinated in right of payment to
all unsubordinated indebtedness of the Company. As of September 30, 1997, on a
pro forma basis after giving effect to the transactions described herein,
including the Debt Offering, there would have been $418.4 million of
unsubordinated long-term indebtedness (including current portions) of the
Company (excluding available borrowings and $238.0 million of letters of credit
under the Credit Agreement). See "Capitalization."
Each series of New Notes sold will initially be represented by a single
permanent global certificate in fully registered form and will be deposited
with a custodian for, and registered in the name of a nominee of, The
Depository Trust Company, New York, New York ("DTC").
(Continued)
SEE "RISK FACTORS" ON PAGES 18-24 FOR A DISCUSSION OF CERTAIN RISK FACTORS
THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE NEW NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION AND OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is January , 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
(Continuation of cover page)
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, the Company believes that the New Notes issued in exchange for Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any Holders (as defined herein) thereof (other than
(i) a broker-dealer who purchases such New Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) any such Holder that is an "affiliate" of the Company,
within the meaning of Rule 405 under the Securities Act, without compliance
with the registration and prospectus delivery provisions of the Securities
Act; provided that the Holder is acquiring such New Notes in its ordinary
course of business and is not participating, and has no arrangement or
understanding with any person to participate, in any distribution of the New
Notes. Persons wishing to exchange Old Notes in the Exchange Offer must
represent to the Company that such conditions have been met. However, any
Holder who is an "affiliate" of the Company or who tenders in the Exchange
Offer with the intention to participate or for the purpose of participating,
in a distribution of the New Notes cannot rely on the interpretation by the
staff of the Commission set forth in the above-referenced no-action letters,
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the Old Notes.
See "Risk Factors--Consequences to Non-Tendering Holders of Old Notes." In
addition, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus, meeting the requirements of the Securities Act, in connection with
any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities and not acquired directly from the Company. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH,
THIS PROSPECTUS MAY NOT BE USED FOR AN OFFER TO RESELL, RESALE OR OTHER
TRANSFER OF NEW NOTES.
<PAGE>
No person has been authorized in connection with the offering made hereby to
give any information or to make any representations other than those contained
in this Prospectus and, if given or made, such information or representation
must not be relied upon as having been authorized. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell
or the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any
date subsequent to the date hereof.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Incorporation of Certain Documents by Reference.......................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 24
The Exchange Offer....................................................... 25
Capitalization........................................................... 33
Selected Consolidated Financial and Other Data........................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 36
Quarterly Financial Information.......................................... 49
Business................................................................. 50
Management............................................................... 71
Security Ownership of Certain Owners and Management...................... 77
Certain Transactions..................................................... 77
Description of the New Notes............................................. 78
Book Entry; Delivery and Form............................................ 106
Description of Certain Debt Instruments.................................. 108
Certain U.S. Federal Income Tax Considerations........................... 111
Plan of Distribution..................................................... 116
Legal Matters............................................................ 116
Experts.................................................................. 117
Index to Financial Statements and Schedules.............................. F-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith has filed reports and other information with the Commission. Such
reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site (http://www.sec.gov) that contains reports and
information statements and other information regarding registrants, such as
the Company, that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Company documents filed with the Commission are incorporated
by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the periods ended March
31, June 30 and September 30, 1997; and
3. The Company's Current Reports on Form 8-K dated April 7, October 1 and
November 21, 1997.
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the date the Exchange Offer is terminated are
incorporated by reference in this Prospectus.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements, and related
notes, appearing elsewhere in this Prospectus.
THE COMPANY
The Company is the sixth largest independent refiner and marketer of
petroleum products in the United States ("U.S.") with one Texas Gulf Coast
refinery and two Illinois refineries representing over 350,000 barrels per day
("bpd") of rated crude oil throughput capacity. The Company is also currently
the seventh largest direct operator of gasoline and convenience stores in the
U.S. with over 800 retail outlets in 10 Midwestern states. The Company's retail
network has conducted operations under the Clark brand name for 65 years. The
Company also markets gasoline, diesel fuel and other petroleum products on a
wholesale branded and unbranded basis.
Since 1992, the Company has focused its business objectives with an
entrepreneurial orientation to cost reduction, productivity improvements,
selective capital investments and growth through acquisitions. Important
initiatives include the equity-financed acquisition of Chevron U.S.A. Inc.'s
("Chevron") Port Arthur, Texas, refinery and certain other assets (the "Port
Arthur Refinery"); retail acquisitions and divestitures intended to strengthen
the Company's position in key markets; the marketing division's store re-
imaging program; and the refining division's productivity enhancement programs.
The Company believes it is well positioned to benefit from improving refining
industry fundamentals and to take advantage of emerging growth opportunities in
the marketing and refining sectors.
REFINING
The Company currently operates three refineries and 16 product terminals
located in its Midwest and Gulf Coast market areas, a crude oil and LPG
terminal associated with the Port Arthur refinery and has minority equity
interests in certain crude oil and product pipelines. The refining division is
the largest business division of the Company in terms of total assets and has
significant operating leverage to crack spreads and crude oil differentials,
which provides the potential for the Company to significantly increase its
operating cash flow. Recent improvements in industry conditions and
productivity gains contributed to the refining division's record earnings
before interest, taxes, depreciation and amortization ("EBITDA") of $72.0
million and $78.2 million in the second and third quarters of 1997,
respectively. See additional operating cash flow disclosures in "Selected
Consolidated Financial and Other Data."
The Port Arthur refinery is located in Port Arthur, Texas. The refinery has
the ability to process 100% sour crude oil, including up to 20% heavy sour
crude oil, and has coking capabilities. Heavy sour crude oil has historically
been available at substantially lower costs when compared to light sweet crude
oil such as West Texas Intermediate ("WTI"). The Port Arthur refinery has the
ability to produce jet fuel, 100% low-sulfur diesel fuel, 55% summer
reformulated gasoline ("RFG") and 75% winter RFG. The refinery's Texas Gulf
Coast location provides access to numerous cost effective domestic and
international crude oil sources, and its products can be sold in the
Midcontinent and Eastern U.S. as well as in export markets. Since acquiring the
Port Arthur Refinery in early 1995, the Company has increased crude oil
throughput capability from approximately 178,000 bpd to its current 212,000 bpd
and has lowered operating expenses by approximately 50c per barrel. From the
date of the acquisition through September 30, 1997, the Port Arthur Refinery
has generated EBITDA of approximately $171.0 million. See additional operating
cash flow disclosures in "Selected Consolidated Financial and Other Data."
5
<PAGE>
The Company's Illinois refineries, Blue Island (near Chicago, Illinois) and
Hartford (near St. Louis, Missouri), are supplied by common carrier crude oil
pipelines and are located on inland waterways with barge access. The refineries
have access to multiple sources of foreign and domestic crude oil and benefit
from crude oil input flexibility. Recent pipeline expansions, including the new
capacity of the Express Pipeline and expanded capacity on the Interprovincial
Pipeline, have served to increase the availability of lower cost crude oil to
the Company's Illinois refineries. The two refineries are connected by product
pipelines, increasing flexibility relative to stand alone operations. The
Company's product terminals allow efficient distribution of refinery production
through pipeline systems. The Company believes that the Midwest location of
these refineries provides relatively high refining margins and less volatility
than comparable operations located in other regions of the U.S. on a historical
basis principally because demand for refined product has exceeded production in
the region. This excess demand has historically been satisfied by imports from
other regions, providing Midwest refineries with a transportation advantage.
MARKETING
The Company markets gasoline and convenience products in ten Midwestern
states through a retail network of Company-operated stores and also markets
refined petroleum products through a wholesale program to distributors, chain
retailers and industrial consumers. The Company's retail presence is focused in
the Great Lakes region of the U.S. where Company-operated stores market value-
oriented gasoline products, cigarettes and a unique mix of On The Go(R)
convenience products. As of September 30, 1997, the Company had 813 Company-
operated retail locations under the Clark brand name. The Company believes its
high proportion of Company-operated retail stores enables it to respond more
quickly and uniformly to changing market conditions than many of its
competitors, including major oil companies that generally operate their stores
through dealer or jobber networks. Of these stores, 647 were located on
Company-owned real estate (80%) and 166 were leased locations (20%). The
Company's wholesale operation markets petroleum products in both the Midwest
and Gulf Coast regions of the U.S. In 1996, the Company sold approximately 1.0
billion gallons of fuel (representing 40% of refining production) and over
$250.0 million of convenience products through approximately 200 million retail
transactions and sold an additional 1.1 billion gallons of fuel to wholesale
customers ranging from Clark-branded retailers to major transportation and
commercial companies.
Over the past several years, the Company has focused on building core markets
where it believes it can maintain or develop market shares of 7.5% to 15% in
order to leverage brand recognition, promotions and other marketing and
operating activities. In part due to this focus, the Company's monthly gasoline
sales per store averaged 104,500 gallons in 1996, which exceeded the 1996
national industry average of 84,500 gallons, while monthly sales per square
foot averaged approximately $49 for convenience products versus the industry
average of approximately $24. The Company believes its low operating costs rank
it in the first quartile of its industry, providing it with an important
competitive advantage. Chicago, Central Illinois, Southern Michigan, Cleveland,
Milwaukee and Toledo currently are the Company's six highest volume core
metropolitan markets, with market shares of 5% to 18%. A current trend toward
consolidation in the refining and marketing sector is viewed positively by the
Company due to growth opportunities that may develop and the potential
beneficial impact that consolidation may have on longer term pricing.
The Company currently sells gasoline and diesel fuel on an unbranded basis to
approximately 500 distributors and chain retailers. The Company believes these
sales offer higher profitability than spot market alternatives. Wholesale sales
are also made to the transportation and commercial sector, including airlines,
railroads, barge lines and other industrial end-users. During 1997, the Company
has continued to expand its new branded jobber program, increasing to 61 the
number of outlets owned
6
<PAGE>
and operated by branded jobbers as of September 30, 1997. As part of its new
business franchise marketing initiative, the Company partnered with a grocery
chain to add four outlets on grocery store parking lots in 1996 and 1997. The
Company believes that a branded distributor program, new business franchise
marketing, and further focus on the transportation and commercial sectors offer
significant opportunities for incremental sales volumes and earnings in the
future.
BUSINESS STRATEGY
The Company's business strategy focuses on improving productivity, optimizing
capital investments, promoting an entrepreneurial culture, and growing both its
refining and marketing operations to strengthen the Company's business and
financial profile. This strategy is designed to address the commodity-based
nature of the oil refining and marketing industry in which the Company
operates.
. Improving Productivity. The Company continues to implement relatively
low-cost projects in its refining and marketing operations designed to
increase production, sales volumes and production yields and to improve its
sales mix while reducing input costs and operating expenses. Improvements
at the Port Arthur refinery, increased yields and crude oil throughput
capability at its Illinois refineries and improved monthly fuel volumes,
convenience product sales and margins in the retail division are examples
of these types of initiatives.
. Optimizing Capital Investment. The Company seeks to optimize capital
investments by linking discretionary capital spending to internally
generated cash flow, focusing its efforts first on those productivity
initiatives that require no capital investment and then on those which have
relatively short payback periods. As an example, in response to weak 1995
and 1996 industry refining market conditions, discretionary capital
expenditures were scaled back significantly from historical levels. Due to
improved results in 1997 and a more robust refining industry environment,
the Company is now implementing several high payback discretionary capital
projects.
. Promoting Entrepreneurial Culture. The Company emphasizes an
entrepreneurial management approach which uses employee incentives to
enhance financial performance and safety. All of the Company's employees
participate in its performance management, profit sharing or other
incentive plans. In addition, the Company has adopted a stock incentive
plan for certain key employees. Blackstone Capital Partners III Merchant
Banking Fund L.P. and its affiliates ("Blackstone"), the Company's new
majority stockholder, intends to put in place a management incentive
program designed to increase management's ownership of stock of Clark USA,
Inc. ("Clark USA"), the Company's corporate parent, through direct
purchases of such stock and options tied to the financial performance of
the Company.
. Growing Through Opportunistic Acquisitions. The Company intends to
continue to expand its refining and marketing operations through
opportunistic acquisitions which can benefit from its business strategy,
create critical mass, increase market share or access new markets. Since
1994, the Company more than doubled its refining capacity by acquiring the
Port Arthur Refinery and strengthened its Northern Illinois and Southern
Michigan presence by adding 122 retail stores in these core markets.
Blackstone is committed to this strategy.
. Strengthening the Balance Sheet. The Company and Clark USA will continue
to seek to improve their capital structure. The financing of the Port
Arthur Refinery acquisition principally with equity contributed by Clark
USA and the contribution by Clark USA of an advance crude oil purchase
receivable lowered the Company's leverage in 1995 and 1996. The Company's
subsequent monetization of the advanced crude oil purchase receivable
significantly improved the Company's liquidity. As of September 30, 1997,
the Company had total cash balances of $286 million. The Equity
Recapitalization and the Debt Refinancing and Repayment (both as defined
herein) are designed to strengthen the balance sheet of Clark USA and its
subsidiaries by extending debt maturities, increasing prepayment
flexibility and lowering the overall borrowing cost.
7
<PAGE>
RECENT DEVELOPMENTS
RECENT RESULTS
For the quarters ended June 30, 1997 and September 30, 1997, the Company
posted record EBITDA of $74.4 million and $81.1 million, respectively,
partially as a result of strong crack spreads and crude oil differentials in
the Company's markets, versus $21.0 million and $8.1 million in the year-
earlier periods. The Company reported EBITDA of $138.6 million for the nine
months ended September 30, 1997, which compared to $29.6 million for the same
period in 1996. The Company would have generated EBITDA of $181.1 million in
the first nine months of 1997 as compared to $9.2 million in the same period of
1996 after adjusting for a significant fall in crude oil prices in 1997 and the
hypothetical cost of lost production associated with a major maintenance
turnaround at the Port Arthur refinery in the first quarter of 1997. The
Company reported an operating loss of $4.3 million for the three months ended
September 30, 1996, which improved to operating income of $64.6 million for the
same period of 1997. The Company reported an operating loss of $7.4 million for
the first nine months of 1996, which improved to operating income of $94.3
million for the same period of 1997. The Company has historically recorded
seasonally lower earnings in the fourth and first quarters of calendar years
due to lower demand for refined products. See additional operating cash flow
disclosures in "Selected Consolidated Financial and Other Data."
In the early 1990s the Company invested $25.0 million in a project initiated
to produce low-sulfur diesel fuel at the Hartford refinery (the "DHDS Project")
which was delayed in 1992 based on internal and third-party analyses that
indicated an oversupply of low-sulfur diesel fuel capacity in the Company's
markets. Based on these analyses, the Company projected relatively narrow price
differentials between low- and high-sulfur diesel products. This projection has
thus far been borne out. High-sulfur diesel fuel is utilized by the railroad,
marine and farm industries. In December 1997, the Company determined that
equipment purchased for the DHDS Project could be better utilized for other
projects at its Hartford and Port Arthur refineries, rather than remaining idle
until low- and high-sulfur diesel fuel differentials widened sufficiently to
justify completing the DHDS Project. As a result, in the fourth quarter of 1997
the Company expects to record a charge to earnings of approximately $19 million
principally for engineering costs specific to the DHDS Project.
The Company expects to record several other charges to earnings in the fourth
quarter of 1997 that management considers "unusual." The Company anticipates
recording a noncash accounting charge of approximately $20 million to reflect
the decline in the value of petroleum inventories below carrying value caused
by a substantial decrease in petroleum prices at the end of 1997. In addition,
as discussed herein, the Company has incurred fees and expenses of
approximately $11 million related to the Equity Recapitalization and will
record an extraordinary item of approximately $10 million related to the Debt
Refinancing and Repayment. The Company also is evaluating the adequacy of its
accruals due to developments in pending legal and environmental actions and
currently expects to increase these accruals in the fourth quarter of 1997. See
"Business--Environmental Matters" and "Business--Legal Proceedings."
EQUITY RECAPITALIZATION
On October 1, 1997, Clark USA and its stockholders completed an equity
recapitalization whereby all previously issued shares of Class A Common Stock
of Clark USA held by certain affiliates (the "Tiger Funds") of Tiger Management
Corporation ("Tiger") (then representing approximately 31% of the total voting
power of all classes of Clark USA stock) were reclassified into a new class of
common stock of Clark USA designated Class E Common Stock (the "Class E Common
Stock"). Trizec Hahn Corporation ("TrizecHahn") then purchased all of the Class
E Common Stock for $7.00 per share in cash, resulting in a total purchase price
of $63.0 million. All such shares of Class E Common Stock were subsequently
reclassified into 63,000 shares of 11 1/2% Senior Cumulative Exchangeable
8
<PAGE>
Preferred Stock (the "Exchangeable Preferred Stock") of Clark USA and sold to
institutional investors. On or about January , 1998, Clark USA commenced an
offer to exchange 11 1/2% New Senior Cumulative Exchangeable Preferred Stock
("New Exchangeable Preferred Stock") which has been registered under the
Securities Act for its Exchangeable Preferred Stock. Subject to certain
conditions, the New Exchangeable Preferred Stock is exchangeable in whole but
not in part at the option of Clark USA for $63.0 million aggregate principal
amount of Clark USA's 11 1/2% Subordinated Exchange Debentures due 2009 (the
"Exchange Debentures").
In addition, the shares of common stock of Clark USA owned by Occidental
C.O.B. Partners ("Oxy") were exchanged for an equal number of shares of a new
class of convertible common stock designated Class F Common Stock (the "Class F
Common Stock") of Clark USA having voting rights limited as a class to the
lesser of (a) the aggregate voting power of such shares on a one-vote-per-share
basis and (b) 19.9% of the total voting power of all classes of Clark USA's
voting stock. The Class F Common Stock is convertible at any time to Common
Stock of Clark USA, on a one-for-one basis, at the option of any holder other
than Oxy and its affiliates. Clark USA also issued to Oxy an additional 545,455
shares of Class F Common Stock in full satisfaction of Clark USA's obligation
to issue shares under its then existing Stockholders' Agreement with Oxy.
BLACKSTONE TRANSACTION
On November 3, 1997, Blackstone acquired the 13,500,000 shares of Common
Stock of Clark USA previously held by TrizecHahn and certain of its
subsidiaries (referred to herein as the "Blackstone Transaction"), as a result
of which Blackstone obtained a 65% equity interest (73.3% voting interest) in
Clark USA. See "Security Ownership of Certain Owners and Management" and
"Certain Transactions."
The transactions described in the preceding three paragraphs are referred to
herein as the "Equity Recapitalization."
THE CREDIT AGREEMENT
On September 25, 1997, the Company entered into a credit agreement (the
"Credit Agreement") which provides for borrowings and letter of credit
issuances of up to the lesser of $400.0 million or the amount of the borrowing
base calculated with respect to the Company's cash and cash equivalents,
eligible investments, eligible receivables and eligible petroleum inventories,
provided that a sublimit for borrowings is limited to the principal amount of
$50.0 million. Obligations under the Credit Agreement are secured by a lien on
substantially all of the Company's cash and cash equivalents, receivables,
crude oil, refined product and other inventories and trademarks and other
intellectual property. See "Description of Certain Debt Instruments--Credit
Agreement."
THE LOAN AGREEMENT
On November 21, 1997, the Company entered into a term loan agreement (the
"Loan Agreement") with certain lenders and Goldman Sachs Credit Partners L.P.,
as agent, pursuant to which the Company borrowed $125.0 million (the "Term
Loan"). Borrowings under the Loan Agreement are senior unsecured obligations of
the Company.
THE DEBT OFFERING
On November 21, 1997, the Company sold $100.0 million aggregate principal
amount of its Old Senior Notes and $175.0 million aggregate principal amount of
its Old Senior Subordinated Notes to the Initial Purchasers (as defined
herein), which placed the Old Notes with institutional investors (the
9
<PAGE>
"Debt Offering"). A portion of the net proceeds of the Debt Offering and the
Term Loan were used to redeem, on December 24, 1997, all $225.0 million
aggregate principal amount of the Company's outstanding 10 1/2% Senior Notes
due 2001 (the "10 1/2% Notes") at a price of $1,032.96 for each $1,000.00
principal amount of 10 1/2% Notes outstanding, representing the redemption
premium and accrued interest. The remaining net proceeds of the Debt Offering
and the Term Loan, approximately $149.1 million, were used to substantially
replenish the Company's cash reserves and for general corporate purposes. Prior
to the consummation of the Debt Offering, the Company returned to Clark USA
$215.0 million of its existing cash (the "Special Dividend") which enabled
Clark USA to repurchase for $206.6 million, $259.2 million (principal amount at
maturity) of its Senior Secured Zero Coupon Notes due 2000, Series A (the "Zero
Coupon Notes"), pursuant to a tender offer (the "Tender Offer"). Clark USA
intends to redeem the remaining Zero Coupon Notes on or about February 15,
1998. As a result of the Blackstone Transaction, the $175.0 million of the
Company's 9 1/2% Senior Notes due 2004 (the "9 1/2% Notes") have become subject
to a repurchase offer which expires on March 9, 1998.
The transactions described in the preceding three paragraphs are referred to
herein as the "Debt Refinancing and Repayment."
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Registration Agreement....... The Old Notes were sold by the Company on Novem-
ber 21, 1997 to Goldman, Sachs & Co., BT Alex.
Brown Incorporated, Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette and Lehman Brothers,
as initial purchasers (the "Initial Purchasers"),
which placed the Old Notes with institutional in-
vestors. In connection therewith, the Company ex-
ecuted and delivered for the benefit of the Hold-
ers of the Old Notes an exchange and registration
rights agreement (the "Registration Agreement")
providing for the Exchange Offer.
The Exchange Offer........... $1,000 principal amount at maturity of New Senior
Notes in exchange for each $1,000 principal
amount of Old Senior Notes.
$1,000 principal amount at maturity of New Senior
Subordinated Notes in exchange for each $1,000
principal amount at maturity of Old Senior Subor-
dinated Notes.
As of the date hereof, $275.0 million aggregate
principal amount at maturity of Old Notes are
outstanding. The Company will issue the New Notes
to holders on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that New
Notes issued in exchange for Old Notes pursuant
to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any Holder
thereof (other than (i) a broker-dealer who pur-
chases such New Notes directly from
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
the Company to resell pursuant to Rule 144A or
any other available exemption under the Securi-
ties Act or (ii) any such Holder that is an "af-
filiate" of the Company within the meaning of
Rule 405 under the Securities Act) without com-
pliance with the registration and prospectus de-
livery provisions of the Securities Act; provided
that the Holder is acquiring such New Notes in
its ordinary course of business and is not par-
ticipating, and has no arrangement or understand-
ing with any person to participate, in any dis-
tribution of the New Notes. Persons wishing to
exchange Old Notes in the Exchange Offer must
represent to the Company that such conditions
have been met. However, any Holder who is an
"affiliate" of the Company or who tenders in the
Exchange Offer for the purpose of distributing
the New Notes cannot rely on the interpretation
of the staff of the Commission set forth in the
above-referenced no-action letters and must com-
ply with the registration and prospectus delivery
requirements of the Securities Act in connection
with any sale or transfer of the Old Notes. See
"Risk Factors--Consequences to Non-Tendering
Holders of Old Notes."
Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospec-
tus in connection with any resale of such New
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with re-
sales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activ-
ities or other trading activities and not ac-
quired directly from the Company. The Company has
agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connec-
tion with any such resale. See "Plan of Distribu-
tion."
Expiration Date............. 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Conditions to the Exchange The Exchange Offer is subject to certain custom-
Offer...................... ary conditions which may be waived by the Compa-
ny. See "The Exchange Offer--Conditions."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Old Each Holder of Old Notes wishing to accept the
Notes...................... Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, to-
gether with the Old Notes and any other required
documentation to the Exchange Agent (as defined
herein) at the address set forth herein. By exe-
cuting the Letter of Transmittal, each Holder
will represent to the Company that, among other
things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
New Notes, whether or not such person is the
Holder, that neither the Holder nor any such
other person has an arrangement or understanding
with any person to participate in the distribu-
tion of such New Notes and that neither the
Holder nor any such other person is an "affili-
ate," as defined under Rule 405 of the Securities
Act, of the Company. See "The Exchange Offer--
Procedures for Tendering." Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result
of market-making activities or other trading ac-
tivities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
New Notes. See "The Exchange Offer--Procedures
for Tendering" and "Plan of Distribution."
Special Procedures for Bene- Any beneficial owner whose Old Notes are regis-
ficial Owners.............. tered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender
should contact such registered Holder promptly
and instruct such registered Holder to tender on
such beneficial owner's behalf. If such benefi-
cial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and deliver-
ing his Old Notes, either make appropriate ar-
rangements to register ownership of the Old Notes
in such owner's name or obtain a properly com-
pleted bond power from the registered Holder. The
transfer of registered ownership may take consid-
erable time. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed Delivery Proce- Holders of Old Notes who wish to tender their Old
dures...................... Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Ex-
change Agent prior to the Expiration Date, must
tender their Old Notes according
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Pro-
cedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Old Notes and The Company will accept for exchange any and all
Delivery of New Notes...... Old Notes which are properly tendered in the Ex-
change Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes is-
sued pursuant to the Exchange Offer will be de-
livered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Certain Federal Income Tax
Consequences............... The exchange pursuant to the Exchange Offer
should not be treated as a taxable exchange for
federal income tax purposes. See "Certain Federal
Income Tax Considerations--Consequences of the
Exchange Offer to Exchanging and Nonexchanging
Holders."
Exchange Agent
Old Senior Notes........... Bankers Trust Company is serving as Exchange
Agent in connection with the exchange offer of
New Senior Notes for Old Senior Notes.
Old Senior Subordinated Marine Midland Bank is serving as Exchange Agent
Notes..................... in connection with the exchange offer of New Se-
nior Subordinated Notes for Old Senior Subordi-
nated Notes.
Bankers Trust Company and Marine Midland Bank are
collectively referred to herein as the "Exchange
Agent."
</TABLE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer applies to $100.0 million aggregate principal amount of
Old Senior Notes and $175.0 million aggregate principal amount of Old Senior
Subordinated Notes. The form and terms of each series of New Notes are
identical in all material respects to the form and terms of each respective
series of Old Notes except that the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. The New Senior Notes and the New Senior Subordinated Notes will
evidence the same debt as the Old Senior Notes and the Old Senior Subordinated
Notes, respectively, and will be entitled to the benefits of the Indentures.
See "Description of the New Notes."
<TABLE>
<S> <C>
Securities $100.0 million aggregate principal amount of 8 3/8% New
Offered.. Senior Notes due 2007
$175.0 million aggregate principal amount of 8 7/8% New
Senior Subordinated Notes due 2007
Issuer.... Clark Refining & Marketing, Inc.
Maturity
Date..... November 15, 2007
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Interest Payment Dates.. May 15 and November 15, commencing May 15, 1998
Optional Redemption
New Senior Notes....... The New Senior Notes will be redeemable at the option
of the Company, in whole or in part, at any time on and
after November 15, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any,
to the date of redemption. In addition, up to 35% in
aggregate principal amount of the New Senior Notes
originally issued are redeemable at the option of the
Company out of the net cash proceeds of one or more
Equity Offerings at any time prior to November 15,
2001, at a redemption price equal to 108.375% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date.
New Senior Subordinated The New Senior Subordinated Notes will be redeemable at
Notes................. the option of the Company, in whole or in part, at any
time on and after November 15, 2002 at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, up to 35% in aggregate
principal amount of New Senior Subordinated Notes
originally issued are redeemable at the option of the
Company out of the net cash proceeds of one or more
Equity Offerings at any time prior to November 15, 2001
at a redemption price equal to 108.875% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date.
Ranking
New Senior Notes....... The New Senior Notes will rank pari passu in right of
payment with all Senior Debt (as defined herein) of the
Company, which at September 30, 1997, consisted solely
of the 10 1/2% Notes, the 9 1/2% Notes and obligations
under the Credit Agreement and the Loan Agreement. On
December 24, 1997, the Company redeemed all outstanding
10 1/2% Notes. Because the New Senior Notes are
unsecured, obligations under the Credit Agreement will
effectively rank senior to the New Senior Notes to the
extent of the security in respect of the Credit
Agreement.
New Senior Subordinated The New Senior Subordinated Notes will be subordinated
Notes................. in right of payment to all Senior Debt of the Company.
As of September 30, 1997, on a pro forma basis after
giving effect to the transactions contemplated herein,
including the Debt Offering, the incurrence of the Term
Loan and the application of the net proceeds therefrom,
there would have been $418.4 million of unsubordinated
long-term indebtedness (including current portions) of
the Company (excluding available borrowings and $238.0
million of letters of credit under the Credit
Agreement).
</TABLE>
14
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<TABLE>
<S> <C>
Change of Control....... Following a Change of Control that results in a Rating
Decline (as defined herein), the Company will be
required to offer to purchase all of the New Notes at
101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance, however, that the
Company will have sufficient funds with which to
purchase the New Notes at that time, and certain
provisions of the Company's other debt agreements
(including the Credit Agreement) may further limit the
Company's ability to make such purchases. See "Risk
Factors--Change of Control Provisions in New Notes and
Existing Indebtedness" and "Description of the New
Notes."
Certain Covenants Prior
to an Investment Grade The Indentures contain certain covenants that, among
Rating Event........... other things, limit the ability of the Company to incur
or guarantee additional indebtedness, pay dividends on
and redeem capital stock, sell assets and capital
stock, enter into transactions with affiliates, create
liens, engage in mergers and consolidations or transfer
substantially all of its assets to another person.
However, all of these covenants are subject to a number
of important qualifications and exceptions. See
"Description of the New Notes."
Certain Covenants After
an Investment Grade After the occurrence of an Investment Grade Rating
Rating Event........... Event (as defined herein), certain of the covenants
described in the preceding paragraph will cease to
exist or will be modified. The Indentures contain
covenants that, among other things, limit the Company's
ability to create liens with respect to certain assets,
enter into sale-leaseback transactions and engage in
mergers and consolidations.
</TABLE>
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New Notes
offered in the Exchange Offer.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the New Notes.
15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The selected summary consolidated financial data set forth below for the
Company as of December 31, 1995 and 1996 and for each of the three years in the
period ended December 31, 1996 are derived from the audited financial
statements included elsewhere herein. The selected summary financial data set
forth below for the Company as of December 31, 1992, 1993 and 1994 and for each
of the two years in the period ended December 31, 1993 are derived from the
audited financial statements not included elsewhere herein. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes included herein. The selected summary historical data for the
nine-month periods ended September 30, 1996 and 1997 is unaudited.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales and operating
revenues.............. $2,253.0 $2,263.4 $2,440.0 $4,486.1 $5,072.7 $3,724.4 $3,296.4
Cost of sales.......... 1,952.4 1,936.6 2,092.5 4,018.3 4,560.0 3,346.3 2,791.4
Operating expenses
(a)................... 217.3 204.6 219.9 373.3 418.9 304.6 319.0
General and
administrative
expenses (a).......... 38.3 41.0 51.4 52.3 59.1 43.9 47.4
Depreciation and
amortization (b)...... 30.4 35.3 37.3 43.5 48.4 37.0 44.3
Operating income
(loss)................ 14.6 19.4 65.4 (1.3) (13.7) (7.4) 94.3
Interest and financing
costs, net (c)........ 26.4 29.9 37.6 39.9 38.7 31.2 26.3
Earnings (loss) from
continuing operations
before extraordinary
items and cumulative
effect of change in
accounting
principles............ 3.3 1.4 18.1 (25.5) (38.5) (23.9) 56.3
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments........... $ 218.3 $ 212.1 $ 134.1 $ 106.6 $ 334.3 $ 79.4 $ 285.9
Total assets........... 800.0 829.1 859.5 1,188.3 1,393.3 1,129.9 1,375.9
Long-term debt......... 401.5 401.0 400.7 420.4 417.6 417.2 415.3
Stockholder's equity... 154.2 146.0 162.9 304.1 534.1 313.6 590.5
SELECTED FINANCIAL DATA:
EBITDA, as adjusted
(d)................... $ 45.0 $ 81.2 $ 76.2 $ 42.2 $ 34.7 $ 29.6 $ 138.6
Cash flows from
operating activities.. 37.1 68.4 53.7 (85.6) 16.9 (30.3) 39.2
Cash flows from
investing activities.. (23.8) (19.8) (21.2) (134.1) 212.0 (7.5) (81.4)
Cash flows from
financing activities.. (38.7) (1.1) (5.4) 174.7 30.0 30.0 (6.1)
Ratio of earnings to
fixed charges (e)..... (f) (f) 1.56x (f) (f) (f) 2.60x
Expenditures for
turnaround............ $ 2.7 $ 20.6 $ 11.2 $ 6.5 $ 13.9 $ 7.2 $ 31.2
Expenditures for
property, plant and
equipment............. 59.5 67.9 100.3 42.1 45.0 23.3 54.0
Refinery acquisition
expenditures.......... -- -- 13.5 71.8 -- -- --
OPERATING DATA:
Refining Division:
Port Arthur Refinery
(acquired February 27,
1995)
Production (m
bbls/day)............. -- -- -- 207.7 210.8 212.0 208.5
Gross margin (per bbl)
(a)................... -- -- -- $ 2.37 $ 2.78 $ 2.49 $ 3.84
Operating expenses (per
bbl) (a).............. -- -- -- 1.90 2.13 2.06 2.23
Blue Island, Hartford
and other refining
Production (m
bbls/day)............. 142.4 134.7 140.3 136.5 134.2 136.2 141.4
Gross margin (per bbl)
(a)................... $ 3.03 $ 3.24 $ 3.48 $ 2.64 $ 2.53 $ 2.66 $ 3.94
Operating expenses (per
bbl) (a).............. 2.17 2.12 2.28 2.61 2.58 2.44 2.40
Refining contribution
to operating income
(mm).................. N/A 42.5 46.5 11.1 24.2 16.0 132.9
Retail Division:
Number of stores
(average) (g)......... 885 860 834 852 823 828 815
Gasoline volume (mm
gals)................. 956.7 1,014.8 1,028.5 1,063.8 1,031.9 777.7 771.1
Gasoline volume (m gals
pmps)................. 90.1 98.6 102.8 104.1 104.5 104.4 106.3
Gasoline gross margin
(cents/gal)........... 10.0c 11.1c 10.9c 11.4c 10.4c 10.6c 10.3c
Convenience product
sales (mm)............ $ 203.4 $ 218.0 $ 231.6 $ 252.6 $ 251.7 $ 193.7 $ 214.3
Convenience product
sales (mpmps)......... 19.2 21.2 23.1 24.7 25.5 26.0 29.2
Convenience product
gross margin and other
income (mm)........... 47.7 54.8 57.2 62.9 65.8 50.3 55.7
Convenience product
gross margin (mpmps).. 4.5 5.3 5.7 6.1 6.6 6.7 7.6
Operating expenses (mm)
(a)................... 96.0 100.1 104.6 121.6 126.2 94.4 99.3
Retail contribution to
operating income
(mm).................. N/A 52.9 45.9 45.4 25.0 24.4 18.1
</TABLE>
(footnotes on following page)
16
<PAGE>
- --------
(a) Certain reclassifications were made to prior periods to conform to current
period presentation.
(b) Amortization includes amortization of turnaround costs and organizational
costs.
(c) Interest and financing costs, net, included amortization of debt issuance
costs of $2.9 million, $1.2 million, $1.2 million, $5.2 million and $6.5
million for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
and $4.9 million and $5.3 million for the nine months ended September 30,
1996 and 1997, respectively. Interest and financing costs, net, also
included interest on all indebtedness, net of capitalized interest and
interest income.
(d) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is a commonly used non-GAAP financial measure but should not be construed
as an alternative to operating income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles ("GAAP")). EBITDA, as adjusted, does not reflect cash necessary
or available to fund cash requirements. EBITDA, as adjusted, in 1993 and
1994 excluded the write-off in 1993 and the recovery in 1994 of a $26.5
million inventory valuation adjustment.
(e) The ratio of earnings to fixed charges is computed by dividing (i) earnings
before income taxes (adjusted to recognize only distributed earnings from
less than 50% owned persons accounted for under the equity method) plus
fixed charges, excluding capitalized interest by (ii) fixed charges,
excluding capitalized interest. Fixed charges consisted of interest on
indebtedness, including amortization of discount and debt issuance costs
and the estimated interest components (one-third) of rental and lease
expense. On a pro forma basis as adjusted to give effect to the Equity
Recapitalization, the Debt Refinancing and Repayment, the Special Dividend
and fees and expenses associated with the Equity Recapitalization, as if
such transactions had occurred at the beginning of each period, earnings
would have been insufficient to cover fixed charges by an estimated $47.7
million and $64.6 million for the nine months ended September 30, 1996 and
the year ended December 31, 1996. The ratio of earnings to fixed charges
for the nine months ended September 30, 1997 would have been 2.25x on a
similar basis.
(f) As a result of the losses for the years ended December 31, 1992, 1993, 1995
and 1996, and for the nine months ended September 30, 1996, earnings were
insufficient to cover fixed charges by $2.0 million, $1.7 million, $44.0
million, $53.6 million, and $39.5 million, respectively.
(g) Ten stores did not sell fuel in 1997.
17
<PAGE>
RISK FACTORS
The New Notes involve certain risks. Prospective purchasers of the New Notes
should consider the following risk factors, as well as the other information
contained in this Prospectus.
SUBSTANTIAL LEVERAGE, HISTORY OF NET LOSSES AND INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Company has consolidated indebtedness that is substantial in relation to
its stockholder's equity. As of September 30, 1997, the Company had
outstanding unsubordinated long-term indebtedness (including current portions)
of approximately $418.4 million. As of September 30, 1997, on a pro forma
basis after giving effect to the Special Dividend, the consummation of the
Debt Offering and the Term Loan, the application of the net proceeds
therefrom, and the payment of fees and expenses associated with the Equity
Recapitalization, the Company would have had outstanding long-term
indebtedness (including current portions) of approximately $593.4 million and
stockholder's equity of approximately $356.8 million. See "Capitalization."
The Credit Agreement, the Loan Agreement, the Indentures and the Company's 9
1/2% Notes permit the incurrence of additional indebtedness by the Company
subject to certain limitations specified therein.
The Company had a net loss of $25.5 million and $38.5 million for the years
ended December 31, 1995 and December 31, 1996, respectively. As a result of
the losses for the years ended December 31, 1992, 1995 and 1996 and results
for the year ended December 31, 1993, earnings were insufficient to cover
fixed charges by $2.0 million, $44.0 million, $53.6 million and $1.7 million,
respectively. The Company may experience net losses in the future. Giving
effect to the Debt Refinancing and Repayment as if it had occurred on January
1, 1995, would have increased the deficit of the Company's earnings to cover
fixed charges and preferred stock dividend requirements.
The level of the Company's indebtedness could have several important
consequences for holders of the New Notes, including, but not limited to, the
following: (i) a significant portion of the Company's cash flow from
operations will be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (iii) the Company's leveraged
position and the covenants contained in the Indentures, the Credit Agreement
and the Loan Agreement could limit the Company's ability to compete, as well
as its ability to expand and make capital improvements; and (iv) the Company's
level of indebtedness could make it more vulnerable to economic downturns and
more sensitive to volatility in the petroleum industry, limit its ability to
withstand competitive pressures and reduce its flexibility in responding to
changing business and economic conditions.
The Company's ability to pay interest on the New Notes and to satisfy its
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond its control. The Company
anticipates that available cash, together with borrowings under the Credit
Agreement, the Loan Agreement and other sources of liquidity will be adequate
to meet the Company's anticipated requirements for working capital, capital
expenditures, interest payments and scheduled principal payments through at
least the end of 1999. There can be no assurance, however, that the Company
will continue to generate sufficient cash flow from operations in the future
to service its debt and make necessary capital expenditures. If unable to do
so, the Company may be required to reduce or delay planned capital
expenditures, seek additional financing, dispose of certain assets and/or seek
to refinance some or all of its debt. There can be no assurance that any of
these alternatives could be effected, if at all, on satisfactory terms.
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Additionally, if the Company were to sustain a decline in its operating
results or available cash, it could experience difficulty in complying with
the covenants contained in the Credit Agreement, the Loan Agreement, the
Indentures or any other agreements governing future indebtedness of the
Company. The failure to comply with such covenants could result in an event of
default under these agreements, thereby permitting acceleration of such
indebtedness as well as indebtedness under other instruments that contain
cross-acceleration and cross-default provisions.
In addition, the Company's sole stockholder, Clark USA, has substantial
indebtedness. As of September 30, 1997, on a pro forma, stand-alone basis
after giving effect to the consummation of the Equity Recapitalization, the
Special Dividend, the repurchase of the Zero Coupon Notes, the Term Loan and
the Debt Offering, Clark USA would have had outstanding long-term indebtedness
of approximately $175.0 million, and Exchangeable Preferred Stock with an
aggregate liquidation preference of $63.0 million. Clark USA has no
significant independent operations and relies on receipt of funds from the
Company to meet its debt and dividend obligations. Failure of Clark USA to
meet its debt and dividend obligations could have a material adverse effect on
the Company.
VOLATILITY OF REFINING AND MARKETING MARGINS
The Company's earnings and cash flow from operations are primarily dependent
upon processing crude oil and selling quantities of refined products at
refining and marketing margins sufficient to cover fixed and variable
expenses. Oil refining is a complex process that is subject to scheduled and
unscheduled downtime.
Crude oil costs and refined product prices depend on numerous factors beyond
the Company's control, including the supply of, and demand for, crude oil,
gasoline and other refined products which, in turn, depend on, among other
factors, changes in domestic and foreign economies, political affairs and
production levels, the availability of imports, the marketing of competitive
fuels, the extent of government regulation and expected and actual weather
conditions. The prices received by the Company for its refined products are
affected by regional factors such as product pipeline capacity, local market
conditions and the level of operations of competing refineries. A large, rapid
increase in crude oil prices would adversely affect the Company's operating
margins if the increased cost of raw materials could not be passed on to the
Company's customers. Alternatively, a large rapid decrease in crude oil prices
may adversely affect the Company's operating margins since feedstock costs are
fixed on average two to three weeks prior to the manufacture and sale of the
finished products. The Company currently purchases approximately 80% of its
crude oil requirements in the spot market, where prices are subject to market
fluctuations. Because of the Port Arthur refinery's U.S. Gulf Coast location
and the two Illinois refineries' locations on major crude oil pipelines, the
Company believes that adequate supplies of crude oil will be available in the
spot market. No assurance can be given, however, that the Company will be able
to negotiate favorable prices for crude oil on the spot market or that
adequate supplies will be available during times of shortages. See "Business--
Refining--Supply and Distribution." In recent years, crude oil costs and
prices of refined products have fluctuated substantially. Accordingly, the
Company's earnings are subject to substantial fluctuations, as reflected by
losses incurred in the fiscal years of 1992, 1995 and 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." On
occasion, the Company utilizes U.S. Gulf Coast based derivatives, such as
forward future and option contracts on crack spreads with respect to a portion
of the production of the Port Arthur refinery. While this hedging strategy is
intended to provide an acceptable profit margin on a portion of the Port
Arthur refinery production, the use of such a strategy could limit the
Company's ability to participate in an improvement in Gulf Coast crack
spreads. See "Business--Refining--Inventory Management."
INTEREST RATES
The Credit Agreement and the Loan Agreement provide for interest at rates
that fluctuate quarterly and could increase. An increase in interest rates
will increase the Company's interest expense and
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adversely affect the Company's income and cash flow available to make payments
on the New Notes and the Company's other indebtedness. See "Description of
Certain Debt Instruments."
COMPETITION
The refining and marketing segment of the oil industry is highly
competitive. Many of the Company's principal competitors are integrated
multinational oil companies that are substantially larger and better known
than the Company. Because of their diversity, integration of operations,
larger capitalization and greater resources, the major oil companies may be
better able to withstand volatile market conditions, compete on the basis of
price and more readily obtain crude oil in times of shortages. See "Business--
Competition."
LIQUIDITY
The Company's cash, cash equivalents and short-term investments as of
September 30, 1997 totalled $285.9 million. In addition, the Company's
revolving line of credit had $400.0 million available (subject to customary
borrowing conditions) for the issuance of letters of credit and short-term
cash borrowings (subject to a $50.0 million sublimit). On a pro forma basis
after giving effect to the Special Dividend, the Term Loan, the Debt Offering,
the application of the net proceeds therefrom and the payment of fees and
expenses in connection with the Equity Recapitalization, the Company's cash
and short-term investments as of such date would have been $220.0 million. As
a result of the increased indebtedness of the Company resulting from the Debt
Offering and the Term Loan, annual interest expense will increase. There are a
number of other factors which may have a material effect on the Company's
liquidity, including the following:
The Company's short-term working capital requirements (primarily letter of
credit issuances to support crude oil requirements) fluctuate with the pricing
and sourcing of crude oil. Historically, the Company's internally generated
cash flows have been sufficient to meet its needs. The Company's Credit
Agreement is a revolving line of credit for short-term cash borrowings and for
the issuance of letters of credit in an amount equal to the lesser of $400.0
million or a borrowing base calculated with reference to cash and cash
equivalents, eligible investments, eligible receivables and eligible petroleum
inventories. As of September 30, 1997, the maximum commitment under the
Company's Credit Agreement was $400.0 million, of which $238.0 million was
used for letters of credit; there were no direct borrowings as of such date.
The Credit Agreement will expire December 31, 1999. To the extent the Company
is unable to refinance its working capital facility on a timely basis and on
satisfactory terms, there can be no assurance that the Company will have
adequate liquidity. In addition, the Company is required to comply with
certain financial covenants contained in the Credit Agreement. There can be no
assurance that the Company will remain in compliance with such covenants if
industry conditions weaken and continue for an extended period of time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "--Volatility of Refining and
Marketing Margins" and Note 7 "Working Capital Facility" to the Consolidated
Financial Statements.
The Company also has a number of longer term needs for cash. The Company
estimates that mandatory capital expenditures, including environmental and
regulatory expenditures and other nondiscretionary expenditures, from 1997
through 1999 will be approximately $65.0 million per year. While the Company
expects that cash flows from operations will be sufficient to support such
capital expenditures, there can be no assurance in this regard. The Company
links discretionary capital spending to cash flow generated and, as of
September 30, 1997, did not have any material long-term commitments for
discretionary capital expenditures. If cash flows from operations are
insufficient to support such mandatory and discretionary capital expenditures,
the Company may be required to seek additional financing or postpone such
capital expenditures. There can be no assurance that any such
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additional financing could be obtained or, if obtained, that the terms of any
such financing would be satisfactory to the Company.
The Company's 9 1/2% Notes and the Term Loan become due in 2004. The Company
may not have sufficient funds to repay in full the entire amount of such
obligations when they become due and would therefore be required to refinance
all or a portion of such obligations at or prior to their maturity.
In connection with the Port Arthur Refinery acquisition, the Company agreed
to make contingent payments to Chevron of up to $125.0 million over a five-
year period beginning in February 1995 in the event that certain refining
industry margin indicators exceed certain escalating levels. Such contingent
payments were not payable based upon these industry margin indicators for the
first three measurement periods through September 30, 1995, 1996 and 1997. The
Company believes that, even if such contingent payments would be required to
be made, they would not have a material adverse effect on the Company's
financial position or results of operations since the Company would also
benefit from such increased margins.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indentures, the Credit Agreement and the Loan Agreement contain certain
covenants that restrict, among other things, the ability of the Company to
incur additional indebtedness, incur liens, pay dividends or make certain
other restricted payments, consummate certain asset sales or asset swaps,
enter into certain transactions with affiliates, impose restrictions on the
ability of a subsidiary to pay dividends or make certain payments, enter into
sale and leaseback transactions, conduct businesses other than their current
business, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
their assets. The Credit Agreement also requires the Company to satisfy
certain financial condition tests. The ability of the Company to meet these
financial condition tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. A breach of
any of these covenants could result in a default under the Credit Agreement,
the Loan Agreement or the Indentures. Upon an occurrence of an event of
default under the Credit Agreement, the Loan Agreement or the Indentures, the
lenders thereunder could elect to declare all amounts outstanding thereunder,
together with accrued interest, to be immediately due and payable. In the case
of the Credit Agreement, if the Company were unable to repay those amounts,
the lenders thereunder could proceed against the collateral granted to them to
secure that indebtedness. If the Credit Agreement indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of
the Company. See "Description of Certain Debt Instruments."
SUBORDINATED AND UNSECURED STATUS OF NEW SENIOR SUBORDINATED NOTES
The New Senior Subordinated Notes will be unsecured and subordinated in
right of payment to all existing and future Senior Debt of the Company. By
reason of such subordination, in the event of an insolvency, liquidation or
other reorganization of the Company, the Senior Debt must be paid in full
before the principal of or the interest on the New Senior Subordinated Notes
may be paid. In addition, under certain circumstances, no payments may be made
with respect to the principal of or interest on the New Senior Subordinated
Notes if a default exists with respect to certain Senior Debt. Accordingly,
there may be insufficient assets remaining after payment of prior claims to
pay amounts due on the New Senior Subordinated Notes. See "Description of the
New Notes--Ranking."
CARRYOVER TAX ATTRIBUTES--RESTRICTIONS ON AVAILABILITY
The Company files a consolidated U.S. federal income tax return with Clark
USA. A substantial portion of the carryover tax attributes of the Clark USA
consolidated tax return group (the "Group") was
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contributed by the Company. The members of the Group, including the Company,
have entered into a tax sharing agreement with Clark USA which provides for
cash payments in the event carryover tax attributes are used to reduce the
Group's consolidated tax liability.
At December 31, 1996, the Group had available to it approximately $200.0
million (Company--$172.0 million) of net operating loss carryforwards for
regular federal income tax purposes, and approximately $90.0 million
(Company--$70.0 million) of net operating loss carryforwards for federal
alternative minimum tax ("AMT") purposes (together, the "NOLs"). In addition,
the Group had available to it approximately $14.0 million (Company--$13.0
million) in various tax credit carryforwards. The Group and the Company
believe that they have generated additional regular tax net operating loss
carryforwards and AMT net operating loss carryforwards in their tax year which
ended December 31, 1997. These NOLs would expire beginning in 2009 through
2012. The Internal Revenue Service (the "IRS") has not examined the Group's
tax returns for all of the years in which the Group reported NOLs and tax
credit carryforwards, and these amounts could therefore be subject to
adjustment.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended
(the "Code"), however, restrictions on the utilization of NOLs or credit
carryovers (the "382 Limit") will apply if there is an "ownership change" of a
corporation entitled to use such carryovers. The Blackstone Transaction
resulted in an "ownership change" of the Group for this purpose. Following the
date of this ownership change (the "change date"), the Group will be permitted
to utilize only a specified portion of its NOLs and credit carryovers in any
taxable year or portion thereof following the ownership change. While the
Group has not finally determined the amount of NOLs which it will be permitted
to utilize annually in periods after the change date, the 382 Limit could
significantly reduce the Company's ability to fully utilize the benefit of
such NOLs.
CHANGE OF CONTROL PROVISIONS IN NEW NOTES AND EXISTING INDEBTEDNESS
The Change of Control feature of the New Notes may, in certain
circumstances, make it more difficult or discourage a takeover of Clark USA
and, as a result, may make removal of incumbent management more difficult. The
Change of Control purchase feature, however, is not the result of the
Company's knowledge of any specific effort to accumulate Clark USA's stock or
to obtain control of Clark USA or the Company by means of a merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of antitakeover provisions. Instead, the Change of Control purchase
feature is a result of negotiations between the Company and the Initial
Purchasers. Clark USA has no present intention to engage in a transaction
involving a Change of Control, although it is possible that Clark USA could
decide to do so in the future.
The Blackstone Transaction constitutes a "change of control" under the
indenture which governs the 9 1/2% Notes. Pursuant to such indenture, the
Company has offered to purchase the 9 1/2% Notes, such offer to expire on
March 9, 1998, at 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest, if any, to the repurchase date. As of the date hereof,
there are $175.0 million aggregate principal amount of 9 1/2% Notes
outstanding. There can be no assurance that the holders of a material portion
of the 9 1/2% Notes will not tender their 9 1/2% Notes in response to the
required repurchase offer. In the event a material portion of the 9 1/2% Notes
is tendered, the Company or Clark USA would be required to obtain new
financing to the extent necessary to satisfy the repurchase obligation. A
failure to obtain the required financing on acceptable terms would have a
material adverse effect on the Company and the New Notes.
ENVIRONMENTAL LIABILITIES AND GOVERNMENTAL REGULATIONS
The Company's operations are subject to comprehensive and frequently
changing federal, state and local environmental laws and regulations. These
laws, and the regulations promulgated thereunder, set forth stringent
environmental standards for the Company's operations and provide for
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civil and criminal penalties for violations. Any new environmental
initiatives, more vigorous regulatory enforcement policies or stricter
interpretation of existing laws could have a material adverse effect on the
financial condition or results of operations of the Company. Any such
development could require significant additional expenditures to achieve
compliance with such requirements or policies. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Business--Environmental Matters" and "Business--Legal
Proceedings."
The Company's operations also are subject to liability for the investigation
and cleanup of environmental contamination at properties that it owns and
operates and at off-site locations where the Company arranged for the disposal
of hazardous substances. The Company is involved in several proceedings
relating to its liability for the investigation and cleanup of such sites.
There can be no assurance that the Company will not become involved in further
litigation or other proceedings or that, if the Company were to be held
responsible for damages in any litigation or proceedings (including existing
ones), such costs would be covered by insurance or would not be material. See
"Business-- Environmental Matters" and "Business--Legal Proceedings." In
addition, the Company believes that there is extensive contamination at the
site on which the Port Arthur Refinery is located. Pursuant to the purchase
agreement governing the Port Arthur Refinery acquisition (the "Purchase
Agreement"), Chevron retained primary responsibility for remediation of most
pre-closing contamination and the Company retained responsibility for the
remediation under the active operating units (the "Excluded Areas"). If
Chevron should be unable to meet its obligations under the Purchase Agreement
regarding remediation of contamination on the remainder of the site, on
account of bankruptcy or otherwise, the Company may become responsible for
such remediation.
In addition to liability for the cleanup of environmental contamination, the
Company is also subject to liability for violations of environmental, health
and safety laws that regulate its current operations. The Illinois Attorney
General, the U.S. Attorney and the United States Environmental Protection
Agency (the "EPA") have filed or have threatened to file a number of
enforcement actions relating to the Blue Island refinery. The Hartford
refinery is also the subject of a Clean Air Act enforcement by the EPA. See
"Business--Environmental" and "Business--Legal Proceedings."
While it is not possible at this time to estimate the ultimate amount of
liability with respect to the currently identified environmental matters
described above, the Company is of the opinion that the aggregate amount of
such liability will not have a material adverse effect on its financial
position; however, an adverse outcome of any one or more of these matters
could have a material effect on quarterly or annual operating results or cash
flows when resolved in a future period.
The Company's operations are large and complex. The numerous environmental
regulations to which the Company is subject are complicated, sometimes
ambiguous, and often changing. In addition, the Company may not have detected
certain violations of environmental laws and regulations because the
conditions that constitute such violations may not be apparent. It is
therefore possible that certain of the Company's operations are not currently
in compliance with state or federal environmental laws and regulations.
Accordingly, the Company may be required to make additional expenditures to
comply with existing environmental requirements. Such expenditures, along with
fines or other penalties for noncompliance with environmental requirements,
could have a material adverse effect on the Company's financial condition,
results of operations, cash flow or liquidity.
Cigarette sales account for approximately 56% of the Company's convenience
product sales. In recent years, governmental entities in the U.S. at all
levels have taken or have proposed actions that may have the effect of
reducing sales of cigarettes in general or sales of cigarettes through
convenience stores. A significant reduction in the consumption of cigarettes
or in the ability of convenience stores to market cigarettes, may have a
significant, adverse effect on the Company's convenience product sales.
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INFLUENCE OF PRINCIPAL STOCKHOLDER
Blackstone beneficially owns approximately 73.3% of the total voting power
of all classes of Clark USA's capital stock. Currently, three of Clark USA's
six directors and the Company's five directors are affiliated with Blackstone.
Accordingly, Blackstone is in a position to exert a controlling influence over
Clark USA and the Company. The relationship with Blackstone creates the
potential for conflicts of interest between the Company and Blackstone. See
"Management--Security Ownership of Certain Owners and Management" and "Certain
Transactions."
LACK OF PUBLIC MARKET
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes or
the ability of holders of the New Notes to sell their New Notes or the price
at which such holders may be able to sell their New Notes. If such a market
were to develop, the New Notes could trade at prices that may be higher or
lower than the principal amount of the New Notes depending on many factors,
including prevailing interest rates, the Company's operating results and the
market for similar securities. The Initial Purchasers have advised the Company
that they currently intend to make a market in each series of the New Notes.
The Initial Purchasers are not obligated to do so, however, and any market-
making with respect to the New Notes may be discontinued at any time without
notice. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or that an active public market for any
series of the New Notes will develop. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will
not be subject to similar disruptions. Any such disruptions may have an
adverse effect on holders of the New Notes.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Old Notes. Thereafter, any Holder of Old Notes who
does not tender its Old Notes in the Exchange Offer, including any Holder
which is an "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company which cannot tender its Old Notes in the Exchange Offer,
will continue to hold restricted securities which may not be offered, sold or
otherwise transferred, pledged or hypothecated except pursuant to Rule 144 and
Rule 144A under the Securities Act or pursuant to any other exemption from
registration under the Securities Act relating to the disposition of
securities, provided that an opinion of counsel is furnished to the Company
that such an exemption is available.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain obligations of the Company
under the Registration Agreement. The Company will not receive any proceeds
from the issuance of the New Notes offered in the Exchange Offer.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on November 21, 1997 to the Initial
Purchasers, which placed the Old Notes with institutional investors. In
connection therewith, the Company entered into the Registration Agreement,
which required that, within 90 days following the issuance of the Old Notes,
the Company file with the Commission a registration statement under the
Securities Act with respect to the issuance of New Notes, use its best efforts
to cause such registration statement to become effective under the Securities
Act and, upon the effectiveness of that registration statement, offer to the
Holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of New Notes, which will be issued without a restrictive
legend and may be reoffered and resold by such Holders without restrictions or
limitations under the Securities Act. A copy of the Registration Agreement has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer
means any person (i) in whose name Old Notes are registered on the books of
the Company or any other person who has obtained a properly completed bond
power from the registered holder or (ii) whose Old Notes are held of record by
DTC who desires to deliver such Old Notes by book-entry transfer at DTC.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any Holder thereof (other than
(i) a broker-dealer who purchases such New Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act; provided that the Holder is acquiring such New Notes in its ordinary
course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. Persons wishing to exchange Old Notes in the Exchange Offer must
represent to the Company that such conditions have been met. Any Holder who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes could not rely on such interpretation by the
staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. In addition, any such resale transaction should be covered
by an effective registration statement containing the selling security holders
information required by Item 507 of Regulation S-K of the Securities Act.
Further, any Holder who may be deemed an "affiliate" of the Company cannot
rely on the interpretation by the staff of the Commission set forth in the
above-referenced no-action letters with respect to resales of the New Notes
without compliance with the registration and prospectus delivery requirements
of the Securities Act.
In addition, each broker-dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution."
As a result of the filing and the effectiveness of the Registration
Statement and the consummation of the Exchange Offer, the Company's obligation
to make certain semi-annual payments with respect to the Old Notes will be
terminated. The Old Notes were issued to a small number of sophisticated
investors on November 21, 1997 and there is no public market for them at
present. To the extent Old Notes are tendered and accepted in the exchange,
the principal amount of outstanding Old Notes will decrease with a resulting
decrease in the liquidity in the market therefor. Following the consummation
of the Exchange Offer, Holders of Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Notes could be adversely affected.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Senior Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Senior Notes in exchange for each $1,000 principal amount of
outstanding Old Senior Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Senior Notes pursuant to the Exchange Offer.
However, Old Senior Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the New Senior Notes will be identical in all material
respects to the form and terms of the Old Senior Notes except that the New
Senior Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof. The New Senior Notes
will evidence the same debt as the Old Senior Notes and will be entitled to
the benefits of the Senior Note Indenture (as defined herein).
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Senior Subordinated Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of New Senior Subordinated Notes in exchange for each
$1,000 principal amount of outstanding Old Senior Subordinated Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Senior
Subordinated Notes pursuant to the Exchange Offer. However, Old Senior
Subordinated Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Senior Subordinated Notes will be identical in
all material respects to the form and terms of the Old Senior Subordinated
Notes except that the New Senior Subordinated Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof. The New Senior Subordinated Notes will evidence the same
debt as the Old Senior Subordinated Notes and will be entitled to the benefits
of the Senior Subordinated Note Indenture (as defined herein).
As January 16, 1998, $100.0 million aggregate principal amount at maturity
of the Old Senior Notes and $175.0 million aggregate principal amount of the
Old Senior Subordinated Notes are outstanding and there are registered
Holders of the Old Notes. This Prospectus, together with the Letter of
Transmittal, is being sent to all such registered Holders as of January ,
1998.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indentures in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
applicable Exchange Agent. The applicable Exchange Agent will act as agent for
the tendering Holders for the purpose of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
26
<PAGE>
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent or (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the Company
will extend the Exchange Offer for a period of five (5) to ten (10) business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five (5) to ten (10) business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or (in the case of a
book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be
tendered effectively, the Old Notes, Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth
below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. The term "Agent's Message" means a message, transmitted by
DTC to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant, which acknowledgment states that such
participant has received and agrees to be bound by the Letter of Transmittal
and that the Company may enforce such Letter of Transmittal against such
participant.
Book-Entry Delivery of the Old Notes. Within two business days after the
date of this Exchange Offer, the Exchange Agent will establish an account with
respect to the Old Notes at DTC for purposes of the Exchange Offer. Any
financial institution that is a participant in the DTC system may make book-
entry delivery of Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry at DTC, the
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, or (in the case of a book-entry transfer through the DTC Automatic
Tender Offer Program ("ATOP")) an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must be transmitted to and
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date at one of its addresses set forth in "--Exchange Agent."
DELIVERY
27
<PAGE>
OF SUCH DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for such Holders.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond power are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of
28
<PAGE>
Old Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "--Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, that neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the Holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company. If the Holder is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
such Holder by tendering will acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, may affect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes to be tendered in proper form for transfer (or a
confirmation of a book-transfer into the Exchange Agent's account at DTC of
Old Notes delivered electronically) and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer to be tendered in proper form for
transfer (or a confirmation of a book-transfer into the Exchange Agent's
account at DTC of Old Notes delivered electronically) and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within five (5) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify
29
<PAGE>
the name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes into the name of the person withdrawing the tender,
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company in its sole discretion, which determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Properly withdrawn Old Notes may be retendered by following the
procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without
cost to such Holder.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Old Notes for, any New Notes,
and may terminate the Exchange Offer as provided herein before the acceptance
of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering Holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of Holders to withdraw
such Old Notes (see "--Withdrawal of Tenders"), or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and the Company will extend the
Exchange Offer for a period of five (5) to ten (10) business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five (5) to ten (10) business day period.
30
<PAGE>
EXCHANGE AGENT
Exchange Agent for New Senior Notes. Bankers Trust Company has been
appointed as Exchange Agent for the exchange of New Senior Notes for Old
Senior Notes, pursuant to the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail: By Overnight Courier:
BT Services Tennessee, Inc. BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust & Agency Group
P.O. Box 292737 Reorganization Unit
Nashville, Tennessee 37229-2737 648 Grassmere Park Road
Nashville, Tennessee 37211
By Hand:
Attn: Reorganization Department
Bankers Trust Company
Corporate Trust & Agency Group
Confirm by Telephone
(615) 835-3572
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
By Facsimile:
(615) 835-3701
Exchange Agent for New Senior Subordinated Notes. Marine Midland Bank has
been appointed as Exchange Agent for the exchange of New Senior Subordinated
Notes for Old Senior Subordinated Notes pursuant to the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Registered or Certified Mail: By Overnight Courier:
Marine Midland Bank Marine Midland Bank
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
140 Broadway, Level A 140 Broadway, Level A
New York, New York 10005-1180 New York, New York 10005-1180
By Hand:
Marine Midland Bank
140 Broadway, Level A
New York, New York 10005-1180
By Facsimile:
(212) 658-2292
31
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and will pay the reasonable fees and expenses of one firm acting as counsel
for the Holders of Old Notes should such Holders deem it advisable to appoint
such counsel.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$150,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized upon
consummation of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
32
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to give effect to the Special Dividend,
the payment of fees and expenses associated with the Equity Recapitalization,
the borrowing of $125.0 million pursuant to the Term Loan and the Debt
Offering and the application of a portion of the net proceeds therefrom to
redeem the 10 1/2% Notes. The table should be read in conjunction with the
Consolidated Financial Statements of the Company, and the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-----------------
AS
ACTUAL ADJUSTED
-------- --------
(IN MILLIONS)
<S> <C> <C>
CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS.......... $ 285.9 $220.0
======== ======
LONG-TERM DEBT(A):
10 1/2% Notes............................................ $ 225.0 $ --
9 1/2% Notes............................................. 175.0 175.0
Term Loan................................................ -- 125.0
New Senior Notes......................................... -- 100.0
New Senior Subordinated Notes............................ -- 175.0
Capital leases and other................................. 15.3 15.3
-------- ------
Total long-term debt................................... $ 415.3 $590.3
-------- ------
STOCKHOLDER'S EQUITY:
Common, $0.01 par value (100 shares issued and
outstanding)............................................ $ -- $ --
Paid-in-capital.......................................... 464.2 249.2(b)
Retained earnings........................................ 126.3 107.6(c)
-------- ------
Total stockholder's equity............................. $ 590.5 $356.8
-------- ------
Total capitalization................................... $1,005.8 $947.1
======== ======
</TABLE>
- --------
(a) Does not reflect the utilization of $238.0 million at September 30, 1997
under the Credit Agreement to support outstanding letters of credit. The 9
1/2% Notes are subject to a repurchase offer by the Company, expiring on
March 9, 1998, as a result of the Blackstone Transaction. See "Risk
Factors--Change of Control Provisions in New Notes and Existing
Indebtedness."
(b) Includes a return of capital to Clark USA of $215.0 million which enabled
it to consummate the Tender Offer and redeem any Zero Coupon Notes not
tendered.
(c) Includes an extraordinary charge of $9.7 million associated with the Debt
Offering for redemption premiums and unamortized deferred financing costs
and $9.0 million of fees and estimated expenses in connection with the
Equity Recapitalization. See "Certain Transactions."
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial data set forth below for the Company as
of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 are derived from the audited financial statements
included elsewhere herein. The selected financial data set forth below for the
Company as of December 31, 1992, 1993, and 1994 and for each of the two years
in the period ended December 31, 1993 are derived from the audited financial
statements not included elsewhere herein. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and
related notes included herein. The selected historical data for the nine
months ended September 30, 1996 and 1997 is unaudited.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ----------- ----------
(IN MILLIONS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales and operating
revenues.............. $2,253.0 $2,263.4 $2,440.0 $4,486.1 $5,072.7 $3,724.4 $3,296.4
Cost of sales.......... 1,952.4 1,936.6 2,092.5 4,018.3 4,560.0 3,346.3 2,791.4
Operating expenses
(a)................... 217.3 204.6 219.9 373.3 418.9 304.6 319.0
General and
administrative
expenses (a).......... 38.3 41.0 51.4 52.3 59.1 43.9 47.4
Inventory (recovery of)
write-down to market
value................. -- 26.5 (26.5) -- -- -- --
Depreciation and
amortization (b)...... 30.4 35.3 37.3 43.5 48.4 37.0 44.3
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................ $ 14.6 $ 19.4 $ 65.4 $ (1.3) $ (13.7) $ (7.4) $ 94.3
Interest and financing
costs, net (c)........ 26.4 29.9 37.6 39.9 38.7 31.2 26.3
Other income (expense)
(d)................... 14.7 11.4 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before taxes,
extraordinary items
and cumulative effect
of change in
accounting
principles............ $ 2.9 $ 0.9 $ 27.8 $ (41.2) $ (52.4) $ (38.6) $ 68.0
Income tax provision
(benefit)............. (0.4) (0.5) 9.7 (15.7) (13.9) (14.7) 11.7
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before extraordinary
items and cumulative
effect of change in
accounting
principles............ $ 3.3 $ 1.4 $ 18.1 $ (25.5) $ (38.5) $ (23.9) $ 56.3
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments........... $ 218.3 $ 212.1 $ 134.1 $ 106.6 $ 334.3 $ 79.4 $ 285.9
Total assets........... 800.0 829.1 859.5 1,188.3 1,393.3 1,129.9 1,375.9
Long-term debt......... 401.5 401.0 400.7 420.4 417.6 417.2 415.3
Stockholder's equity... 154.2 146.0 162.9 304.1 534.1 313.6 590.5
SELECTED FINANCIAL DATA:
EBITDA, as adjusted
(e)................... $ 45.0 $ 81.2 $ 76.2 $ 42.2 $ 34.7 $ 29.6 $ 138.6
Cash flows from
operating activities.. 37.1 68.4 53.7 (85.6) 16.9 (30.3) 39.2
Cash flows from
investing activities.. (23.8) (19.8) (21.2) (134.1) 212.0 (7.5) (81.4)
Cash flows from
financing activities.. (38.7) (1.1) (5.4) 174.7 30.0 30.0 (6.1)
Ratio of earnings to
fixed charges (f)..... (g) (g) 1.56x (g) (g) (g) 2.60x
Expenditures for
turnaround............ 2.7 20.6 11.2 6.5 13.9 7.2 31.2
Expenditures for
property, plant and
equipment............. 59.5 67.9 100.3 42.1 45.0 23.3 54.0
Refinery acquisition
expenditures.......... -- -- 13.5 71.8 -- -- --
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------ ------
(IN MILLIONS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Refining Division
Port Arthur Refinery
(acquired February 27,
1995)
Production (m
bbls/day).............. -- -- -- 207.7 210.8 212.0 208.5
Gross margin (per bbl)
(a).................... -- -- -- $ 2.37 $ 2.78 $ 2.49 $ 3.84
Operating expenses (per
bbl) (a)............... -- -- -- 1.90 2.13 2.06 2.23
Blue Island, Hartford
and other refining
Production (m
bbls/day).............. 142.4 134.7 140.3 136.5 134.2 136.2 141.4
Gross margin (per bbl).. $ 3.03 $ 3.24 $ 3.48 $ 2.64 $ 2.53 $ 2.66 $ 3.94
Operating expenses (per
bbl) (a)............... 2.17 2.12 2.28 2.61 2.58 2.44 2.40
Refining contribution to
operating income (mm).. N/A 42.5 46.5 11.1 24.2 16.0 132.9
Retail Division:
Number of stores
(average) (h).......... 885 860 834 852 823 828 815
Gasoline volume (mm
gals).................. 956.7 1,014.8 1,028.5 1,063.8 1,031.9 777.7 771.1
Gasoline volume (m gals
pmps).................. 90.1 98.6 102.8 104.1 104.5 104.4 106.3
Gasoline gross margin
(cents/gal)............ 10.0c 11.1c 10.9c 11.4c 10.4c 10.6c 10.3c
Convenience product
sales (mm)............. $203.4 $ 218.0 $ 231.6 $ 252.6 $ 251.7 $193.7 $214.3
Convenience product
sales (pmps)........... 19.2 21.2 23.1 24.7 25.5 26.0 29.2
Convenience product
gross margin and other
income (mm)............ 47.7 54.8 57.2 62.9 65.8 50.3 55.7
Convenience product
gross margin (pmps).... 4.5 5.3 5.7 6.1 6.6 6.7 7.6
Operating expenses (mm)
(a).................... 96.0 100.1 104.6 121.6 126.2 94.4 99.3
Retail contribution to
operating income (mm).. N/A 52.9 45.9 45.4 25.0 24.4 18.1
</TABLE>
- --------
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
(b) Amortization includes amortization of turnaround costs and organizational
costs.
(c) Interest and financing costs, net, included amortization of debt issuance
costs of $2.9 million, $1.2 million, $1.2 million, $5.2 million and $6.5
million for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
and $4.9 million and $5.3 million for the nine months ended September 30,
1996 and 1997, respectively. Interest and financing costs, net, also
included interest on all indebtedness, net of capitalized interest and
interest income.
(d) Other expense in 1994 included financing costs associated with a withdrawn
debt offering. Other income in 1993 included the final settlement of
litigation with Drexel Burnham Lambert Incorporated ("Drexel") of $8.5
million and a gain from the sale of noncore stores of $2.9 million. Other
income in 1992 included the settlement of litigation with Apex Oil Company
("Apex") and Drexel of $9.2 million and $5.5 million, respectively.
(e) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is a commonly used non-GAAP financial measure but should not be construed
as an alternative to operating income or cash flows from operating
activities as determined in accordance with GAAP. EBITDA, as adjusted,
does not reflect cash necessary or available to fund cash requirements.
EBITDA, as adjusted, in 1993 and 1994 excluded the write-off in 1993 and
the recovery in 1994 of a $26.5 million inventory valuation adjustment.
(f) The ratio of earnings to fixed charges is computed by dividing (i)
earnings before income taxes (adjusted to recognize only distributed
earnings from less than 50% owned persons accounted for under the equity
method) plus fixed charges, excluding capitalized interest by (ii) fixed
charges, excluding capitalized interest. Fixed charges consisted of
interest on indebtedness, including amortization of discount and debt
issuance costs and the estimated interest components (one-third) of rental
and lease expense. On a pro forma basis as adjusted to give effect to the
Equity Recapitalization, the Debt Refinancing and Repayment, the Special
Dividend and the fees and expenses associated with the Equity
Recapitalization, as if such transactions had occurred at the beginning of
each period, earnings would have been insufficient to cover fixed charges
by an estimated $47.7 million and $64.6 million for the nine months ended
September 30, 1996 and the year ended December 31, 1996, respectively. The
ratio of earnings to fixed charges for the nine months ended September 30,
1997 would have been 2.25x on a similar basis.
(g) As a result of the losses for the years ended December 31, 1992, 1993,
1995 and 1996, and for the nine months ended September 30, 1996 earnings
were insufficient to cover fixed charges by $2.0 million, $1.7 million,
$44.0 million, $53.6 million and $39.5 million, respectively.
(h) Ten stores included in 1997 did not sell fuel.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Overview
The Company's results are significantly affected by a variety of factors
beyond its control, including the supply of, and demand for, crude oil,
gasoline and other refined products which, in turn, depend on, among other
factors, changes in domestic and foreign economies, weather conditions,
domestic and foreign political affairs and production levels, the availability
of imports, the marketing of competitive fuels and the extent of government
regulation. Although margins are significantly affected by industry and
regional factors, the Company can influence its margins through the efficiency
of its operations. While the Company's net sales and operating revenues
fluctuate significantly with movements in industry crude oil prices, such
prices do not generally have a direct long-term relationship to net earnings.
Crude oil price movements may impact net earnings in the short term because of
fixed crude oil purchase commitments which average approximately five million
barrels. See "--Refining." The effect of changes in crude oil prices on the
Company's operating results is determined more by the rate at which the prices
of refined products adjust to reflect such changes. The Company believes that,
in general, low crude oil prices indirectly benefit operating results over the
longer term due to increased demand and decreased working capital
requirements. Conversely, the Company believes that high crude oil prices
generally result in decreased demand and increased working capital
requirements over the long term. Increased refinery production is typically
associated with improved results of operations, while reduced production,
which generally occurs during scheduled refinery maintenance turnarounds,
negatively affects results of operations.
The following table illustrates the potential pre-tax earnings impact based
on historical operating rates estimated by the Company resulting from changes
in: (i) sweet crude oil cracking margins--the spread between gasoline and
diesel fuel prices and input (e.g., a benchmark light sweet crude oil) costs;
(ii) sweet/sour differentials--the spread between a benchmark light sour crude
oil and a benchmark light sweet crude oil; (iii) heavy/light differentials--
the spread between a benchmark light sweet crude oil and a benchmark heavy
sour crude oil; and (iv) retail margins--the spread between product prices at
the retail level and wholesale product costs.
<TABLE>
<CAPTION>
PRE-
TAX EARNINGS IMPACT ON THE COMPANY(A)
----------------------------------------
BEFORE PORT AFTER PORT
ARTHUR ARTHUR
EARNINGS SENSITIVITY CHANGE ACQUISITION ACQUISITION
- -------------------- ---------------- ----------- -----------
<S> <C> <C> <C>
Refining margins
Sweet crude cracking margin......... $0.10 per barrel $ 5 million $12 million
Sweet sour differentials............ 0.10 per barrel 3 million 9 million
Heavy light differentials........... 0.10 per barrel 1 million 2 million
Retail margins........................ $0.01 per gallon $10 million $10 million
</TABLE>
- --------
(a) Based on an assumed production of approximately 212,000 bpd for the Port
Arthur refinery and 140,000 bpd for the Illinois refineries.
36
<PAGE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
(IN MILLIONS, UNAUDITED)
<S> <C> <C>
FINANCIAL RESULTS:
Net sales and operating revenues.................... $ 3,724.4 $ 3,296.4
Cost of sales....................................... 3,346.3 2,791.4
Operating expenses(a)............................... 304.6 319.0
General and administrative expenses(a).............. 43.9 47.4
Depreciation and amortization....................... 37.0 44.3
Interest expense and financing costs................ 36.4 36.6
Interest and finance income......................... 5.2 10.3
------------ ------------
Earnings (loss) before income taxes................. (38.6) 68.0
Income tax (provision) benefit...................... 14.7 (11.7)
------------ ------------
Net earnings (loss)................................. $ (23.9) $56.3
============ ============
OPERATING INCOME:
Refining contribution to operating income........... $ 16.0 $ 132.9
Retail contribution to operating income............. 24.4 18.1
Corporate general and administrative expenses....... 10.8 12.4
------------ ------------
29.6 138.6
Depreciation and amortization....................... 37.0 44.3
------------ ------------
Operating income (loss)............................. $ (7.4) $ 94.3
============ ============
</TABLE>
- --------
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
The Company reported consecutive record net quarterly earnings of $42.6
million and $51.2 million for the second and third quarters of 1997,
respectively, which compared to net losses of $1.0 million and $9.3 million in
the comparable periods of 1996. For the nine months ended September 30, 1997,
the Company recorded net earnings of $56.3 million which was improved over a
net loss of $23.9 million in the year-earlier period. The Company recorded
EBITDA of $138.6 million for the first nine months of 1997 versus $29.6
million in the same period of 1996. Refining division results improved
significantly in the second and third quarters of 1997 over the comparable
periods in the previous year and over the first quarter of 1997 due to good
unit reliability and an improvement in refining industry fundamentals,
particularly crude oil quality differentials. A significant fall in crude oil
prices and the hypothetical cost of lost production associated with a major
maintenance turnaround reduced pre-tax earnings in the first nine months of
1997 by an estimated $42.5 million. An increase in crude oil prices generated
a pre-tax gain of $20.4 million in the first nine months of 1996. After
adjusting for these material items, the Company would have generated EBITDA of
$181.1 million in the first nine months of 1997 versus $9.2 million in the
same period of 1996. The Company recorded an income tax provision of $11.7
million for the first nine months of 1997 primarily for the settlement of
prior-period audit examinations as determined under the Company's tax sharing
agreement with Clark USA. As compared to 1996, the Company recorded a lower
tax provision for current-year earnings due to its cumulative tax loss
carryforward position. See additional operating cash flow disclosures in
"Selected Consolidated Financial and Other Data."
Net sales and operating revenues decreased approximately 11% in the first
nine months of 1997 as compared to the prior year. This decrease was
principally the result of the crude oil price decline, noted above, that
reduced both sales and cost of goods sold. In addition, the major maintenance
turnaround at the Port Arthur refinery reduced the Company's production and
sales of refined products.
37
<PAGE>
REFINING
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1996 1997
----------- -----------
(IN MILLIONS,
EXCEPT PER BARREL DATA)
<S> <C> <C>
REFINING DIVISION OPERATING STATISTICS:
PORT ARTHUR REFINERY
Crude oil throughput (m bbls/day).................. 201.7 201.3(a)
Production (m bbls/day)............................ 212.0 208.5
Gross margin ($ per barrel of production).......... $ 2.49 $ 3.84
Operating expenses................................. 119.7 127.1
Net margin......................................... $ 25.0 $ 91.5
BLUE ISLAND, HARTFORD AND OTHER REFINING
Crude oil throughput (m bbls/day).................. 135.1 135.6
Production (m bbls/day)............................ 136.2 141.4
Gross margin ($ per barrel of production).......... $ 2.66 $ 3.94
Operating expenses................................. 91.1 92.6
Net margin......................................... $ 8.2 $ 59.1
Divisional general and administrative expenses....... 17.2 17.7
Contribution to earnings............................. $ 16.0 $ 132.9
</TABLE>
- --------
(a) 1997 crude oil throughput and production reflected scheduled downtime on
most processing units for approximately one month during a first quarter
maintenance turnaround.
Despite the large negative impact from the fall in crude oil prices and the
major maintenance turnaround at the Port Arthur refinery discussed in more
detail below, refining contribution for the nine months ended September 30,
1997 was $132.9 million in 1997 versus $16.0 million in 1996. Earnings for the
first nine months of 1997 increased due to improved yields and throughput and
wider crude oil quality differentials. Crude oil quality differential
indicators for light sour crude oil improved from $1.06 per barrel to $1.71
per barrel and the benefit for heavy sour crude oil improved from $4.75 per
barrel to $5.63 per barrel from the first nine months of 1996 to the same
period of 1997. The Company believes these crude oil quality differential
indicators improved primarily due to increased availability of Canadian light
and heavy sour crude oil from the Express and Interprovincial pipelines,
higher levels of industry refinery maintenance turnarounds and milder winter
weather in the first quarter of 1997. Hartford refinery results particularly
benefited from improved access to lower-cost Canadian heavy crude oil. Port
Arthur refinery results were also buoyed by the operational benefits realized
from the first quarter maintenance turnaround. On a comparative basis,
refining gross margin in the first nine months of 1996 was negatively impacted
by crude oil market volatility and backwardation that raised the cost of the
Company's feedstocks.
The fall in crude oil prices and the hypothetical cost of lost production
associated with a major maintenance turnaround reduced pre-tax earnings for
the nine months ended September 30, 1997 by an estimated $42.5 million. A
decrease in crude oil prices of approximately $4.75 per barrel in 1997 had a
negative impact on the Company's pre-tax earnings of approximately $27.2
million, resulting from the fact that feedstock acquisition costs are fixed on
average two to three weeks prior to the manufacture and sale of the finished
products. The Company does not currently hedge this price risk because of the
cost of entering into appropriate hedge-related derivatives, especially in a
backwardated market. In the first nine months of 1996, this policy resulted in
a gain of $20.4 million because crude oil prices increased over $4.80 per
barrel in that period. The Company successfully completed an extensive planned
maintenance turnaround on most units at its Port Arthur refinery in the first
quarter of 1997. The opportunity cost of lost production while essentially the
entire refinery was out of service for one month was approximately $15.3
million. After adjusting for these material items, the refining division would
have contributed $175.4 million to operating income in the first nine months
of 1997 (1996--loss of $4.4 million).
38
<PAGE>
Port Arthur refinery crude oil throughput and production reached record and
near record levels in the second and third quarters of 1997, but were
relatively flat compared to 1996 levels on a year-to-date basis due to the
planned maintenance turnaround in the first quarter of 1997. Port Arthur
refinery operating expenses for the first nine months of 1997 were higher than
the previous year principally because of higher natural gas prices and higher
incentive compensation due to strong earnings. Natural gas is consumed as a
fuel in the refining process.
RETAIL
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1996 1997
---------- ----------
(IN MILLIONS, EXCEPT
PER GALLON AND
PER STORE DATA)
<S> <C> <C>
RETAIL DIVISION OPERATING STATISTICS:
Gasoline volume (mm gals).............................. 777.7 771.1
Gasoline gross margin (cents/gal)...................... 10.6c 10.3c
Gasoline gross margin.................................. $ 82.3 $ 79.0
Convenience product sales.............................. $ 193.7 $ 214.3
Convenience product margin and other income............ 50.3 55.7
Gain on asset sales.................................... $ 1.8 $ --
Operating expenses (a)................................. 94.4 99.3
Divisional general and administrative expenses (a)..... 15.6 17.3
Contribution to operating income....................... $ 24.4 $ 18.1
PER MONTH PER STORE:
Company operated stores (average) (b).................. 828 815
Gasoline volume (m gals)............................... 104.4 106.4
Convenience product sales (thousands).................. $ 26.0 $ 29.2
Convenience product gross margin (thousands)........... 6.7 7.6
</TABLE>
- --------
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
(b) Ten stores included in 1997 did not sell fuel.
Retail division contribution to operating income of $8.0 million in the
third quarter of 1997 exceeded its contribution in each of the previous four
quarters. Retail contribution to operating income decreased to $18.1 million
in the first nine months of 1997 from $24.4 million in the same period of
1996. Retail contribution declined on a year-to-date basis primarily because
of weaker same store retail fuel margins in the first half of 1997 and a $1.8
million gain on the sale of stores in the prior year. This was partially
offset by the fuel and convenience product margin contribution from the 48
Michigan stores acquired in early 1997. Retail margins have historically
benefited when crude oil prices fall, but the benefit of the crude oil price
decline in the first half of 1997 was not fully realized because wholesale
prices did not fall as much as crude oil prices and due to highly competitive
retail markets. This trend of tighter retail margins started in the last half
of 1996, but reflected improvement in September 1997 when fuel margins
averaged over 12c per gallon. Certain store operating measures did show
improvement in 1997, including a 13% improvement in convenience product
margins per store on 12% higher sales. Operating expenses increased
principally because of lease expenses and higher operating costs for larger
stores acquired in the last year.
OTHER FINANCIAL HIGHLIGHTS
Corporate and divisional general and administrative expenses increased in
the first nine months of 1997 over the comparable period in 1996, principally
because of accruals for higher incentive compensation resulting from the
Company's stronger earnings.
39
<PAGE>
Interest and finance income for the first nine months of 1997 decreased over
the comparable period of 1996 principally because of interest earned on higher
cash balances in 1997, resulting from the contribution of an advance crude oil
purchase receivable by Clark USA in late 1996 that was subsequently converted
to cash.
Depreciation and amortization expense increased for the nine months ended
September 30, 1997, over the same period in 1996 principally because of the
amortization on the 1997 first quarter Port Arthur refinery maintenance
turnaround.
In the early 1990s the Company invested $25.0 million in a project initiated
to produce low-sulfur diesel fuel at the Hartford refinery which was delayed
in 1992 based on internal and third-party analyses that indicated an
oversupply of low-sulfur diesel fuel capacity in the Company's markets. Based
on these analyses, the Company projected relatively narrow price differentials
between low- and high-sulfur diesel products. This projection has thus far
been borne out. High-sulfur diesel fuel is utilized by the railroad, marine
and farm industries. In December 1997, the Company determined that equipment
purchased for the DHDS Project could be better utilized for other projects at
its Hartford and Port Arthur refineries, rather than remaining idle until low-
and high-sulfur diesel fuel differentials widened sufficiently to justify
completing the DHDS Project. As a result, in the fourth quarter of 1997 the
Company expects to record a charge to earnings of approximately $19 million
principally for engineering costs specific to the DHDS Project.
The Company operates many computer programs that use only two digits to
identify a year. If these programs are not modified or replaced by the year
2000, such applications could fail or create erroneous results. Some
applications have already been replaced or modified. The Company has hired
outside consultants to assist it in evaluating the scope of the remaining
required program conversions or replacements. Based on preliminary
information, the Company estimates the cost of such remaining program
conversions or replacements to be approximately $5 million to $10 million.
The Company expects to record several other charges to earnings in the
fourth quarter of 1997 that management considers "unusual". The Company
anticipates recording a noncash accounting charge of approximately $20 million
to reflect the decline in the value of petroleum inventories below carrying
value caused by a substantial decrease in petroleum prices at the end of 1997.
In addition, as discussed herein, the Company has incurred fees and expenses
of approximately $11 million related to the Equity Recapitalization and will
record an extraordinary item of approximately $10 million related to the Debt
Refinancing and Repayment. The Company also is evaluating the adequacy of its
accruals due to developments in pending legal and environmental actions and
currently expects to increase these accruals in the fourth quarter of 1997.
See "Business--Environmental Matters" and "Business--Legal Proceedings."
40
<PAGE>
1996 compared with 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
FINANCIAL RESULTS: (a)
Net sales and operating revenues.................. $2,440.0 $4,486.1 $5,072.7
Cost of sales..................................... 2,092.5 4,018.3 4,560.0
Operating expenses (b)............................ 219.9 373.3 418.9
General and administrative expenses (b)........... 50.3 52.3 59.1
Depreciation and amortization..................... 37.3 43.5 48.4
Interest and financing costs, net................. 32.1 39.9 38.7
-------- -------- --------
Loss before income taxes (c)...................... 7.9 (41.2) (52.4)
Income tax benefit (c)............................ 2.2 (15.7) (13.9)
-------- -------- --------
Loss before unusual items (c)..................... 5.7 (25.5) (38.5)
Unusual items, after taxes (c).................... 12.4 -- --
-------- -------- --------
Net earnings (loss)............................... $ 18.1 $ (25.5) $ (38.5)
======== ======== ========
OPERATING INCOME:
Refining contribution to operating income......... $ 46.5 $ 11.1 $ 24.2
Retail contribution to operating income........... 45.9 45.4 25.0
Corporate general and administrative expenses..... 15.1 14.3 14.5
Depreciation and amortization..................... 37.3 43.5 48.4
Unusual items (c)................................. 25.4 -- --
-------- -------- --------
Operating income (loss)........................... $ 65.4 $ (1.3) $ 13.7
======== ======== ========
</TABLE>
- --------
(a) This table provides supplementary data in a format that is not intended to
represent an income statement presented in accordance with GAAP.
(b) Certain reclassifications have been made to prior periods to conform to
current period presentation.
(c) The Company considers certain items in 1994 and 1996 to be "unusual."
Detail on these items is presented below.
41
<PAGE>
The Company reported a net loss of $38.5 million in 1996 compared with a net
loss of $25.5 million in 1995 and net earnings of $18.1 million in 1994.
Improvements in productivity and fundamental refining industry indicators for
crack spreads and crude oil quality differentials in 1996 were offset by the
impact of rising, volatile and high crude oil prices. Narrow crude oil
differentials, an extremely warm 1994-1995 winter and the resulting oversupply
of distillates, and market uncertainty related to the introduction of RFG,
reduced 1995 results from 1994 levels. The late February 1995 acquisition of
the 212,000 barrel per day Port Arthur, Texas refinery increased net sales and
operating revenues, cost of goods sold, operating and general and
administrative expenses and depreciation and amortization. Net sales and
operating revenues and cost of goods sold were also higher in 1996 due to
higher hydrocarbon prices as reflected by 20% higher prices for benchmark WTI
crude oil. Interest and financing costs, net, increased in 1995 and 1996 over
1994 principally because of costs associated with a larger working capital
facility to support the Port Arthur refinery and capital leases.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1994 1995 1996
----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
UNUSUAL ITEMS:
Recovery of inventory market value write-down................ $26.5 $-- $--
Other........................................................ (1.1) -- --
----- ---- ----
Impact on operating income................................... 25.4 -- --
Gain on sale of advance crude oil purchase receivable........ -- -- --
Short-term investment losses................................. (5.4) -- --
Other........................................................ -- -- --
----- ---- ----
Total........................................................ $20.0 $-- $--
===== ==== ====
Net of income taxes............................................ $12.4 $-- $--
===== ==== ====
</TABLE>
Several items which are considered by management as "unusual" are excluded
throughout this discussion of the Company's results of operations. In 1996, in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, the Company recorded a valuation allowance on its deferred income tax
assets of approximately $6.1 million (not included in the table above). See
Note 12 "Income Taxes" to the Consolidated Financial Statements. A noncash
accounting charge of $26.5 million was taken in the fourth quarter of 1993 to
reflect the decline in the value of petroleum inventories below carrying value
caused by a substantial drop in petroleum prices. Crude oil and related
refined product prices rose in 1994, allowing the Company to recover the
original charge. Accordingly, a reversal of the inventory write-down to market
was recorded in 1994. In 1994, the Company realized losses on the sale of
short-term investments due to an increase in market interest rates.
42
<PAGE>
REFINING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
(IN MILLIONS, EXCEPT
OPERATING DATA)
<S> <C> <C> <C>
OPERATING STATISTICS:
PORT ARTHUR REFINERY (ACQUIRED FEBRUARY 27, 1995)
Crude oil throughput (m bbls/day).................... -- 198.9 199.8
Production (m bbls/day).............................. -- 207.7 210.8
Gross margin (per barrel of production) (a).......... -- $ 2.37 $ 2.78
Operating expenses (per barrel of production) (a).... -- 1.90 2.13
Net margin (a)....................................... -- $ 30.0 $ 49.6
BLUE ISLAND, HARTFORD AND OTHER REFINING
Crude oil throughput (m bbls/day).................... 138.2 133.6 132.7
Production (m bbls/day).............................. 140.3 136.5 134.2
Gross margin (per barrel of production) (a).......... $ 3.48 $ 2.64 $ 2.53
Operating expenses (per barrel of production) (a).... 2.28 2.61 2.58
Net margin (a)....................................... $ 61.4 $ 1.5 $ (2.3)
Divisional general and administrative expenses (a)..... 14.9 20.4 23.1
Contribution to operating income (a)................... $ 46.5 $ 11.1 $ 24.2
</TABLE>
- --------
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
Refining division contribution to operating income in 1996 was $24.2
million, more than double 1995 levels ($11.1 million), but below 1994 results
($46.5 million). Contribution improved over 1995 principally because of an
improvement in the Port Arthur refinery gross margin resulting from
improvements in operating rates, reliability and yields. The Hartford refinery
realized the benefit from a capital project designed to recover additional
higher value products from processing units. Certain key refining market
indicators also improved in 1996, including gasoline and distillate margins
and crude oil quality differentials. More normal winter weather, and
corresponding demand, contributed to a 2.4% increase in fuel demand from 1995
to 1996. Rising crude oil prices added an estimated $25.3 million to gross
margin. However, these positive market trends were more than offset by reduced
by-product margins and the increased cost of crude oil acquisition activities
caused by volatile and high absolute crude oil prices. Refining results for
1995 were below 1994 levels, as refining margins were particularly weak in
1995 and late 1994 due to the warmest Northern Hemisphere winter in 40 years,
which reduced demand for heating oil, and the transition to RFG. Several
geographical areas unexpectedly opted not to switch to RFG, which caused
confusion and concern in the marketplace, and caused gasoline prices to fall
relative to the price of crude oil. In addition, unscheduled downtime at the
Blue Island refinery reduced gross margins by an estimated $5.5 million in
1995 and $3.1 million in 1996.
Operating expenses increased at the Port Arthur refinery from 1995 to 1996
principally due to increased refinery fuel costs associated with higher
natural gas prices. Operating expenses increased in 1995 over 1994 principally
due to the addition of the Port Arthur refinery and related terminal expenses
in early 1995 and expenses ($6.5 million) associated with unplanned downtime
at the Blue Island refinery. Reduced throughput at the Company's Illinois
refineries due to poor first quarter 1995 market conditions and scheduled and
unscheduled downtime also contributed to lower production and higher per-
barrel operating costs in 1996 and 1995 as compared with 1994. Divisional
general and administrative expenses increased in 1996 and 1995 principally
because of the inclusion of administrative functions located at the Port
Arthur refinery.
43
<PAGE>
RETAIL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- -------- --------
(IN MILLIONS, EXCEPT
OPERATING DATA)
<S> <C> <C> <C>
OPERATING STATISTICS:
Gasoline volume (mm gals)......................... 1,028.5 1,063.8 1,031.9
Gasoline gross margin (cents/gal) (a)............. 10.9c 11.4c 10.4c
Gasoline gross margin (a)......................... $ 112.3 $ 121.7 $ 107.0
Convenience product sales......................... $ 231.6 $ 252.6 $ 251.7
Convenience product gross margin and other
income........................................... 57.2 62.9 65.8
Operating expenses (a)............................ $ 104.6 $ 121.6 $ 126.2
Divisional general and administrative expenses.... 19.0 17.6 21.6
Contribution to operating income (a).............. $ 45.9 $ 45.4 $ 25.0
PER MONTH PER STORE:
Company operated stores (average)................. 834 852 823
Gasoline volume (m gals).......................... 102.8 104.1 104.5
Convenience product sales (m)..................... $ 23.1 $ 24.7 $ 25.5
Convenience product gross margin (m).............. 5.7 6.1 6.6
</TABLE>
- --------
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
The retail division contributed $25.0 million to operating income in 1996
(1995--$45.4 million; 1994--$45.9 million). The retail division contribution
was below 1995 levels due mostly to a sharp drop in retail gasoline margins.
This resulted from an increase in wholesale gasoline costs associated with
rising and higher crude oil prices that was not fully captured in retail
selling prices due to an extremely competitive Midwest retail market
environment. This was particularly the case in the last half of 1996. In
addition, high retail prices impaired sales of higher-margin premium gasoline
grades. Gross margins on convenience product sales and monthly convenience
product sales and gross margins per store improved over the last three years
due to the addition of larger stores and an improved mix of higher-margin On
The Go(R) (noncigarette) products. Operating and general and administrative
expenses increased in 1996 and 1995 over 1994 principally due to operating
leases and other costs related to new store acquisitions and increased costs
related to the expansion of Clark's credit card programs. Year-over-year
credit card sales increased 31% in 1996 and 41% in 1995.
During 1996 and 1997, the retail network continued to be upgraded in the
Company's core Great Lakes markets. This was achieved by acquiring 10 high-
volume stores in the Chicago market, introducing a branded marketer program
and closing underperforming stores. A further 48-store acquisition was
completed in Michigan in January 1997. In 1995, the Company acquired through
an operating lease 35 retail stores in Central Illinois. In late 1994, the
Company similarly acquired 25 stores in Chicago. Four additional stores
related to the Chicago acquisition were added in 1996. Consistent with the
Company's strategy to exit noncore markets, the Company divested 41 stores in
the Kansas, Western Missouri and Minnesota markets in late 1995 and early
1996, and 22 Dayton, Ohio stores were converted to branded marketer locations
in early 1997. As part of its overall growth strategy, the Company expects to
continue to consider retail store growth in both existing and new markets
while also evaluating underperforming markets for possible divestiture. The
Company is actively considering the sale of approximately 150 stores in
outlying noncore locations.
OTHER FINANCIAL MATTERS
Depreciation and amortization expenses increased in 1996 and 1995
principally because of the Port Arthur refinery acquisition and 1994 capital
expenditures.
44
<PAGE>
Interest and financing costs, net, in 1996 were below 1995 principally due
to increased interest income on larger invested balances. Net costs increased
in 1996 and 1995 as compared to 1994 primarily because of higher amortization
associated with the Company's larger working capital facility, which was
increased to support the crude oil supply needs of the Port Arthur Refinery,
higher amortization of bondholder consent payments paid in connection with the
acquisition of the Port Arthur Refinery and capital leases. See Note 8 "Long-
Term Debt" to the Consolidated Financial Statements.
In December 1995, Clark USA completed separate transactions with Oxy and
Gulf Resources Corporation ("Gulf"). Pursuant to a merger agreement and a
series of related agreements with Oxy, Clark USA acquired the right to receive
the equivalent of 17.661 million barrels of WTI to be delivered over six years
according to a defined schedule (the "Oxy Transaction"). This contract was
sold at a gain in 1996 for $235.4 million. Pursuant to a merger agreement and
a series of related agreements with Gulf, Clark USA acquired the right to
receive 3.164 million barrels of certain royalty oil to be received by Gulf
pursuant to certain agreements with the Government of the Congo (the "Gulf
Transaction"). The crude oil was to be delivered over six years according to a
minimum schedule of (in millions of barrels) 0.72, 0.62, 0.56, 0.48, 0.42 and
0.36 in 1996, 1997, 1998, 1999, 2000 and 2001, respectively. Gulf has not made
their required deliveries since July 1996.
OUTLOOK
Since most of the Company's products are commodities, supply and demand for
crude oil and refined products have a significant impact on the Company's
results. Demand for fuel products has grown by an average of 2% since 1992,
primarily as a result of increased miles driven and little improvement in the
fuel efficiency of the U.S. automobile fleet. The Company believes that
capital spending in the refining sector is highly correlated to refining
industry profitability. As a result of the high capital spending levels of the
early 1990s, the industry's ability to produce refined products exceeded
demand in recent years. Since then, industry refinery capital spending has
declined. The Company expects that there will continue to be volatility in
refining margins and the Company's earnings because of the seasonal nature of
refined product demand and the commodity nature of the Company's refined
products.
In the short term, retail margins generally are squeezed in periods of rapid
oil price increases, as was the case in 1996, and widen as prices stabilize or
fall. Prices for crude oil have fallen substantially since the end of 1996. In
the long term, the Company believes margins are driven by market share and
concentration. The Company believes that, over the last five years, the
Company's Midwest market has averaged among the lowest margins in the U.S. due
to its relatively high level of fragmentation. Historically, the Company has
recorded seasonally lower earnings in the fourth and first quarters of
calendar years due to lower demand for refined products.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Cash and short-term investments.... $134.1 $106.6 $334.3 $ 79.4 $285.9
Working capital.................... 130.4 193.1 399.5 197.2 421.8
Property, plant and equipment...... 429.8 549.3 555.7 543.4 572.8
Long-term debt..................... 400.7 420.4 417.6 417.2 415.3
Stockholder's equity............... 162.9 304.1 534.1 313.6 590.5
Operating cash flow................ 46.0 7.6 (4.5) 2.4 105.9
</TABLE>
45
<PAGE>
Net cash generated by operating activities, excluding working capital
changes ("Operating Cash Flow"), for the nine months ended September 30, 1997
was $105.9 million compared to $2.4 million in the year-earlier period.
Working capital as of September 30, 1997 was $421.8 million, a 2.29-to-1
current ratio, versus $399.5 million as of December 31, 1996, a 2.00-to-1
current ratio. Working capital as of September 30, 1997 increased from the end
of 1996 because of increased operating contribution, partially offset by a
retail store acquisition that was financed with cash and the capital cost of
the Port Arthur refinery turnaround.
Operating Cash Flow for the year ended December 31, 1996 was negative $4.5
million compared with cash flow of $7.6 million in 1995 and $46.0 million in
1994. Operating Cash Flow declined from 1994 to 1996 principally because of
the weaker refining margin environment and a decline in retail gasoline
margins in 1996. Working capital as of December 31, 1996 was $399.5 million, a
2.00-to-1 current ratio, versus $193.1 million as of December 31, 1995, a
1.48-to-1 current ratio and $130.4 million as of December 31, 1994, a 1.52-to-
1 current ratio. Working capital increased in 1996 as a result of the sale of
one of Clark USA's advance crude oil purchase receivables for net cash
proceeds of $235.4 million. An increase was realized in 1995 due to the Port
Arthur Refinery acquisition and partial financing with equity of the
refinery's working capital requirements.
As part of its overall inventory management and crude acquisition
strategies, the Company routinely buys and sells, in varying degrees, crude
oil in the spot market. Such ongoing activities carry various payment terms
and require the Company to maintain adequate liquidity and working capital
facilities. The Company's short-term working capital requirements (primarily
letter of credit issuances to support crude oil requirements) fluctuate with
the pricing and sourcing of crude oil. Historically, the Company's internally
generated cash flows have been sufficient to meet its needs. The Credit
Agreement is used for the issuance of letters of credit primarily for the
purchase of crude oil and other feedstocks and refined products.
On September 25, 1997, the Company entered into a Credit Agreement which
provides for borrowings and the issuance of letters of credit of up to the
lesser of $400.0 million or the amount of the borrowing base calculated with
respect to the Company's cash and cash equivalents, eligible investments,
eligible receivables and eligible petroleum inventories. Direct borrowings are
limited to the principal amount of $50.0 million. Borrowings under the Credit
Agreement are secured by a lien on substantially all of the Company's cash and
cash equivalents, receivables, crude oil, refined product and other
inventories and trademarks and other intellectual property. As of September
30, 1997, there were no direct borrowings under the Credit Agreement. The
Company was in compliance with all covenants of the Credit Agreement as of
September 30, 1997. See "Description of Certain Debt Instruments--Credit
Agreement."
The Credit Agreement contains covenants and conditions which, among other
things, limit dividends, indebtedness, liens, investments, contingent
obligations and capital expenditures, and require the Company to maintain its
property and insurance, to pay all taxes and comply with all laws, and to
provide periodic information and conduct periodic audits on behalf of the
lenders. Clark is also required to comply with certain financial covenants.
The financial covenants are: (i) maintenance of working capital of at least
$150.0 million at all times; (ii) maintenance of a tangible net worth (as
defined) of at least $300.0 million; and (iii) maintenance of minimum levels
of balance sheet cash (as defined) of $50.0 million at all times. The
covenants also provide for a cumulative cash flow test, as defined in the
Credit Agreement, that, from March 31, 1997, shall not be less than or equal
to zero at all times. The Credit Agreement also limits the amount of future
additional indebtedness outside of the cumulative cash flow covenant that may
be incurred by the Company in an amount equal to $25.0 million.
Cash flows used in and from investing activities (excluding short-term
investment activities which the Company manages similar to cash and cash
equivalents) are primarily affected by acquisitions and
46
<PAGE>
capital expenditures, including refinery maintenance turnarounds. Cash flows
used in investing activities (excluding short-term investment activities) in
the first nine months of 1997 were $81.5 million as compared to $26.6 million
in the year-earlier period. The higher investing activities in 1997 resulted
principally from the Port Arthur refinery turnaround ($30.0 million) and the
acquisition and subsequent image conversion of 48 retail stores in Michigan
($21.0 million). Refinery capital expenditures totaled $17.6 million in the
first nine months of 1997 (1996--$12.5 million), most of which related to
discretionary and nondiscretionary projects undertaken in conjunction with the
Port Arthur refinery turnaround. Retail capital expenditures for the first
nine months of 1997, excluding the Michigan acquisition, totaled $13.9 million
(1996--$10.5 million) and were principally for underground storage tank-
related work.
Cash flows provided by investing activities (excluding short-term
investments) in 1996 were $180.9 million as compared to cash flow used in 1995
and 1994 of $118.5 million and $119.0 million, respectively. In 1996, Clark
USA contributed capital to the Company in the form of the Oxy advance crude
oil purchase receivable which was immediately sold for $235.4 million. Cash
flows used in investing activities of $71.8 million in 1995 was related to the
acquisition of the Port Arthur Refinery. Otherwise, capital spending was
reduced in 1995 and 1996 from 1994 levels in line with the Company's
philosophy to link capital expenditures to cash flow. Capital expenditures for
property, plant and equipment totaled $45.0 million in 1996 (1995--$42.1
million; 1994--$100.3 million) and expenditures for refinery maintenance
turnarounds totaled $13.9 million (1995--$6.5 million; 1994--$11.2 million).
Capital expenditures were reduced in 1996 and 1995 in response to lower
Operating Cash Flow. Refining division capital expenditures were $19.4 million
in 1996 (1995--$15.8 million; 1994--$59.7 million). Approximately one-half of
1996 expenditures were discretionary, with the balance and most of 1995
expenditures primarily for mandatory maintenance and environmental
expenditures. In 1994, projects included adding the capability to produce RFG
at the Blue Island refinery and a revamp of the FCC and alkylation units at
the Hartford refinery. Retail capital expenditures in 1996 totaled $24.6
million (1995--$25.2 million; 1994--$38.2 million). Approximately one-half of
1996 and 1995 expenditures were for regulatory compliance, principally
underground storage tank-related work and vapor recovery. The remainder of
1996 and 1995 retail capital expenditures were discretionary and primarily
related to new store acquisitions, a reimaging program and miscellaneous store
equipment. In 1994, approximately one-third of retail division capital
expenditures were for regulatory compliance, with the balance for
discretionary projects such as reimaging locations, canopies, expansion of
store interior selling space and systems automation.
In February 1995, the Company acquired the Port Arthur Refinery from Chevron
for approximately $70.0 million, plus inventory and spare parts for
approximately $122.0 million (a $5.0 million deposit was paid in 1994), and
the assumption of certain liabilities estimated at $19.4 million. The purchase
agreement also provided for contingent payments to Chevron of up to $125.0
million over a five-year period from the closing date of the Port Arthur
refinery acquisition in the event that refining industry margin indicators
exceed certain escalating levels. The Company believes that even if such
contingent payments would be required, they would not have a material adverse
effect on the Company's results of operations since the Company would also
benefit from such increased margins. Such contingent payments were not payable
for the three measurement periods ended September 30, 1995, 1996 and 1997, and
based on these industry margin indicators from inception through September 30,
1997, the Company had a cumulative benefit of approximately $25.0 million
applicable to future calculations.
The Company classifies its capital expenditures into two categories,
mandatory and discretionary. Mandatory maintenance capital expenditures are
required to maintain safe and reliable operations, and mandatory environmental
expenditures are required to comply with regulations pertaining to ground,
water and air contamination and occupational safety and health issues. The
Company estimates that total mandatory expenditures through 2000 will average
approximately $55.0 million per year in the refining division and $10.0
million per year in the retail division. Costs to comply with future
regulations cannot be estimated.
47
<PAGE>
Expenditures to comply with reformulated and low-sulfur fuels regulations
are primarily discretionary, subject to market conditions and economic
justification. These fuel programs impose restrictions on properties of fuels
to be refined and marketed, including those pertaining to gasoline volatility,
oxygenate content, detergent addition and sulfur content. The regulations
regarding these fuel properties vary in markets in which the Company operates,
based on attainment of air quality standards and the time of the year. The
Company's Port Arthur, Blue Island and Hartford refineries have the capability
to produce approximately 60%, 60%, and 25%, respectively, of their gasoline
production in RFG. Each refinery's maximum RFG production may be limited based
on the clean fuels attainment of Clark's total refining system. The Port
Arthur refinery has the capability to produce 100% low-sulfur diesel fuel.
The Company has a philosophy to link total capital expenditures to cash
generated from operations. The Company has a total capital and refinery
maintenance turnaround expenditure budget of $100.0 million to $110.0 million
for 1997. This amount includes approximately $21.0 million, net, related to
the January 1997 acquisition and subsequent image conversion of 48 retail
stores in Michigan, and expenditures of approximately $30 million related to a
major maintenance turnaround at the Port Arthur refinery in the first quarter
of 1997. Total capital expenditures may be under budget if cash flow is less
than expected, and higher than budget if cash flow is better than expected.
Cash flow used in financing activities was $30.0 million in 1996 and $174.7
million in 1995 compared to a use of $5.4 million in 1994. In 1995, financing
activities reflected the partial financing of the Port Arthur Refinery
acquisition with the sale of stock (the balance was financed with cash on
hand), fees related to the larger working capital facility associated with the
expanded working capital needs of the Company following the Port Arthur
Refinery acquisition and two capital leases associated with the sale and
leaseback of certain refinery equipment at the Hartford and Port Arthur
refineries. In 1994, expenditures were made in connection with the acquisition
of a new working capital facility.
On November 3, 1997, Blackstone acquired the 13,500,000 shares of Common
Stock of Clark USA previously held by TrizecHahn and certain of its
subsidiaries, as a result of which Blackstone obtained a 65% equity interest
(73.3% voting interest) in Clark USA.
Prior to the consummation of the Debt Offering, the Company paid the Special
Dividend of $215.0 million to Clark USA in order for it to repurchase for
$206.6 million, $259.2 million (value at maturity) of its Zero Coupon Notes
pursuant to the Tender Offer. Clark USA intends to redeem all of its remaining
outstanding Zero Coupon Notes on or about February 15, 1998. As a result of
the Debt Offering and the Term Loan, the Company has higher levels of debt
outstanding and is required to make increased annual interest payments. In
addition, as a result of the Special Dividend, the application of the net
proceeds from the Debt Offering and the Term Loan and the payment of fees and
expenses in connection with the Equity Recapitalization, the Company's cash
and short-term investments were reduced by approximately $65.9 million and its
stockholder's equity was reduced to approximately $356.8 million. Finally, as
a result of the Blackstone Transaction, the $175.0 million of 9 1/2% Notes are
subject to a repurchase offer which expires on March 9, 1998. See "Risk
Factors--Change of Control Provisions in New Notes and Existing Indebtedness."
Funds generated from operating activities together with existing cash, cash
equivalents and short-term investments are expected to be adequate to fund
existing requirements for working capital and capital expenditure programs for
the next year. Due to the commodity nature of its products, the Company's
operating results are subject to rapid and wide fluctuations. While the
Company believes that its maintenance of large cash, cash equivalents and
short-term investment balances and other operating philosophies will be
sufficient to provide the Company with adequate liquidity through the next
year, there can be no assurance that refining industry conditions will not be
worse than anticipated. Due to the sale of one of the advance crude oil
purchase receivables, the Company had higher cash, cash equivalents and short-
term investments as of September 30, 1997, than it has
48
<PAGE>
historically maintained. These balances are available for investment in
current operations, debt reduction or acquisitions. Future working capital
needs, discretionary capital expenditures, environmentally mandated spending
and acquisitions may require additional debt or equity capital.
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
The following quarterly financial information has been prepared from the
financial records of the Company without audit, and reflects all adjustments
which are, in the opinion of management, necessary for fair presentation of
the results of operations for the interim periods presented.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1997
Net sales.......................... $ 999.0 $1,173.7 $1,123.6
Gross profit....................... 105.4 192.7 206.9
Operating income (loss)............ (29.3) 59.0 64.6
Net earnings (loss)................ (37.4) 42.6 51.2
1996
Net sales.......................... $1,140.2 $1,334.7 $1,249.5 $1,348.3
Gross profit....................... 115.0 134.8 128.3 134.6
Operating income (loss)............ (12.1) 9.0 (4.3) (6.3)
Net earnings (loss)................ (13.6) (1.0) (9.3) (14.6)
1995
Net sales.......................... $ 827.3 $1,337.8 $1,211.8 $1,109.2
Gross profit....................... 67.7 132.6 148.8 118.7
Operating income (loss)............ (26.5) 9.7 22.4 (6.9)
Net earnings (loss)................ (21.9) 0.0 7.8 (11.4)
</TABLE>
49
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is the sixth-largest independent refiner and marketer of
petroleum products in the United States, with one Texas refinery and two
Illinois refineries representing over 350,000 bpd of rated crude oil
throughput capacity. The Company is also currently the seventh-largest direct
operator of gasoline and convenience stores in the U.S., with over 800 retail
outlets in 10 Midwestern states. The Company's retail network has conducted
operations under the Clark brand name for 65 years. The Company also markets
gasoline, diesel fuel and other petroleum products on a wholesale branded and
unbranded basis.
The Company is a Delaware corporation, with its principal executive offices
located at 8182 Maryland Avenue, St. Louis, Missouri 63105, telephone number
(314) 854-9696.
COMPANY HISTORY
All of the outstanding common stock of the Company is owned by Clark USA.
Clark USA was formed in November 1988 by TrizecHahn and AOC Limited
Partnership ("AOC L.P.") to hold all of the capital stock of the Company and
certain other assets. Pursuant to a stockholder agreement (the "Stockholder
Agreement") among AOC L.P., TrizecHahn, Clark USA and the Company, TrizecHahn
purchased 60% of the equity capital of Clark USA and AOC L.P. purchased the
remaining 40% interest. The Company's primary business assets were acquired on
November 22, 1988 out of bankruptcy proceedings. The assets acquired consisted
of (i) substantially all of the assets of Apex Oil Company, Inc., a Wisconsin
corporation (formerly OC Oil & Refining Corporation and prior thereto Clark
Oil & Refining Corporation, a Wisconsin corporation) and its subsidiaries
("Old Clark") and (ii) certain other assets and liabilities of the
Novelly/Goldstein Partnership (formerly Apex Oil Company), a Missouri general
partnership ("Apex"), the indirect owner of Old Clark and an affiliate of AOC
L.P.
On December 30, 1992, TrizecHahn and Clark USA entered into a Stock Purchase
and Redemption Agreement (the "AOC Stock Purchase Agreement") with AOC L.P. to
purchase and redeem all of the shares and options to purchase shares of Clark
USA owned by AOC L.P., resulting in TrizecHahn owning 100% of the outstanding
equity of Clark USA at that time.
On February 27, 1995, Clark USA sold $135 million of common stock to a
wholly owned subsidiary of TrizecHahn. The TrizecHahn subsidiary immediately
resold $120 million of such stock to Tiger, representing an equity ownership
interest of 40% of Clark USA at that time. As a result of these sales of
common stock, the Company received an equity contribution of $150 million from
Clark USA and used these proceeds along with existing cash to acquire from
Chevron the Port Arthur Refinery for approximately $70.0 million, plus
approximately $122.0 million for inventory and spare parts, and the assumption
of certain liabilities estimated at $19.4 million. The Company is also
obligated under certain circumstances to pay to Chevron contingent payments
(the "Chevron Contingent Payments") pursuant to a formula based on refining
industry margin indicators and the volume of crude oil processed at the Port
Arthur refinery over a five-year period. The maximum total amount of the
Chevron Contingent Payments is $125 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The Port Arthur refinery increased the Company's crude oil
throughput capacity by over 140% and expanded its market to the Gulf Coast of
the U.S.
In December 1995, an affiliate of Oxy acquired approximately 19% of the
equity in Clark USA in exchange for the delivery of certain amounts of crude
oil over a six-year period ending in 2001. Clark USA contributed the Oxy
advance crude oil purchase receivable to the Company in October 1996 and the
Company sold the receivable for net cash proceeds of $235.4 million. Also, in
December 1995 subsidiaries of Gulf acquired approximately 4% of the equity in
Clark USA in exchange for their agreement to deliver certain amounts of
royalty oil over a six-year period ending in 2001. See "Business--The Advance
Crude Oil Purchase Receivable Transactions."
50
<PAGE>
On October 1, 1997, Clark USA and its stockholders completed an equity
recapitalization whereby all previously issued shares of Class A Common Stock
of Clark USA held by the Tiger Funds of Tiger (then representing approximately
31% of the total voting power of all classes of Clark USA stock) were
reclassified into Class E Common Stock. TrizecHahn then purchased all of the
Class E Common Stock for $7.00 per share in cash, resulting in a total
purchase price of $63.0 million. All of such shares of Class E Common Stock
were subsequently reclassified into 63,000 shares of Exchangeable Preferred
Stock of Clark USA and sold to institutional investors.
In addition, the shares of common stock of Clark USA owned by Oxy were
exchanged for an equal number of shares of Class F Common Stock having voting
rights limited as a class to the lesser of (a) the aggregate voting power of
such shares on a one-vote-per-share basis and (b) 19.9% of the total voting
power of all classes of Clark USA's voting stock. The Class F Common Stock is
convertible at any time to Common Stock of Clark USA, on a one-for-one basis,
at the option of any holder other than Oxy and its affiliates. Clark USA also
issued to Oxy an additional 545,455 shares of Class F Common Stock in full
satisfaction of Clark USA's obligation to issue shares under its then existing
Stockholders' Agreement with Oxy.
On November 3, 1997, Blackstone acquired the 13,500,000 shares of Common
Stock of Clark USA previously held by TrizecHahn and certain of its
subsidiaries, as a result of which Blackstone obtained a 65% equity interest
(73.3% voting interest) in Clark USA.
BUSINESS STRATEGY
The Company's business strategy focuses on improving productivity,
optimizing capital investments, promoting an entrepreneurial culture and
growing both its refining and marketing operations to strengthen the Company's
business and financial profile. This strategy is designed to address the
commodity-based nature of the oil refining and marketing industry in which the
Company operates.
. Improving Productivity. The Company continues to implement relatively
low-cost projects in its refining and marketing operations designed to
increase production, sales volumes and production yields and to improve
sales mix while reducing input costs and operating expenses. Improvements
at the Port Arthur refinery, increased yields and crude oil throughput
capability at its Illinois refineries and improved monthly fuel volumes,
convenience product sales and margins in the retail division are examples
of these types of initiatives.
. Optimizing Capital Investment. The Company seeks to optimize capital
investments by linking discretionary capital spending to internally
generated cash flow, focusing its efforts first on those productivity
initiatives that require no capital investment and then those which have
relatively short payback periods. As an example, in response to weak 1995
and 1996 industry refining market conditions, discretionary capital
expenditures were scaled back significantly from historical levels. Due to
improved results and a more robust refining industry environment, the
Company is now implementing several high-payback discretionary capital
projects.
. Promoting Entrepreneurial Culture. The Company emphasizes an
entrepreneurial management approach which uses employee incentives to
enhance financial performance and safety. All of the Company's employees
participate in its performance management, profit sharing or other
incentive plans. In addition, the Company has adopted a stock incentive
plan for certain key employees. Blackstone intends to put in place a
management incentive program designed to increase management's ownership of
Clark USA stock through direct purchases and options tied to the financial
performance of the Company.
. Growing Through Opportunistic Acquisitions. The Company intends to
continue to expand its refining and marketing operations through
opportunistic acquisitions which can benefit from its
51
<PAGE>
business strategy, create critical mass, increase market share or access
new markets. Since 1994, the Company more than doubled its refining
capacity by acquiring the Port Arthur Refinery and strengthened its
Northern Illinois and Southern Michigan presence by adding 122 retail
stores in these core markets. Blackstone is committed to this strategy.
. Strengthening the Balance Sheet. The Company and Clark USA will continue
to seek to improve their capital structure. The financing of the Port
Arthur refinery acquisition principally with equity contributed by Clark
USA and the partial financing of the advance crude oil purchase receivable
lowered the Company's leverage in 1995 and 1996. The Company's subsequent
monetization of the advanced crude oil purchase receivable significantly
improved the Company's liquidity. As of September 30, 1997, the Company had
total cash balances of $286 million. The Equity Recapitalization and the
Debt Refinancing and Repayment are designed to strengthen the balance sheet
of Clark USA and its subsidiaries by extending debt maturities, increasing
prepayment flexibility and lowering the overall borrowing cost.
REFINING
Overview
The refining division currently operates one refinery in Texas and two
refineries in Illinois with a combined crude oil throughput capacity of
approximately 350,000 bpd. The Company also owns 16 product terminals located
in its Midwest and Gulf Coast market areas, a crude oil and LPG terminal
associated with the Port Arthur refinery and crude oil and product pipeline
interests. The Company's refining crude oil throughput capacity ranks it as
one of the six largest independent refining and marketing companies in the
U.S.
Strategy
Since the refining division operates in a commodity-based market environment
in which market prices for crude oil and refined products fluctuate
significantly, the refining division's business strategy focuses on those
areas it can control. The refining industry is capital intensive and has not
provided adequate returns in recent years. The Company believes this
environment provides the opportunity to implement a contrarian approach. The
refining division's strategy is consistent with the Company's overall business
strategy and includes the following key elements:
. Improving Productivity. The refining division focuses on initiatives
requiring little or no capital investment that increase production, improve
product yields and recoveries or reduce operating costs. Comprehensive
plant-level programs focus on comparisons to industry benchmark studies as
a tool to develop strategies that improve plant reliability.
. Optimizing Capital Investments. Refining capital expenditures are linked
to cash flow generated from operations. The Company emphasizes an
entrepreneurial approach to discretionary expenditures, and to perceived
mandatory expenditures, such as those required to comply with reformulated
and low-sulfur fuels regulations. The Company may seek to comply with
regulations through the use of alternative markets for existing products if
adequate returns on investment are not assured. Most discretionary capital
expenditures in the past three years have had payback periods of less than
four years.
. Promoting Entrepreneurial Culture. Refining division employees are
involved in a team-based approach aimed at improving operations. All
employees participate in some form of gain-sharing program. The Company
believes this philosophy has significantly contributed to past productivity
gains.
. Growth. As part of its growth strategy, the refining division seeks
attractive assets that may be acquired at favorable valuations. The Port
Arthur Refinery acquisition is an example of this type of strategy. The
Company believes current industry conditions may offer similar
opportunities in the future.
52
<PAGE>
Port Arthur Refinery
The Port Arthur refinery is located in Port Arthur, Texas and is situated on
an approximately 4,000 acre site. The refinery has a rated crude oil
throughput capacity of approximately 212,000 bpd and the ability to process
100% sour crude oil, including up to 20% heavy crude oil, and has coking
capabilities. Heavy sour crude oil has historically been available at
substantially lower cost when compared to light sweet crude oil such as WTI.
The Port Arthur refinery has the ability to produce jet fuel, 100% low-sulfur
diesel fuel, 55% summer RFG and 75% winter RFG. The refinery's Texas Gulf
Coast location provides access to numerous cost effective domestic and
international crude oil sources, and its products can be sold in the
Midcontinent and Eastern U.S. as well as in export markets.
Since acquiring the Port Arthur Refinery in early 1995, the Company has
increased crude oil throughput capability from approximately 178,000 bpd to
its current 212,000 bpd and has lowered operating expenses by approximately
50c per barrel. From the date of the acquisition through September 30, 1997,
the Port Arthur Refinery has generated EBITDA of approximately $171.0 million.
The Company has engaged in discussions with numerous parties concerning
possible investments at the Port Arthur refinery. No agreement has been
reached with any other party concerning the form, structure, scope, size,
financing, timing or other aspects of any of such possible investments or
capital improvements. There can be no assurances that any such investments or
capital improvements will or will not be made.
The feedstocks and production of the Port Arthur refinery for the ten months
it was owned in 1995 and for the full year 1996 and the nine months ended
September 30, 1996 and 1997 were as follows:
PORT ARTHUR REFINERY FEEDSTOCKS AND PRODUCTION
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------------
1995 1996 1996 1997(A)
------------ ------------ ------------ ------------
BBLS % BBLS % BBLS % BBLS %
------ ----- ------ ----- ------ ----- ------ -----
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FEEDSTOCKS
Light Sweet Crude Oil.. 22,268 35.0% 11,018 14.5% 12,272 21.3% 7,374 13.0%
Light Sour Crude Oil... 31,518 49.5 36,855 48.3 27,503 47.7 23,895 42.0
Heavy Sweet Crude Oil.. -- -- 23,920 31.4 14,934 25.9 4,993 8.8
Heavy Sour Crude Oil... 7,488 11.8 1,327 1.7 537 0.9 18,677 32.8
Unfinished &
Blendstocks........... 2,349 3.7 3,128 4.1 2,387 4.1 1,919 3.4
------ ----- ------ ----- ------ ----- ------ -----
Total.................. 63,623 100.0% 76,248 100.0% 57,633 100.0% 56,858 100.0%
====== ===== ====== ===== ====== ===== ====== =====
PRODUCTION
Gasoline
Unleaded............... 13,966 21.8 20,840 27.0 16,174 27.8 13,531 23.8
Premium Unleaded....... 13,030 20.4 12,258 15.9 9,240 15.9 8,558 15.0
------ ----- ------ ----- ------ ----- ------ -----
26,996 42.2 33,098 42.9 25,414 43.7 22,089 38.8
Other Products
Low-Sulfur Diesel
Fuel.................. 14,739 23.1 17,443 22.6 12,729 21.9 14,721 25.9
Jet Fuel............... 9,047 14.1 11,166 14.5 8,488 14.6 6,611 11.6
Petrochemical
Products.............. 5,382 8.4 6,751 8.7 4,591 7.9 6,782 11.9
Others................. 7,794 12.2 8,703 11.3 6,869 11.8 6,717 11.8
------ ----- ------ ----- ------ ----- ------ -----
36,962 57.8 44,063 57.1 32,677 56.3 34,831 61.2
------ ----- ------ ----- ------ ----- ------ -----
Total.................. 63,958 100.0% 77,162 100.0% 58,091 100.0% 56,920 100.0%
====== ===== ====== ===== ====== ===== ====== =====
Output/Day............. 207.7 210.8 212.0 208.5
</TABLE>
- --------
(a) Feedstocks and production in 1997 reflect maintenance turnaround downtime
of approximately one month on selected units.
53
<PAGE>
Illinois Refineries
The Company's Illinois refineries, Blue Island (near Chicago, Illinois) and
Hartford (near St. Louis, Missouri), are supplied by common carrier crude oil
pipelines and are located on inland waterways with barge access. The
refineries have access to multiple sources of foreign and domestic crude oil
and benefit from crude oil input flexibility. Recent pipeline expansions,
including the new capacity of the Express Pipeline and expanded capacity on
the Interprovincial Pipeline, have served to increase the availability of
lower-cost crude oil to the Company's Illinois refineries. The two refineries
are connected by product pipelines, increasing flexibility relative to stand-
alone operations. The Company's product terminals allow efficient distribution
of refinery production through pipeline systems. The Company believes that the
Midwest location of these refineries provides relatively high refining margins
and less volatility than comparable operations located in other regions of the
U.S. on a historical basis principally because demand for refined products has
exceeded production in the region. This excess demand has historically been
satisfied by imports from other regions, providing Midwest refineries with a
transportation advantage.
Blue Island Refinery
The Blue Island refinery is located in Blue Island, Illinois, approximately
17 miles south of Chicago. The refinery is situated on a 170-acre site,
bounded by the town of Blue Island and the Calumet-Sag Canal. The facility was
initially constructed in 1945 and, through a series of improvements and
expansions, has reached a crude oil capacity of 75,000 bpd, although actual
average monthly throughput rates are sustained at levels in excess of rated
capacity during certain times of the year. Blue Island has among the highest
capabilities to produce gasoline relative to the other refineries in its
market area and through productivity initiatives has achieved the flexibility
to produce up to 60% RFG and some low-sulfur diesel fuel when market prices
warrant and based on the clean fuels attainment of Clark's total refining
system. During most of the year, gasoline is the most profitable refinery
product.
Since 1992, the Company has increased the crude oil throughput capability at
the Blue Island refinery by approximately 10,000 bpd, introduced light sour
crude oil as a lower-cost feedstock, improved the FCC unit operation and
introduced the capability to produce RFG.
The feedstocks and production of the Blue Island refinery for the years
ended December 31, 1994, 1995 and 1996 and the nine months ended September 30,
1996 and 1997 were as follows:
BLUE ISLAND REFINERY FEEDSTOCKS AND PRODUCTION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1995(A) 1996(A) 1996 1997
------------ ------------ ------------ ------------ ------------
BBLS % BBLS % BBLS % BBLS % BBLS %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(BARRELS IN THOUSANDS)
FEEDSTOCKS
Light Sweet Crude Oil.. 20,780 71.3% 18,975 74.0% 21,203 84.2% 16,583 82.9% 15,163 75.2%
Light Sour Crude Oil... 7,120 24.5 6,318 24.6 3,860 15.3 3,045 15.2 4,649 23.1
Unfinished &
Blendstocks........... 1,233 4.2 347 1.4 132 0.5 379 1.9 341 1.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.................. 29,133 100.0% 25,640 100.0% 25,195 100.0% 20,007 100.0% 20,153 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
PRODUCTION
Gasoline
Unleaded............... 12,571 43.7 12,737 50.1 12,497 50.9 10,107 51.1 10,572 52.4
Premium Unleaded....... 5,558 19.3 3,540 13.9 2,922 11.6 2,461 12.4 2,322 11.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
18,129 63.0 16,277 64.0 15,419 62.5 12,568 63.5 12,894 63.9
Other Products
Diesel Fuel............ 6,376 22.1 5,133 20.2 5,690 22.5 4,175 21.1 4,151 20.6
Others................. 4,293 14.9 4,016 15.8 3,755 15.0 3,047 15.4 3,114 15.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
10,669 37.0 9,149 36.0 9,445 37.5 7,222 36.5 7,265 36.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.................. 28,798 100.0% 25,426 100.0% 24,864 100.0% 19,790 100.0% 20,159 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Output/Day............. 78.9 69.7 68.0 72.2 73.8
</TABLE>
- --------
(a) Output during 1995 and 1996 was reduced by significant planned and
unplanned downtime.
54
<PAGE>
Hartford Refinery
The Hartford refinery is located in Hartford, Illinois, approximately 17
miles northeast of St. Louis. The refinery is situated on a 400-acre site. The
facility was initially constructed in 1941 and, through a series of
improvements and expansions, has reached a crude oil refining capacity of
approximately 65,000 bpd. The Hartford refinery includes a coker unit and,
consequently, has the ability to process a variety of crude oil including
lower cost, heavy sour crude oil into higher-value products such as gasoline
and diesel fuel. The Hartford refinery has the capability to process
approximately 50% heavy sour crude oil and 25% medium sour crude oil. This
upgrading capability allows the refinery to benefit from higher margins if
heavy sour crude oil is at a significant discount to light sweet crude oil.
Since 1992, the Company has increased the crude oil throughput capability at
the Hartford refinery by approximately 10,000 bpd, improved overall liquid
recovery by approximately 3%, improved FCC unit yields by approximately 3%,
increased higher-valued crude unit yields by approximately 2,000 bpd and
dramatically reduced combined "recordable" and "days away from work" rates
from 27 in 1990 to 4 in 1996.
The feedstocks and production of the Hartford refinery for the years ended
December 31, 1994, 1995 and 1996 and nine months ended September 30, 1996 and
1997 were as follows:
HARTFORD REFINERY FEEDSTOCKS AND PRODUCTION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1994(A) 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
BBLS % BBLS % BBLS % BBLS % BBLS %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEEDSTOCKS
Light Sweet Crude Oil.. 6,037 26.2% 5,008 20.8% 3,725 15.5% 3,588 20.6% 1,991 10.7%
Light Sour Crude Oil... 7,696 33.4 13,520 56.0 19,588 81.4 13,793 79.1 11,035 59.6
Heavy Sweet Crude Oil.. -- -- -- -- -- -- -- -- 498 2.7
Heavy Sour Crude Oil... 8,800 38.2 4,960 20.6 179 0.7 7 0.0 3,666 19.8
Unfinished &
Blendstocks........... 506 2.2 637 2.6 567 2.4 50 0.3 1,341 7.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.................. 23,039 100.0% 24,125 100.0% 24,059 100.0% 17,438 100.0% 18,531 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
PRODUCTION
Gasoline
Unleaded............... 9,777 43.6 11,497 47.2 10,882 44.9 7,714 44.0 9,014 48.8
Premium Unleaded....... 1,732 7.7 1,723 7.1 1,728 7.1 1,327 7.6 782 4.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
11,509 51.3 13,220 54.3 12,610 52.0 9,041 51.6 9,796 53.0
Other Products
High-Sulfur Diesel
Fuel.................. 7,801 34.8 8,090 33.2 8,950 36.9 6,513 37.1 5,773 31.3
Others................. 3,106 13.9 3,060 12.5 2,703 11.1 1,981 11.3 2,891 15.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
10,907 48.7 11,150 45.7 11,653 48.0 8,494 48.4 8,664 47.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.................. 22,416 100.0% 24,370 100.0% 24,263 100.0% 17,535 100.0% 18,460 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Output/Day............. 61.4 66.8 66.2 64.0 67.6
</TABLE>
- --------
(a) The 1994 results reflect maintenance turnaround downtime of approximately
one month on selected units.
Terminals and Pipelines
Refined products are distributed primarily through the Company's terminals,
company-owned and common carrier product pipelines and by leased barges over
the Mississippi, Illinois and Ohio rivers. The Company owns 14 product
terminals with a combined capacity of approximately 3.8 million barrels
throughout its upper Midwest market area. In addition to cost efficiencies in
supplying its retail network,
55
<PAGE>
the terminal distribution system allows efficient distribution of refinery
production. The Company also owns a crude oil and refined product terminal, a
refined products terminal and an LPG terminal with a combined capacity of
approximately 7.1 million barrels associated with the Port Arthur refinery in
Texas.
The Company enters into refined product exchange agreements with unaffiliated
companies to broaden its geographical distribution capabilities, and products
are also received through exchange terminals and distribution points throughout
the Central U.S.
The Company's pipeline interests, as of September 30, 1997, were as follows:
<TABLE>
<CAPTION>
PIPELINE TYPE INTEREST ROUTE
-------- ---- -------- -----
<S> <C> <C> <C>
Southcap Crude oil 36.0% St. James, LA to Patoka, IL
Chicap Crude oil 22.7 Patoka, IL to Mokena, IL
Clark Port Arthur Crude oil and products 100.0 Port Arthur and Beaumont, TX
Wolverine Products 9.5 Chicago, IL to Toledo, OH
West Shore Products 11.1 Chicago, IL to Green Bay, WI
</TABLE>
These pipelines operate as common carriers pursuant to published pipeline
tariffs, which also apply to use by the Company. The Company also owns a
proprietary refined products pipeline from the Blue Island refinery to its
terminal in Hammond, Indiana, and from the Port Arthur refinery to its LPG
terminal in Fannett, Texas. The Company has begun negotiating to sell its
interests in the Southcap, Chicap, Wolverine and West Shore pipelines. However,
there can be no assurance that such negotiations will be concluded, and if
concluded, will be consummated.
Supply and Distribution
The Company's integrated refining and marketing assets are strategically
located in the central U.S. in close proximity to a variety of supply and
distribution channels. As a result, the Company has the flexibility to acquire
economic domestic or foreign crude oil and has the ability to distribute its
products to its own system and to most domestic wholesale markets.
The Port Arthur refinery's Texas Gulf Coast location provides access to
numerous cost-effective domestic and international crude oil sources which can
be accessed by waterborne delivery or through the West Texas Gulf pipeline. The
Company's Illinois refineries are located on major inland water transportation
routes and are connected to various local, interstate and Canadian common
carrier pipelines. The Company has a minority interest in several of these
pipelines. The Blue Island refinery can receive Canadian crude oil through the
Lakehead Pipeline from Canada, foreign and domestic crude oil through the
Capline Pipeline system originating in the Louisiana Gulf Coast region, and
domestic crude oil originating in West Texas, Oklahoma and the Rocky Mountains
through the Arco Pipeline system. The Hartford refinery has access to foreign
and domestic crude oil supplies through the Capline/Capwood Pipeline systems
and access to Canadian crude oil through the Express Pipeline and the Mobil/IPL
pipeline system. Both refineries are situated on major water transportation
routes which provide flexibility to receive crude oil or intermediate
feedstocks by barge when economical.
The Company has several crude oil supply contracts that total approximately
100,000 bpd with several third-party suppliers, including P.M.I. Comercio
Internacional, S.A. de C.V., an affiliate of Petroleos Mexicanos, S.A. de C.V.;
Lagoven, an affiliate of Petroleos de Venezuela; and Gulf Canada. These
contracts are generally cancelable upon one to three months' notice by either
party, but are intended to remain in place for the foreseeable future. The
remainder of the Company's crude oil supply requirements are acquired on the
spot market from third-party foreign and domestic sources.
56
<PAGE>
In addition to gasoline, the Company's refineries produce other types of
refined products. No. 2 diesel fuel is used mainly as a fuel for diesel
burning engines. No. 2 diesel fuel production is moved via pipeline or barge
to the Company's 16 product terminals and is sold over the Company's terminal
truck racks or through refinery pipeline or barge movement. The Port Arthur
refinery produces jet fuel which is generally sold through pipelines. Other
production includes residual oils (slurry oil and vacuum tower bottoms) which
are used mainly for heavy industrial fuel (e.g., power generation) and in the
manufacturing of roofing flux or for asphalt used in highway paving. The
Company has agreements to sell to Chevron 24,000 bpd of gasoline and 1,000 bpd
of low-sulfur diesel from the Port Arthur refinery through February 28, 1999.
This contract is cancelable upon 90 days' notice by either party. The Company
supplies gasoline and diesel fuel to its retail system first, then distributes
products to its wholesale operations based on the highest average market
returns before being sold into the spot market.
The Company also has an agreement to exchange certain refined products and
chemicals with Chevron Chemical Company, which exchanged amounts averaged
approximately 25,000 bpd during 1995 and 1996. This contract is cancelable
upon 18 months notice by either party or by mutual agreement.
The Port Arthur refinery's products can be sold in the Midcontinent and
Eastern U.S. as well as export markets. These markets can be accessed through
the Explorer, Texas Eastern and Colonial pipelines or by ship or barge. The
Company's Illinois refineries can distribute their products through various
common carrier and proprietary pipelines which connect the 14 Midwest product
terminals or by barge.
Inventory Management
The Company employs several strategies to minimize the impact on
profitability due to the volatility in feedstock costs and refined product
prices. These strategies generally involve the purchase and sale of exchange-
traded, energy-related futures and options with a duration of six months or
less. In addition, the Company to a lesser extent uses energy swap agreements
similar to those traded on the exchanges, such as crack spreads and crude oil
options, to better match the specific price movements in the Company's markets
as opposed to the delivery point of the exchange-traded contract. These
strategies are designed to minimize, on a short-term basis, the Company's
exposure to the risk of fluctuations in crude oil prices and refined product
margins. The number of barrels of crude oil and refined products covered by
such contracts varies from time to time. Such purchases and sales are closely
managed and subject to internally established risk standards. The results of
these hedging activities affect refining costs of sales and inventory costs.
The Company does not engage in speculative futures or derivative transactions.
The Company manages its total inventory position in a manner consistent with
a risk management policy which states that a normal operating inventory level
(base load) will not be offset using risk management techniques, while
material builds or draws from this normal level may be offset by appropriate
risk management strategies to protect against an adverse impact due to
unfavorable price moves. The Company's retail network also reduces overall
risk by providing ratable market sales which represent approximately 40% of
the refineries' gasoline production. In addition, the retail network benefits
from a reliable and cost-effective source of supply.
Due to the Port Arthur refinery's Gulf Coast location, the Company has the
opportunity to limit its exposure to price fluctuations on crude oil and
finished product production through the use of U.S. Gulf Coast-based energy
derivatives, such as forward futures and option contracts relating to Gulf
Coast crack spreads. There exists a market for Gulf Coast refinery crack
spreads based on published spot market product prices and exchange-traded
crude oil. Since the Company sells the majority of the Port Arthur refinery's
production into the Gulf Coast spot market, the Company believes that forward
future
57
<PAGE>
and option contracts related to crack spreads may be used effectively to hedge
refining margins. While the Company's hedging program is intended to provide a
more predictable profit margin on a portion of the Port Arthur refinery
production, the use of such a program could limit the Company's ability to
participate in an improvement in Gulf Coast crack spreads.
Clean Air Act/Reformulated Fuels
Under the Clean Air Act, the EPA promulgated regulations mandating low-
sulfur diesel fuel for all on-road consumers, and RFG for ozone non-attainment
areas, including Chicago, Milwaukee and Houston in the Company's direct market
area.
The Clean Air Act requires the EPA to review national ambient air quality
standards for certain pollutants every five years. In July 1997, after such a
review, the EPA adopted more stringent national standards for ground level
ozone (smog) and particulate matter (soot). These standards, when implemented,
are likely to increase significantly the number of nonattainment areas and
thus require additional pollution controls, more extensive use of RFG, and
possibly new diesel fuel standards. Efforts are being made to influence the
legislative branch to repeal the new standards under the Congressional Review
Act. A lawsuit filed by the U.S. Chamber of Commerce, the American Trucking
Association and the National Coalition of Petroleum Retailers is challenging
the implementation of these standards. As a result, it is too early to
determine what impact this rule could have on the Company.
Expenditures required to comply with reformulated fuels regulations are
primarily discretionary, subject to market conditions and economic
justification. The reformulated fuels programs impose restrictions on
properties of fuels to be refined and marketed, including those pertaining to
gasoline volatility, oxygenated content, detergent addition and sulfur
content. The regulations regarding these fuel properties vary in markets in
which the Company operates, based on attainment of air quality standards and
the time of the year. The Company's Port Arthur, Blue Island and Hartford
refineries have the capability to produce up to approximately 60%, 60%, and
25%, respectively, of their gasoline production in RFG. Each refinery's
maximum RFG production may be limited based on the clean fuels attainment of
Clark's total refining system. The Port Arthur refinery has the capability to
produce 100% low-sulfur diesel fuel.
Market Environment
The Company's feedstocks and refined products are principally commodities
and, as such, are significantly affected by a variety of factors beyond its
control, including the supply of, and demand for, crude oil, gasoline and
other refined products which, in turn, depend on, among other factors, changes
in domestic and foreign economies, weather conditions, political affairs,
crude oil production levels, the rate of industry investments, the
availability of imports, the marketing of competitive fuels and the extent of
government regulations.
The Company believes that it is well positioned to benefit from potential
long-term improvements in refining industry profitability. The Company
believes refining industry improvement may result from (i) increased demand
for gasoline and distillate fuel, (ii) domestic refinery crude oil
distillation utilization rates nearing maximum sustainable rates, (iii)
reduced growth in conversion capacity, and (iv) increased availability of
lower cost heavy sour crude oil. Conversion refers to the ability to extract
more higher valued products, such as gasoline and distillate fuel, out of the
same barrel of crude oil.
58
<PAGE>
The Company believes industry improvement has occurred since 1995 and
particularly in 1997 as indicated by the Company's record second and third
quarter EBITDA and improvement in certain key industry market indicators
listed in the table below:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
FOR THE YEAR SEPTEMBER
ENDED DECEMBER 31, 30,
----------------------- -----------
(IN DOLLARS PER BARREL)
1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Gulf Coast 3/2/1........................... $2.85 $2.61 $2.38 $2.65 $2.64 $3.53
Chicago 3/2/1.............................. 3.40 3.86 3.14 4.02 4.18 4.53
Heavy sour crude oil discount.............. 6.40 4.75 4.03 4.78 4.75 5.63
Light sour crude oil discount.............. 1.60 0.95 1.02 1.24 1.06 1.71
</TABLE>
- --------
Source: Platt's
According to the U.S. Department of Energy, Energy Information
Administration ("EIA"), U.S. demand for gasoline and distillate fuel grew from
9.4 million bpd in 1980 to 11.3 million bpd in 1996, averaging growth of 1.3%
per year during this period. The Company believes this growth in U.S. demand
for gasoline and distillate fuel is principally due to increased economic
activity in the U.S. This growth reflects the expansion of the U.S. vehicle
fleet miles driven, increased seat-miles flown on U.S. airlines and reduced
improvement in vehicle miles per gallon due to consumer preference for light
trucks and sport-utility vehicles as indicated by statistics from the U.S.
Department of Transportation. The Company believes U.S. gasoline and
distillate fuel demand will continue to track U.S. economic activity.
Since 1980, U.S. crude oil distillation capacity decreased from 18.1 million
bpd to 15.3 million bpd in 1996, according to the Oil & Gas Journal, as 132
refineries closed between 1980 and 1996. However, during this period,
conversion capacity increased to meet the growing demand for transportation
fuels. From the early 1990s until 1996, growth in conversion capacity exceeded
demand growth. According to the Oil and Gas Journal and the American Petroleum
Institute, since the early 1990s, industry capital spending, especially non-
environmental capital spending, much of which was for increased conversion
capacity, has decreased as indicated in the table below. The Company believes
this decrease is due to reduced industry profitability caused by overcapacity.
The Company believes "excess" conversion capacity may have reached equilibrium
with demand in 1996.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total capital expenditures.................. $4.4 $6.1 $6.1 $5.4 $5.1 $4.9 $3.9
Environmental capital expenditures.......... 1.3 1.8 3.3 3.2 3.1 2.2 N/A
</TABLE>
According to the EIA, U.S. crude oil distillation utilization rates have
steadily increased from approximately 75% in 1980 to approximately 93% in
1996. The Company believes U.S. crude oil distillation utilization rates may
be approaching long-term sustainable maximums due to the requirement for
routine maintenance and the likelihood of unplanned downtime.
The Company believes that, due to the crude oil processing capabilities of
its refineries, it may benefit from increased availability of heavy sour crude
oil. Crude oil pipeline expansions into the U.S. Midwest in 1996 and 1997 have
increased the availability of Canadian heavy sour crude oil and thereby
improved competition for crude oil sales to Midwest refiners. Additionally,
industry studies indicate improved availability of heavy and light sour crude
oil over the next several years due to increased crude oil supply from several
Western Hemisphere sources, primarily Canada and Latin America.
59
<PAGE>
MARKETING
The Company markets gasoline and convenience products in ten Midwestern
states through a retail network of Company-operated stores and also markets
refined petroleum products through a wholesale program to distributors, chain
retailers and industrial consumers. Clark's retail presence is focused in the
Great Lakes region of the U.S. where Company-operated stores (813 as of
September 30, 1997) market value-oriented gasoline products, cigarettes and a
unique mix of On The Go(R) convenience products. The Company's wholesale
operation markets petroleum products in both the Midwest and Gulf Coast
regions of the U.S. In 1996, the Company sold approximately 1.0 billion
gallons of fuel and over $250.0 million of convenience products through
approximately 200 million retail transactions and sold an additional 1.1
billion gallons of fuel to wholesale customers ranging from Clark-branded
retailers to major transportation and commercial companies.
Retail Division
The Company's retail strategy is based on two primary objectives,
optimization and growth, and is intended to accomplish four strategic goals:
(i) optimize core market stores, (ii) realize value from nonstrategic stores,
(iii) grow earnings through acquisitions and new initiatives designed to
leverage existing expertise, product knowledge and market/brand strength, and
(iv) control operating and general and administrative expenses.
. Optimization. The retail division operating strategy centers around
optimizing the productivity of existing assets by maximizing overall gross
margin and controlling expenses. The Company believes that continued
improvements in existing processes and initiatives such as gasoline
pricing, growth of higher-margin premium gasoline grades and On The Go(R)
convenience product lines, and growth of other income/new concept
initiatives (such as lottery, money orders, fast food, car washes, etc.),
together with the proper management of controllable expenses, are the most
effective ways to improve core assets.
. Growth. In order to support its retail strategic objectives, the Company
performs thorough fundamental market analyses. The Company's analytical
system evaluates each existing and potential market to identify those that
it believes will produce the highest return on investment.
The retail division's optimization and growth strategy is consistent with
the Company's overall business strategy and includes the following key
elements:
. Improving Productivity. The retail division's goal is to achieve
significant productivity gains exclusive of external market factors.
Examples of key productivity initiatives include increasing gasoline and
convenience product sales volumes, improving gasoline pricing and shifting
product mixes to higher-margin products.
. Optimizing Capital Investments. Retail division capital expenditures are
linked to retail division earnings, with strict emphasis placed on
internally funding capital projects. Capital is primarily budgeted for
projects relating to environmental compliance plans and discretionary
productivity improvements.
. Promoting Entrepreneurial Culture. The retail division employs a
decentralized, team-oriented culture with training programs and employee
incentives designed to deliver premier customer service. The Company's
store managers have the flexibility to price gasoline and to select and
price convenience products, but also have the responsibility to achieve
acceptable results. The Company believes that customer satisfaction is
linked to employee satisfaction, and that its incentive systems and
feedback processes will contribute to the performance and motivation of its
workforce.
60
<PAGE>
In markets where the Company has a competitive strength on which to build or
where opportunities have been identified by preferred market analysis, the
Company will consider making opportunistic acquisitions to expand its market
share in existing markets as well as larger acquisitions to enter new markets.
The Company believes that continued growth through such acquisitions as the
122 stores acquired since 1994 contributes to building the Clark brand in core
markets. In markets where the Company has experienced value deterioration in
assets and the preferred market analysis has indicated no long-term market
potential exists, the Company will consider divesting retail locations if
favorable sale opportunities arise or if the Company determines the locations
would be more viable by conversion to branded jobber locations. The Company
sold 22 stores in early 1997 which were converted to branded jobber locations.
The Company is actively considering the sale of approximately 150 additional
stores in outlying noncore locations.
Retail Operations Overview
The Company's retail system began operations during the 1930s with the
opening of Old Clark's first store in Milwaukee, Wisconsin. Old Clark then
expanded throughout the Midwest. At its peak in the early 1970s, Old Clark had
more than 1800 retail stores and had established a strong market reputation
for the sale of high-octane gasoline at discount prices. In subsequent years,
Old Clark, in line with the general industry trends, rationalized its
operating stores by closing marginal locations. During the 1970s, the majority
of Old Clark's stores were dealer-operated. During the years 1973 through
1983, Old Clark assumed operation of most of its stores to ensure more direct
control of its marketing and distribution network.
As of September 30, 1997, the Company had 813 Company-operated retail
locations, all of which operated under the Clark brand name. The Company
believes a high proportion of Company-operated stores enables it to respond
more quickly and uniformly to changing market conditions than many of its
competitors, including major oil companies whose focus has generally been
operating their stores through dealer or jobber networks. Of these stores, 647
(80%) were located on Company-owned real estate and 166 (20%) were leased
locations.
Over the past several years, the Company has focused on building core
markets where it believes it can maintain or develop market share of 7.5% to
15% in order to leverage brand recognition, promotions and other marketing and
operating activities. In 1996, the Company's monthly gasoline sales per store
averaged 104,500 gallons, which exceeded the 1996 national industry average of
84,500 gallons, while monthly sales per square foot averaged approximately $49
for convenience products versus the industry average of approximately $24. The
Company believes that it is the first quartile, in terms of operating costs in
its regions, that provide it with an important competitive advantage. Chicago,
Central Illinois, Southern Michigan, Cleveland, Milwaukee and Toledo are
currently the Company's six highest volume core metropolitan markets, with
market shares of 5% to 18%. A current trend toward consolidation in the
refining and marketing sector is viewed positively by the Company due to
growth opportunities that may develop and the potential beneficial impact that
consolidation may have on longer term pricing.
Over the past few years the Company has also grown its market share in
several of its core markets through retail store acquisitions. In October
1994, the Company acquired 25 stores in metropolitan Chicago from State Oil
and in April 1995 acquired 35 stores in Central Illinois from Illico
Independent Oil Company. In 1996, the Company acquired four additional stores
from State Oil and 10 high-volume Chicago locations from Bell Fuels, Inc. The
latter acquisition increased the Company's market share in Chicago from
approximately 9% to 10%. In January 1997, the Company acquired 48 stores in
Southern Michigan from Silcorp, Ltd. This transaction increased the Company's
Southern Michigan market share from approximately 5% to 7%.
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Simultaneously with growing the Company's market share in core markets
through acquisitions, the Company continues to evaluate its remaining noncore
markets for possible divestiture. In the past few years, the Company has
divested approximately 100 stores in its Indiana, Kansas, Kentucky, Minnesota,
Missouri and Ohio markets. The Company is actively considering the sale of
approximately 150 stores in outlying noncore locations.
The geographic distribution of Company-operated retail stores by state as of
September 30, 1997, was as follows:
GEOGRAPHICAL DISTRIBUTION OF RETAIL STORES
<TABLE>
<S> <C>
Illinois............................................................. 267
Michigan............................................................. 210
Ohio................................................................. 144
Indiana.............................................................. 79
Wisconsin............................................................ 70
Missouri............................................................. 28
Other States (a)..................................................... 15
---
Total................................................................ 813
===
</TABLE>
- --------
(a) Iowa, Kentucky, Pennsylvania and West Virginia.
The Company also continues to optimize its retail stores through
productivity achieved from improved operations, profit-enhancing capital
expenditures and the addition of incremental new concept and other income
initiatives. From 1993 to 1996, the Company transformed the image of its
retail network by converting it from a 1950s look to a new vibrant color
scheme. In 1993, the Company initiated a strategy to increase the sales of On
The Go(R) products to reduce the Company's reliance on cigarette sales. This
was accomplished by remodeling store interiors and adding soda fountain
machines and interior beverage coolers. In an effort to continue to improve
gasoline volume, pricing and growth of higher-margin premium gasoline grades
and On The Go(R) convenience product lines, the Company continues to upgrade
the equipment for core market stores including canopies and multiple product
dispensers ("MPDs"). Currently, approximately 90% of stores have canopies and
approximately 70% of stores have MPDs. It is believed that MPDs improve
volumes and margins by enabling the Company to market a more profitable
midgrade gasoline product without the large capital expenditures required for
additional underground storage tanks. The installation of canopies enhances
gasoline volumes with better lighting and shelter from adverse weather
conditions. In 1996, the Company began adding "pay-at-the-pump" credit card
technology and as of September 30, 1997, had 66 locations with this service,
and will continue to evaluate the addition of similar technology at additional
locations, as well as other income initiatives, including car washes and
branded fast food.
As a result of the above initiatives and recent acquisitions, the Company
has, from 1992 to 1996, improved monthly fuel volume per store by 16% to
104,500 gallons, increased monthly convenience product sales per store by 33%
to $25,500, increased the mix of On The Go(R) convenience products from 32% to
42% of total convenience product sales, and improved monthly convenience
product gross margin per store by 47% to $6,600.
The Company has implemented a number of environmental projects at its retail
stores. These projects include the ongoing response to the September 1988
regulations that provided for a 10-year transition period through 1998, and
are related to the design, construction, installation, repair and testing of
underground storage tanks ("UST") and the requirement of the Clean Air Act to
install Stage II vapor recovery systems at certain retail stores. The Company
has UST leak detection devices
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installed at nearly all retail locations. Approximately 71% of current
locations meet the December 1998 federal UST compliance standards. In many
cases, state funds are available to cover a portion of the cost of complying
with the UST standards. The Company estimates that mandatory retail capital
expenditures for environmental and regulatory compliance for 1997 and 1998,
net of costs recovered from state funds, will be approximately $23.0 million.
Costs for complying with future regulations cannot be estimated.
Market Environment
The sale of gasoline at the retail level is considered a mature industry as
consumption has historically increased at 1% to 2% per year, and industry
studies indicate that many markets have reached saturation in terms of the
number of retail outlets and fuel dispensing capability. The retail markets in
which Clark operates are highly competitive. Many well-capitalized major oil
companies and numerous independent marketers have made substantial investments
in their retail assets. Historically, this competitive environment has caused
retail gasoline margins in the Company's Midwest markets to be among the
lowest in the country.
The Company believes that the increased sale of convenience products and
fast food and the expanded offering of other services like car washes and pay-
at-the-pump technology will be the primary avenues for individual site growth
in the industry. Industry studies also indicate that the retail markets have
been characterized by several significant trends including (i) increased
rationalization of stores and consolidation of companies, (ii) changing
consumer demand to emphasize convenience and value, (iii) the impact of
governmental regulations on product offerings and services, and (iv) during
1996 and 1997, unstable gasoline unit margins due to crude oil and related
wholesale and retail price volatility.
. Rationalization/Consolidation. During the past several years, major oil
companies have rationalized their retail systems to gain efficiencies.
These companies divested nonstrategic locations to focus on areas near
strategic supply sources, which has put a higher concentration of market
share in fewer geographic regions for many of these companies. In addition,
smaller operators have closed marginal and unprofitable locations due to
the investment requirements to meet the 1998 UST environmental compliance
deadline. More recently, oil companies and convenience store chains have
sought to consolidate through mergers, acquisitions and joint ventures. The
lack of availability of favorable new locations, the high cost of
construction of new facilities and the opportunity to achieve significant
cost reduction and brand building synergies make this attractive for many
companies.
. Changing Consumer Demand. Industry studies indicate that consumer buying
behavior continues to reflect the effect of increasing demands on consumer
time and money. Consumers have generally become time-constrained, value-
minded buyers who expect quality goods at reasonable prices.
. Government Regulations. The gasoline and convenience store industry is
subject to significant governmental regulations. The environmental
requirements for Stage II vapor recovery and UST upgrades have been
partially responsible for the closing of more than 22,000 retail stores or
close to 11% of U.S. outlets over the seven-year period of 1991 to 1997.
This trend is expected to continue through 1998. It is anticipated that
these regulations may also cause many companies with vehicle fleet programs
to abandon on-site fueling in favor of retail fueling. Most recently, the
Food and Drug Administration has initiated a series of regulations intended
to stop the sale of tobacco products to minors. Such regulations, if
enacted, may impact the way such tobacco products are marketed throughout
the country.
. Volatile Wholesale Costs. The volatility of crude oil and wholesale costs
can materially affect the profitability of retail gasoline operations.
Typically, there is a delay between changes in wholesale product costs and
changes in retail gasoline prices that prevents operators from
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maintaining stable gasoline margins. During periods of rapidly rising
wholesale costs, margins are usually compressed. Conversely, during periods
of falling wholesale costs, margins usually expand.
Wholesale Division
The Company's wholesale division strategy is to leverage its strengths in
the distribution and marketing of petroleum and On The Go(R) products to
create value through commercial relationships with minimal capital investment.
The wholesale division strategy is designed to create value by focusing on
distinct channels of trade and offering products and services that meet the
unique needs of targeted customers. Wholesale marketing can be divided into
four primary functions: (i) fuel sales to commercial and transportation end-
users, (ii) fuel sales to reseller-distributors, (iii) branded franchise
marketing, and (iv) new business franchise marketing.
The Company currently sells gasoline and diesel fuel on an unbranded basis
to approximately 500 distributors and chain retailers. The Company believes
these sales offer higher profitability than spot market alternatives.
Wholesale sales are also made to the transportation and commercial sectors,
including airlines, railroads, barge lines and other industrial end-users. In
1996, the Company continued growth of a new branded jobber program and as of
September 30, 1997, had 61 outlets owned and operated by branded jobbers. As
part of its new business franchise marketing initiative, the Company partnered
with a grocery chain to add four outlets on grocery store parking lots in late
1996 and 1997. The Company believes that a branded distributor program, new
business franchise marketing, and further focus on the transportation and
commercial sector offer significant opportunities for incremental sales
volumes and earnings in the future.
Fuel sales to all channels of trade focus on maximizing netback realizations
(revenue less all distribution and working capital investment costs). The
wholesale division continues to refine and integrate netback management tools
to identify the most attractive short-term sales opportunities as well as to
identify the most profitable markets over the long term. Channels of trade,
product, and market-specific strategies are continually refined and optimized
through this netback methodology. Efforts focus on improving returns and
optimizing the core Midwest system while expanding Gulf Coast marketing
activities around the supply of refined products available from the Port
Arthur refinery.
COMPETITION
The refining and marketing segment of the oil industry is highly
competitive. Many of the Company's principal competitors are integrated
multinational oil companies that are substantially larger and better known
than the Company. Because of their diversity, integration of operations,
larger capitalization and greater resources, these major oil companies may be
better able to withstand volatile market conditions, more effectively compete
on the basis of price and more readily obtain crude oil in times of shortages.
The principal competitive factors affecting the Company's refining division
are crude oil and other feedstock costs, refinery efficiency, refinery product
mix and product distribution and transportation costs. Certain of the
Company's larger competitors have refineries which are larger and, as a
result, could have lower per-barrel costs or high margins per barrel of
throughput. The Company has no crude oil reserves and is not engaged in
exploration and production activities. The Company obtains nearly all of its
crude oil requirements on the spot market from unaffiliated sources. The
Company believes that it will be able to obtain adequate crude oil and other
feedstocks at generally competitive prices for the foreseeable future.
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The principal competitive factors affecting the Company's retail marketing
division are locations of stores, product price and quality, appearance and
cleanliness of stores, brand identification and market share. Competition from
large, integrated oil and gas companies, as well as convenience stores which
sell motor fuel, is expected to continue. The principal competitive factors
affecting the Company's wholesale marketing business are product price and
quality, reliability and availability of supply and location of distribution
points.
THE OXY ADVANCE CRUDE OIL PURCHASE RECEIVABLE TRANSACTION
Pursuant to a merger agreement and a series of related agreements with
affiliates of Oxy in December 1995, the Company acquired the right to receive
the equivalent of 17.661 million barrels of WTI to be delivered over six years
according to a defined schedule. In connection with this transaction, Clark
USA issued common stock valued at approximately $120.0 million, or $20 per
share (6,000,000 shares), and paid $100.0 million in cash to Oxy. Clark USA
contributed the Oxy advance crude oil purchase receivable to the Company in
October 1996 and the Company sold the receivable for net cash proceeds of
$235.4 million.
ENVIRONMENTAL MATTERS
Compliance Matters
Operators of refineries and gasoline stores are subject to comprehensive and
frequently changing federal, state and local environmental laws and
regulations, including those governing emissions of air pollutants, discharges
of wastewater and stormwater, and the handling and disposal of nonhazardous
and hazardous waste. Federal, state and local laws and regulations
establishing numerous requirements and providing penalties for violations
thereof affect nearly all of the operations of the Company. Included among
such laws and regulations are the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act and the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). Also
significantly affecting the Company are the rules and regulations of the
Occupational Safety and Health Administration. Many of these laws authorize
the imposition of civil and criminal sanctions upon companies that fail to
comply with applicable statutory or regulatory requirements. As discussed
below, federal and state agencies have filed various enforcement actions
alleging that the Company has violated a number of environmental laws and
regulations. The Company nevertheless believes that, in all material respects,
its existing operations are in compliance with such laws and regulations.
The Company's operations are large and complex. The numerous environmental
regulations to which the Company is subject are complicated, sometimes
ambiguous, and often changing. In addition, the Company may not have detected
certain violations of environmental laws and regulations because the
conditions that constitute such violations may not be apparent. It is
therefore possible that certain of the Company's operations are not currently
in compliance with state or federal environmental laws and regulations.
Accordingly, the Company may be required to make additional expenditures to
comply with existing environmental requirements. Such expenditures, along with
fines or other penalties for noncompliance with environmental requirements,
could have a material adverse effect on the Company's financial condition,
results of operations, cash flow or liquidity.
Regulations issued by the EPA in 1988 with respect to USTs require the
Company, over a period of up to ten years, to install, where not already in
place, detection devices and corrosion protection on all USTs and piping at
its retail gasoline outlets. The regulations also require periodic tightness
testing of USTs and piping. Commencing in 1998, operators will be required
under these regulations to install continuous monitoring systems for
underground tanks. In order to bring its retail stores into compliance with
these regulations, the Company estimates that capital expenditures of
approximately $23 million, net of costs recovered from state funds, will be
required for 1997 and 1998. See "--Marketing" and "--Retail Operations
Overview."
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The Company anticipates that, in addition to expenditures necessary to
comply with existing environmental requirements, it will incur costs in the
future to comply with new regulatory requirements arising from recently
enacted statutes (such as the Clean Air Act requirements relating to operating
permits and the control of hazardous air pollutants) and possibly with new
statutory requirements.
The Company cannot predict what environmental legislation or regulations
will be enacted in the future or how existing or future laws or regulations
will be administered or interpreted with respect to products or activities to
which they have not previously been applied. Compliance with more stringent
laws or regulations, as well as more vigorous enforcement policies of the
regulatory agencies or stricter interpretation of existing laws which may
develop in the future, could have an adverse effect on the financial position
or operations of the Company and could require substantial additional
expenditures by the Company for the installation and operation of pollution
control systems and equipment. See "--Legal Proceedings."
Remediation Matters
In addition to environmental laws that regulate the Company's ongoing
operations, Clark's various operations also are subject to liability for the
remediation of contaminated soil and groundwater. Under CERCLA and analogous
state laws, certain persons may be liable as a result of the release or
threatened release of hazardous substances (including petroleum) into the
environment. Such persons include the current owner or operator of property
where such releases or threatened releases have occurred, any persons who
owned or operated such property during the time that hazardous substances were
released at such property, and persons who arranged for the disposal of
hazardous substances at such property. Liability under CERCLA is strict.
Courts have also determined that liability under CERCLA is, in most cases
where the government is the plaintiff, joint and several, meaning that any
responsible party could be held liable for all costs necessary for
investigating and remediating a release or threatened release of hazardous
substances. As a practical matter, liability at most CERCLA (and similar)
sites is shared among all the solvent "potentially responsible parties"
("PRPs"). The most relevant factors in determining the probable liability of a
party at a CERCLA site usually are the cost of investigation and remediation,
the relative amount of hazardous substances contributed by the party to the
site and the number of solvent PRPs. While the Company maintains property and
casualty insurance in the normal course of its business, such insurance does
not typically cover remediation and certain other environmental expenses.
The release or discharge of petroleum and other hazardous materials can
occur at refineries, terminals and retail stores. The Company has identified a
variety of potential environmental issues at its refineries, terminals and
retail stores. In addition, each refinery has areas on-site which may contain
hazardous waste or hazardous substance contamination and which may have to be
addressed in the future at substantial cost. Many of the terminals may also
require remediation due to the age of tanks and facilities and as a result of
current or past activities at the terminal properties including several
significant spills and past on-site waste disposal practices.
Legal and Governmental Proceedings
As a result of its activities, Clark is the subject of a number of legal and
administrative proceedings relating to environmental matters. While it is not
possible at this time to estimate the ultimate amount of liability with
respect to the environmental matters described below, the Company is of the
opinion that the aggregate amount of any such liability will not have a
material adverse effect on its financial position. However, an adverse outcome
of any one or more of these matters could have a material effect on quarterly
or annual operating results or cash flows when resolved in a future period.
Hartford Groundwater Contamination. In late 1990, Clark and other area oil
companies were contacted by the Illinois Environmental Protection Agency
("IEPA") and the Illinois Attorney General regarding the presence of gasoline
contamination in the groundwater beneath the northern portion of
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the Village of Hartford, Illinois. As a result, Clark installed and is
operating a gasoline vapor recovery system in Hartford. No claim has been
filed by the state authorities.
Hartford Pollution Control Board Litigation. On June 7, 1995, Clark was served
with a complaint entitled People of the State of Illinois v. Clark Refining &
Marketing, Inc. PCB No. 95-163. This matter was substantially settled in 1996
for $235,000. One issue concerning the exempt status of Clark's wastewater
treatment system is being submitted to an Administrative Law Judge on a
stipulation of facts. No estimate of any liability with respect to this
remaining element of the complaint can be made at this time.
Hartford FCCU. The EPA has alleged violations of the Clean Air Act, and
regulations promulgated thereunder, in the operation and permitting of the
Hartford refinery fluid catalytic cracking unit ("FCCU") and alleged
modification of the FCCU. On May 19, 1997, the EPA served a Notice of
Violation on Clark, alleging that Clark violated the Prevention of Significant
Deterioration ("PSD") requirements of the Clean Air Act by modifying the FCCU
without obtaining a PSD construction permit and installing the best available
control technology. The government has also requested additional information
from Clark. Clark submitted the requested information and is cooperating with
the government in its investigation. No estimate can be made at this time of
Clark's potential liability, if any, as a result of this matter.
Blue Island Federal Enforcement. The Blue Island refinery is the subject of
several federal investigations concerning potential violations of a number of
environmental laws and regulations as discussed below. On September 30, 1996,
the EPA served a Notice of Violation and a Finding of Violation on Clark,
alleging that Clark is in violation of the Clean Air Act national emission
standard for hazardous air pollutants for benzene, and that Clark was in
violation of certain detection and record keeping requirements issued pursuant
to the Illinois state implementation plan. On August 21, 1997, the EPA served
a Finding of Violation on Clark alleging that the sulfur recovery plant at the
Blue Island refinery is in violation of the federal New Source Performance
Standard for refineries. No estimate can be made at this time of Clark's
potential liability, if any, as a result of these matters. Between January and
August 1997, the Company received five demand letters from the EPA, each
requesting different information about a variety of water pollution, air
pollution and solid waste management practices and procedures. On March 3,
1997, the EPA initiated a multimedia investigation at the Blue Island
refinery. The investigation is proceeding in stages, including on-site visits
and requests for information. The Company is cooperating fully and has
responded to all requests. On March 25, 1997, Clark received a Grand Jury
subpoena requesting certain documents relating to wastewater discharges. Clark
is cooperating fully and has produced the documents responsive to the subpoena
and a subsequent supplemental subpoena. No estimate can be made whether any
potential for liability exists as a result of these investigations. However,
the results of these investigations may require significant capital
expenditures and may also result in fines and other penalties imposed on the
Company.
Blue Island State Enforcement. State authorities have also charged the Blue
Island refinery with numerous violations of environmental laws. People ex rel.
Ryan v. Clark Refining & Marketing, Inc., Cir. Ct. Cook County, III., Case No.
95-CH-2311, is currently pending in the Circuit Court of Cook County,
Illinois. The first count of this lawsuit concerns a fire that occurred in the
Isomax unit at the Blue Island refinery on March 13, 1995, in which two
employees were killed and three other employees were injured. The second count
concerns a release of hydrogen fluoride ("HF") on May 16, 1995 from a catalyst
regeneration portion of the HF unit. At the request of the Illinois Attorney
General, and with Clark's consent, the Circuit Court of Cook County, Illinois
entered an order requiring Clark to implement certain HF release mitigation
and detection measures that are substantially complete. The next three counts
of the lawsuit concern releases into the air that occurred in the past three
years at the Blue Island refinery. One of those air emissions, which occurred
on October 7, 1994, is also the basis for Rosolowski, et al. v. Clark Refining
& Marketing, Inc., Cir. Ct. Cook County, Ill., Case No. 95-L-01
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4703. See "--Legal Proceedings." The next five counts of the lawsuit concern
several alleged releases of process wastewater and contaminated stormwater to
the Cal Sag Channel from the Blue Island refinery. Clark has filed an Answer
denying the material allegations in the lawsuit. Following an explosion on
October 19, 1996, in a propane gas line at the Blue Island refinery, the State
of Illinois brought an action seeking a temporary restraining order requiring
the refinery to cease operations temporarily, pending a safety review. On
November 8, 1996, the court denied the requested order. No estimate of any
liability with respect to this matter can be made at this time.
On September 17, 1997, a crude oil tank experienced a leak resulting in the
discharge of crude oil and on November 2, 1997, gasoline leaked from a product
tank into the diked area around the tank. Both tanks were taken out of service
for inspection and repair and Clark notified appropriate government agencies.
On November 7, 1997, state authorities met with Clark to discuss these
incidents and overall storage tank inspection matters. These discussions are
ongoing and no estimate can be made of any liability with respect to the
outcome of the discussions at this time.
Ninth Avenue Site. On January 5, 1995, Clark received a Unilateral
Administrative Order from the EPA pursuant to CERCLA alleging that "Clark Oil
& Refining Corp." is a PRP with respect to shipments of hazardous substances
to a solid waste disposal site known as the Ninth Avenue Site, Gary, Indiana.
The alleged shipments all occurred prior to 1987. The Order instructs Clark
and the other approximately ninety PRPs to design and implement certain
remedial work at the site. Clark has informed the EPA that it is not a proper
party to this matter, because its purchase of certain assets of Old Clark was
"free and clear" of all Old Clark liabilities. Information provided with the
Order estimates that the remedial work may cost approximately $25.0 million,
although the cost could substantially exceed this estimate. No estimate of
Clark's liability can be made with respect to this proceeding at this time. In
addition, on December 28, 1994, Clark was served with a summons and complaint
brought by certain private parties seeking to recover all past and future
response costs with respect to the Ninth Avenue Site. Clark, along with
approximately eighty other parties, is alleged to be a PRP with respect to
that site on the basis of shipments of hazardous substances allegedly made
prior to 1987. Clark moved for summary judgment on the basis, among others,
that the action is barred by the "free and clear" order pursuant to which
Clark purchased certain assets of Old Clark. Clark's motion is pending. No
estimate of any liability with respect to this case can be made at this time.
St. Louis Terminal. In January 1994, a gasoline spill occurred at the Clark
St. Louis terminal. On April 13, 1995, Clark was served with two Grand Jury
Records Subpoenas issued by the Office of the United States Attorney in St.
Louis. In April 1997, the Company was advised of the termination of the United
States Attorney's investigation. In May 1997, the Company received
correspondence from the State of Missouri seeking to resolve any dispute
arising from the events of January 1994 and seeking the payment of a penalty
of less than $200,000.
Sashabaw Road. On May 5, 1993 Clark received correspondence from the Michigan
Department of Natural Resources ("MDNR") indicating that the MDNR believes
that Clark may be a PRP in connection with groundwater contamination in the
vicinity of one of its retail stores in the Sashabaw Road area north of
Woodhull Lake and Lake Oakland, Oakland County, Michigan. On July 22, 1994,
MDNR commenced suit against Clark and is currently seeking $300,000 to resolve
the matter. No estimate of any liability with respect to this matter can be
made at this time.
Port Arthur Refinery. The original refinery on the site of the Port Arthur
refinery began operating in 1904, prior to modern environmental laws and
methods of operation. While the Company believes, as a result, that there is
extensive contamination at the site, the Company is unable to estimate the
cost of remediating such contamination. Under the purchase agreement between
the Company and Chevron, Chevron will be obligated to perform the required
remediation of most pre-closing contamination, but the Company assumed
responsibility for environmental contamination beneath and within 25 to 100
feet of the facility's active processing units. Based on the estimates of
independent environmental consultants, the Company accrued approximately $7.5
million as part of the Port Arthur refinery acquisition for its cost of
remediation in this area. In addition, as a result of the acquisition,
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Clark may become jointly and severally liable under CERCLA for the costs of
investigation and remediation at the site. In the event that Chevron is unable
(as a result of bankruptcy or otherwise) or unwilling to perform the required
remediation at the site, Clark may be required to do so. The cost of any such
remediation could be substantial and could be beyond the Company's financial
ability. On June 24, 1997, Clark, Chevron and the State of Texas entered into
an Agreed Order that substantially confirms the relative obligations of Clark
and Chevron.
As of September 30, 1997, the Company has accrued a total of $15.8 million
for environmental-related and legal obligations that may result from the
matters noted above and obligations associated with certain retail sites. The
Company is evaluating the adequacy of its accrual due to developments in
pending legal and environmental actions and currently expects to increase this
accrual in the fourth quarter of 1997.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 7,900 people,
approximately 1,000 of whom were covered by collective bargaining agreements
at the Blue Island, Hartford and Port Arthur refineries. The Hartford and Port
Arthur refinery contracts expire in February 1999 and the Blue Island refinery
contract expires in August 1999. In addition, the Company has union contracts
for certain employees at its Hammond, Indiana, and St. Louis, Missouri,
terminals which expire March 31, 1998, and March 5, 1998, respectively.
Relationships with the unions have been good and neither Old Clark nor the
Company has ever experienced a work stoppage as a result of labor
disagreements.
LEGAL PROCEEDINGS
Hartford Groundwater. Clark was named as the defendant in numerous lawsuits
filed in December 1991 in the Circuit Court of the Third Judicial District,
Madison County, Illinois, by plaintiff residents and property owners in the
Village of Hartford, Illinois. These suits sought damages for the presence of
gasoline in the soil and groundwater beneath plaintiff's properties. See
"Business; Properties--Environmental Matters." After many of these suits were
dismissed, the remaining suits were settled by Clark and the Shell Oil Company
at a total cost to Clark of less than $150,000.
Rosolowski et al v. Clark Refining & Marketing, Inc., et al. Cir. Ct. Cook
County, III., Case No. 95-L-014703, is a purported class action lawsuit, filed
on October 11, 1995, relating to an on-site electrical malfunction at Clark's
Blue Island refinery on October 7, 1994, which resulted in the release to the
atmosphere of used catalyst containing low levels of heavy metals, including
antimony, nickel and vanadium. This release resulted in the temporary
evacuation of certain areas near the refinery, including a high school, and
approximately 50 people were taken to area hospitals. Clark was previously
sued by one individual who claimed medical costs as a result of the incident;
that case was settled. The purported class action lawsuit was filed on behalf
of various named individuals and purported plaintiff classes, including
residents of Blue Island, Illinois, and students at Eisenhower High School,
alleging claims based on common law nuisance, negligence, willful and wanton
negligence and the Illinois Family Expense Act as a result of this incident.
Plaintiffs seek to recover damages in an unspecified amount for alleged
medical expenses, diminished property values, pain and suffering and other
damages. Plaintiffs also seek punitive damages in an unspecified amount.
Other Blue Island tort cases, alleging various losses due to emissions from
the Blue Island refinery, were filed in September and October, 1996. These
cases, Boucher v. Clark Refining & Marketing, Inc.; Loranger v. Clark Refining
& Marketing, Inc.; Marciano v. Clark Refining & Marketing, Inc.; and Webb v.
Clark Refining & Marketing, Inc. all brought by named individuals, seek
damages of less than $100,000 each.
EEOC v. Clark Refining & Marketing, Inc., Case No. 94 C 2779, is currently
pending in the United States District Court for the Northern District of
Illinois. In this action, the Equal Employment Opportunity Commission (the
"EEOC") has alleged that Clark engaged in age discrimination in
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<PAGE>
violation of the Age Discrimination in Employment Act through a "pattern and
practice" of discrimination against a class of former retail managers over the
age of forty. The EEOC has identified 40 former managers it believes have been
affected by the alleged pattern and practice. However, two of those managers
have since been dismissed from the case. The relief sought by the EEOC
includes reinstatement or reassignment of the individuals allegedly affected,
payment of back wages and benefits, an injunction prohibiting employment
practices which discriminate on the basis of age and institution of practices
to eradicate the effects of any past discriminatory practices.
On May 5, 1997, a complaint, entitled AOC L.P. et al., vs. TrizecHahn
Corporation, et al., Case No. 97 CH 05543, naming Clark USA as a defendant was
filed in the Circuit Court of Cook County, Illinois. The Complaint seeks $21
million, plus continuing interest, related to the sale of equity by Clark USA
to finance the Port Arthur refinery acquisition. The plaintiff alleges that
sale of such equity triggered a contingent payment to AOC L.P. (the "AOC L.P.
Contingent Payment") pursuant to the agreement related to the December 1992
purchase and redemption of its minority interest. Clark USA believes no
payment is required. The AOC L.P. Contingent Payment is an amount which will
not exceed in the aggregate $33.9 million and is contractually payable 89% by
Clark USA and 11% by TrizecHahn. TrizecHahn has indemnified Clark USA for any
AOC L.P. Contingent Payment in excess of $7.0 million.
On May 23, 1995, Clark was served with a Petition entitled Anderson, et al
v. Chevron and Clark, filed in Jefferson County, Texas, by 24 individual
plaintiffs who were Chevron employees and who did not receive offers of
employment from Clark at the time of the purchase of the Port Arthur Refinery.
Chevron and the outplacement service retained by Chevron are also named as
defendants. An Amended Petition has now been filed increasing the number of
plaintiffs to 40. Clark filed an Answer denying all material allegations of
the Amended Petition. Subsequent to the filing of the lawsuit, the plaintiffs
have each filed individual charges with the EEOC and the Texas Commission of
Human Rights.
As of September 30, 1997, the Company has accrued a total of $15.8 million
for environmental-related and legal obligations that may result from the
matters noted above and obligations associated with certain retail sites. The
Company is evaluating the adequacy of its accrual due to developments in
pending legal and environmental actions and currently expects to increase this
accrual in the fourth quarter of 1997.
While it is not possible at this time to estimate the ultimate amount of
liability with respect to the legal proceedings described above, the Company
is of the opinion that the aggregate amount of any such liability will not
have a material adverse effect on its financial position; however, an adverse
outcome of any one or more of these matters could have a material effect on
quarterly or annual operating results or cash flows when resolved in a future
period.
The Company is also the subject of various environmental and other
governmental proceedings. See "--Environmental Matters."
In addition to the specific matters discussed above or under "--
Environmental Matters," the Company has also been named in various other suits
and claims. While it is not possible to estimate with certainty the ultimate
legal and financial liability with respect to these other legal proceedings,
the Company believes the outcome of these other suits and claims will not have
a material adverse effect on the Company's financial position, operating
results or cash flow.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers, Controller, Treasurer and Secretary of
the Company and their respective ages and positions are set forth in the table
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul D. Melnuk...... 43 President, Chief Executive Officer and Chief Operating
Officer; Director
Bradley D. Aldrich.. 43 Executive Vice President--Refining
Brandon K. 39 Executive Vice President--Marketing
Barnholt...........
Maura J. Clark...... 39 Executive Vice President--Corporate Development and
Chief Financial Officer
Edward J. Stiften... 43 Executive Vice President, Chief Administrative Officer
Marshall A. Cohen... 62 Director
David A. Stockman... 51 Director
John R. Woodard..... 33 Director
David I. Foley...... 30 Director
Dennis R. Eichholz.. 44 Controller and Treasurer
Katherine D. 40 Secretary
Knocke.............
</TABLE>
The board of directors of the Company currently consists of five directors
who serve until the next annual meeting of stockholders or until a successor
is duly elected. Directors do not receive any compensation for their services
as such. Executive officers of the Company serve at the discretion of the
board of directors of the Company.
Paul D. Melnuk has served as a director of the Company since October 1992,
as President and Chief Executive Officer of the Company since July 1992, as
Chief Operating Officer of the Company since December 1991, as President of
the Company from February 1992 through July 1992, as Executive Vice President
of the Company from December 1991 through February 1992, and has served in
various other capacities since November 1988. Mr. Melnuk has served as a
director and as President of Clark USA since September 1992, and as Vice
President and Treasurer of Clark USA from November 1988 through September
1992. Mr. Melnuk served as a director of TrizecHahn from March 1992 through
November 1996. Mr. Melnuk served as President and Chief Operating Officer of
TrizecHahn from March 1992 through April 1994, and as Executive Vice President
and Chief Financial Officer of TrizecHahn from May 1990 through February 1992.
Bradley D. Aldrich has served as Executive Vice President--Refining, since
December 1994. From August 1991 through November 1994, Mr. Aldrich served as
Vice President, Supply & Distribution for CF Industries, Inc., a chemical
fertilizer manufacturer and distributor. Mr. Aldrich previously served as
Manager, Light Oil Supply-North America of Conoco, Inc. from August 1989
through July 1991.
Brandon K. Barnholt has served as Executive Vice President--Marketing, since
February 1995, and served as Executive Vice President--Retail Marketing from
December 1993 through February 1995, as Vice President--Retail Marketing from
July 1992 through December 1993, and as Managing Director--Retail Marketing
from May 1992 through July 1992. Mr. Barnholt previously served as Retail
Marketing Manager of Conoco, Inc. from March 1991 through March 1992.
Maura J. Clark has served as Executive Vice President--Corporate Development
and Chief Financial Officer of the Company and Clark USA since August 1995.
Ms. Clark previously served as Vice President--Finance at North American Life
Assurance Company, a financial services company, from September 1993 through
July 1995. From May 1990 to September 1993, Ms. Clark served as
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<PAGE>
Vice President--Corporate Finance and Corporate Development of North American
Trust Company (formerly First City Trust Company), a subsidiary of North
American Life Assurance Company.
Edward J. Stiften joined the Company in March 1997 as Executive Vice
President, Chief Administrative Officer. Mr. Stiften was previously in private
business from June 1995 through March 1997. Mr. Stiften served as Subsidiary
Executive Vice President and Acting General Manager of General Dynamics, Inc.
from October 1994 through May 1995, as Corporate Staff Vice President of
Internal Audit from February 1994 through October 1994 and as Corporate Staff
Vice President--Financial Analysis from December 1991 through January 1994.
Marshall A. Cohen has served as a director of the Company since November 3,
1997. Mr. Cohen has served as Counsel at Cassels Brook & Blackwell since
October 1996. Mr. Cohen previously served as President and Chief Executive
Officer of The Molson Companies Limited from November 1988 to September 1996.
David A. Stockman has served as a director of the Company since November 3,
1997. Mr. Stockman has been a member of the general partner of Blackstone
Group Holdings L.P. since 1988. Mr. Stockman is also a Co-Chairman of the
board of directors of Collins & Aikman Corporation and a director of Haynes
International, Inc. and Bar Technologies Inc.
John R. Woodard has served as a director of the Company since November 3,
1997. Mr. Woodard joined The Blackstone Group L.P. as a Managing Director in
1996. Prior thereto, he was a Vice President at Vestar Capital Partners from
1990 to 1996. He is a member of the board of directors of Prime Succession,
Inc.
David I. Foley has served as a director of the Company since November 3,
1997. Mr. Foley is an Associate at The Blackstone Group L.P., which he joined
in 1995. Prior to joining Blackstone, Mr. Foley was a member of AEA Investors,
Inc. and The Monitor Company. He currently serves on the board of directors of
Rose Hills Company.
Dennis R. Eichholz, who joined Clark in November 1988, has served as Vice
President--Controller of the Company and Controller and Treasurer of Clark USA
since February 1995. Mr. Eichholz has served as Vice President-Treasurer of
Clark since December 1991.
Katherine D. Knocke has served as Secretary of the Company and Clark USA
since April 1995. Ms. Knocke has served as in-house counsel of Clark since
August 1994. Ms. Knocke previously was employed as an associate with the St.
Louis law firm of Armstrong, Teasdale, Schlafly & Davis from September 1989
through August 1994.
Except as described above, there are no arrangements or understandings
between any director or executive officer and any other person pursuant to
which such person was elected or appointed as a director or executive officer.
There are no family relationships between any director or executive officer
and any other director or executive officer.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company to
its Chief Executive Officer and its other executive officers whose total
annual compensation exceeded $100,000 for each of the years in the three-year
period ended December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------ OTHER ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTION COMPENSATION(A)
- --------------------------- ---- --------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Melnuk........... 1996 $ 325,000 $ 130,000 -- -- $ 6,816
President and Chief 1995 326,836 75,000 -- 100,000(b) 5,479
Executive Officer 1994 325,893 150,000 -- -- 7,528
Bradley D. Aldrich....... 1996 211,779 47,500 -- -- 6,849
Executive Vice President 1995 176,224 42,500 -- 130,000(b)(c) --
--Refining 1994 6,731 60,000 -- -- --
Brandon K. Barnholt...... 1996 211,799 87,500 -- -- 6,802
Executive Vice President 1995 176,273 75,000 -- 50,000(b) 5,329
--Marketing 1994 171,846 100,000 -- -- 8,330
Maura J. Clark (d)....... 1996 36,779 47,500 -- -- --
Executive Vice President 1995 -- -- -- -- --
--Corporate Development 1994 -- -- -- -- --
and Chief Financial
Officer
</TABLE>
- --------
(a) Represents amount accrued for the account of such individuals under the
Company's Retirement Savings Plan (the "Savings Plan").
(b) Options issued pursuant to the Performance Plan as described below.
(c) Mr. Aldrich and Mr. Barnholt (granted in 1993) hold options to acquire
TrizecHahn Subordinate Voting Shares ("TrizecHahn Shares") received as
compensation from TrizecHahn for services performed for the Company under
the TrizecHahn Amended and Restated 1987 Stock Option Plan (the
"TrizecHahn Option Plan").
(d) In 1995 and 1996, Ms. Clark was an employee of TrizecHahn and served the
Company under a management consulting arrangement. Ms. Clark earned
approximately $175,000 in 1996 and $117,000 in 1995 under such
arrangement. As of January 1, 1997, Ms. Clark became an employee of the
Company. The amounts reflected in this table are for 1996 compensation
paid by the Company in 1997.
STOCK OPTIONS GRANTED DURING 1996
There were no options granted during 1996 to the named executive officers
under the Performance Plan (as defined) for services performed for the
Company.
YEAR-END OPTION VALUES
The following table sets forth information with respect to the number and
value of unexercised options to purchase common stock of Clark USA and
TrizecHahn Shares held by the executive officers named in the executive
compensation table as of December 31, 1996.
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE OF
ON EXERCISE VALUE NUMBER OF UNEXERCISED
DURING REALIZED UNEXERCISED IN-THE-MONEY
YEAR ENDED ON OPTIONS HELD OPTIONS HELD AT
NAME DECEMBER 31, 1996 EXERCISE AT DECEMBER 31, 1996 DECEMBER 31, 1996(A)
---- ----------------- -------- ------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Melnuk(b)....... -- $ -- -- 100,000 $ -- $700,000
Bradley D. Aldrich...... -- -- 33,333 96,667 289,000 789,000
Brandon K. Barnholt..... 20,000 184,700 70,000 50,000 742,000 350,000
</TABLE>
- --------
(a) For the TrizecHahn Shares the value is based upon the closing price on the
New York Stock Exchange--Composite Transactions on December 31, 1996. For
the common stock of Clark USA the value is based on the issuance price in
the Oxy Transaction and the Gulf Transaction.
(b) Mr. Melnuk also holds options to acquire TrizecHahn Shares received as
compensation for services provided to TrizecHahn.
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<PAGE>
SHORT-TERM PERFORMANCE PLAN
Employees of the Company participate in an annual incentive plan which
places at risk an incremental portion of their total compensation based on
Company, business unit and/or individual performance. The targeted at-risk
compensation increases with the ability of the individual to affect business
performance, ranging from 12% for support personnel to 200% for the Chief
Executive Officer. The other executive officers have the opportunity to earn
an annual incentive equal to 150% of the individual's base salary. The actual
award is determined based on financial performance as measured by return on
equity with individual and executive team performance evaluated against pre-
established operating objectives designed to achieve planned financial
results. For essentially all other employees, annual incentives are based on
specific performance indicators utilized to operate the business, principally
productivity and profitability measures.
LONG-TERM PERFORMANCE PLAN
The Company has adopted a Long-Term Performance Plan (the "Performance
Plan"). Under the Performance Plan, designated employees, including executive
officers, of the Company and its subsidiaries and other related entities are
eligible to receive awards in the form of stock options, stock appreciation
rights and stock grants. The Performance Plan is intended to promote the
growth and performance of the Company by encouraging employees to acquire an
ownership interest in the Company and to provide incentives for employee
performance. An aggregate of 1,250,000 shares of Common Stock may be awarded
under the Performance Plan, either from authorized, unissued shares which have
been reserved for such purpose or from shares purchased on the open market,
subject to adjustment in the event of a stock split, stock dividend,
recapitalization or similar change in the outstanding common stock of Clark
USA. As of September 30, 1997, 549,000 stock options have been issued under
the Performance Plan.
The Performance Plan is administered by the board of directors' Compensation
Committee of Clark USA. Subject to the provisions of the Performance Plan, the
Compensation Committee is authorized to determine who may participate in the
Performance Plan and the number and types of awards made to each participant,
and the terms, conditions and limitations applicable to each award. Awards may
be granted singularly, in combination or in tandem. Subject to certain
limitations, the board of directors is authorized to amend, modify or
terminate the Performance Plan to meet any changes in legal requirements or
for any other purpose permitted by law.
Payment of awards may be made in the form of cash, stock or combinations
thereof and may include such restrictions as the Compensation Committee shall
determine, including, in the case of stock, restrictions on transfer and
forfeiture provisions. The price at which shares of Common Stock may be
purchased under a stock option may not be less than the fair market value of
such shares on the date of grant. If permitted by the Compensation Committee,
such price may be paid by means of tendering Common Stock, or surrendering
another award, including restricted stock, valued at fair market value on the
date of exercise, or any combination thereof. Further, with Compensation
Committee approval, payments may be deferred, either in the form of
installments or as a future lump sum payment. Dividends or dividend equivalent
rights may be extended to and made part of any award denominated in stock,
subject to such terms, conditions and restrictions as the Compensation
Committee may establish. At the discretion of the Compensation Committee, a
participant may be offered an election to substitute an award for another
award or awards of the same or different type. Stock options initially have a
10-year term with a three-year vesting schedule and are not exercisable until
Clark USA's Common Stock is publicly traded.
If the employment of a participant terminates, subject to certain exceptions
for retirement, resignation, death or disability, all unexercised, deferred
and unpaid awards will be canceled
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<PAGE>
immediately, unless the award agreement provides otherwise. Subject to certain
exceptions for death or disability, or employment by a governmental,
charitable or educational institution, no award or other benefit under the
Performance Plan is assignable or transferable, or payable to or exercisable
by anyone other than the participant to whom it was granted.
In the event of a "Change of Control" of the Company, Clark USA or
TrizecHahn (as defined in the Performance Plan), with respect to awards held
by Performance Plan participants who have been employed by the Company for at
least six months, (a) all stock appreciation rights which have not been
granted in tandem with stock options will become exercisable in full, (b) the
restrictions applicable to all shares of restricted stock will lapse and such
shares will be deemed fully vested, (c) all stock awards will be deemed to be
earned in full, and (d) any participant who has been granted a stock option
which is not exercisable in full will be entitled, in lieu of the exercise of
such stock options, to obtain cash payment in an amount equal to the
difference between the option price of such stock option and the offer price
(in the case of a tender offer or exchange offer) or the value of common stock
covered by such stock option, determined as provided in the Performance Plan.
Under the Performance Plan, a "Change in Control" includes, without
limitation, with respect to the Company, Clark USA or TrizecHahn, (i) the
acquisition (other than by TrizecHahn) of beneficial ownership of 25% or more
of the voting power of its outstanding securities without the prior approval
of at least two-thirds of its directors then in office, (ii) a merger,
consolidation, proxy contest, sale of assets or reorganization which results
in directors previously in office constituting less than a majority of its
directors thereafter, or (iii) any change of at least a majority of its
directors during any period of two years. The Blackstone Transaction has
triggered the Change of Control provision under the Performance Plan. The
Company does not expect that the Change of Control will have a material impact
on the Performance Plan.
Blackstone intends to put in place a management incentive program designed
to increase management's ownership of Clark USA stock through direct purchases
and options tied to the financial performance of the Company.
CLARK SAVINGS PLAN
The Clark Savings Plan, which became effective in 1989, permits employees to
make before-tax and after-tax contributions and provides for employer
incentive matching contributions. Under the Savings Plan, each employee of the
Company (and such other related companies as may adopt the Savings Plan) who
has completed at least six months of service may become a participant.
Participants are permitted to make before-tax contributions to the Savings
Plan, effected through payroll deduction, of from 1% to 15% of their
compensation. The Company makes matching contributions equal to 200% of a
participant's before-tax contributions up to 3% of compensation. Participants
are also permitted to make after-tax contributions through payroll deduction,
of from 1% to 5% of compensation, which are not matched by employer
contributions; provided that before-tax contributions and after-tax
contributions, in the aggregate, may not exceed the lesser of 15% of
compensation or $9,500 in 1997. All employer contributions are vested at a
rate of 20% per year of service, becoming fully vested after five years of
service. Amounts in employees' accounts may be invested in a variety of
permitted investments, as directed by the employee, including TrizecHahn
Shares. Participants' vested accounts are distributable upon a participant's
disability, death, retirement or separation from service. Subject to certain
restrictions, employees may make loans or withdrawals of employee
contributions during the term of their employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation of the Company's executive officers has historically been
determined by the Company's board of directors. Mr. Melnuk, the Company's
President and Chief Executive Officer, is a
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<PAGE>
member of the Company's board of directors. Other than reimbursement of their
expenses, the Company's directors do not receive any compensation for their
services as directors. There are no interlocks between the Company and other
entities involving the Company's executive officers and board members who
serve as executive officers or board members of other entities, except with
respect to Blackstone.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with four of its senior
executives (the "Executive Employment Agreements") and a change of control
agreement with one of its senior executives (the "Change of Control
Agreement"). The Executive Employment Agreements have five-year terms, and
provide for automatic extension on an annual basis unless 90 days' notice of
cancellation is given by either party. The Executive Employment Agreements
provide that if a Change of Control occurs within two years prior to the
scheduled expiration date, then the expiration date will be automatically
extended until the second anniversary of the Change of Control date. The
Blackstone Transaction constitutes a Change of Control under the Executive
Employment Agreements and the Change of Control Agreement.
During the term of the Executive Employment Agreements, the employee is
precluded from soliciting or encouraging proposals regarding the acquisition
of Clark USA or its subsidiaries (or of another material part of the business
of Clark USA), absent explicit approval of the Chief Executive Officer of the
Company.
The Executive Employment Agreements provide separation benefits to the
employee if the employee's employment is terminated by the Company without
"Cause" prior to the expiration date of the agreement. "Cause" is defined to
include the employee's failure to substantially perform his or her duties,
willful misconduct that materially injures Clark USA or its affiliates, or
conviction of a criminal offense involving dishonesty or moral turpitude. The
Executive Employment Agreements also provide that if the employee resigns for
"Good Reason" prior to the expiration date of the agreement, the employee will
receive separation benefits. "Good Reason" is defined to include certain
demotions, reductions in compensation, and relocation.
The separation benefits payable under the Executive Employment Agreements
generally include a lump sum payment of three times annual salary and bonus,
acceleration of stock option exercisability, continuation of the Company's
life, medical, accident and disability arrangements for one year after
termination of employment (subject to the employee's continuing to pay the
employee share of the premiums), payment of the cost of job relocation
counseling, and payment of legal fees in connection with termination.
The Executive Employment Agreements also provide for gross-up payments to be
made to the employee to cover certain penalty taxes in connection with a
Change of Control.
The Change of Control Agreement provides for similar benefits; however, the
lump sum payment is two times annual salary and bonus, and instead of
providing for a parachute tax gross-up it limits any payments made under the
Change of Control Agreement so that the payments will not result in a
parachute payment as defined in Section 280g of the Code.
As a condition of receiving the separation benefits under the Executive
Employment Agreements and the Change of Control Agreement, an employee is
required to maintain the confidentiality of information relating to Clark USA
and its affiliates and to release Clark USA and its affiliates from certain
claims.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Clark USA.
All of such shares are pledged as collateral under the indenture governing
Clark USA's Zero Coupon Notes. It is expected that such pledge will be
released upon redemption of all outstanding Zero Coupon Notes on or about
February 15, 1998.
The following table and the accompanying notes set forth certain information
concerning the beneficial ownership of the Common Stock and Class F Common
Stock of Clark USA, as of the date hereof: (i) each person who is known by the
Company to own beneficially more than 5% of the common stock of the Company,
(ii) each director and each executive officer who is the beneficial owner of
shares of common stock of Clark USA, and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
NAME AND ADDRESS TITLE OF CLASS SHARES PERCENT OF CLASS VOTING POWER(A)
---------------- -------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Blackstone Management
Associates III L.L.C. Common 13,500,000 91.5% 73.3%
(b).....................
345 Park Avenue
New York, NY 10154
Paul D. Melnuk ......... Common 37,509 (c) (c)
Occidental Petroleum Class F Common 6,101,010 100.0 19.9
Corporation.............
10889 Wilshire Boulevard
Los Angeles, California
90024
H. M. Salaam (d)........ Common 1,222,273 8.3 6.6
Gulf Resources
Corporation
24-26 Regent's Bridge
Gardens
London SW8 1HB England
All directors and
executive
officers as a group Common 13,537,509 91.7 73.5
(b).....................
</TABLE>
- --------
(a) Represents the total voting power of all shares of common stock
beneficially owned by the named stockholder.
(b) The 13,500,000 shares held by Blackstone are directly held as follows:
10,771,005.354 shares are held by Blackstone, 1,918,994.646 shares are
held by Blackstone Offshore Capital Partners III L.P. and 810,000 shares
are held by Blackstone Family Investment Partnership III L.P., of each of
which Blackstone Management Associates III L.L.C. is the general partner
having voting and dispositive power.
(c) Less than 1%.
(d) Gulf has informed the Company that H. M. Salaam, Gulf's chairman, may be
deemed to control Gulf.
CERTAIN TRANSACTIONS
TrizecHahn and the Company had certain agreements which provided certain
management services to each other from time to time. The Company established
trade credit with various suppliers of its petroleum requirements, requiring
the guarantee of TrizecHahn. Fees related to trade credit guarantees totaled
$0.1 million, $0.2 million and $0.2 million in 1994, 1995 and 1996,
respectively. All trade credit guarantees were terminated in August 1996.
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<PAGE>
The Company paid premiums of $2.0 million in 1994 to HSM Insurance, Inc., an
affiliate of TrizecHahn for providing environmental impairment liability
insurance. No loss claims have been made under the policy. The policy was
terminated on December 31, 1994.
The business relationships described above between the Company and
TrizecHahn were on terms no less favorable in any respect than those which
could have been obtained through dealings with third parties.
Clark USA contributed $268.6 million of capital to the Company during 1996.
Clark USA contributed $33.6 million from the proceeds of debt issued in the
Oxy/Gulf transactions in January of 1996. In addition, $235.0 million was
contributed to the Company from the contribution and subsequent sale of the
Oxy advance crude oil purchase receivable and the associated hedge contracts
in October of 1996. During 1995, Clark USA contributed $165.6 million to the
Company. Upon the issuance of stock in the first quarter of 1995, Clark USA
contributed $150.0 million for the purchase of the Port Arthur facility and
also contributed $9.2 million for operating purposes. In addition, from the
proceeds of debt issued in the Oxy/Gulf transactions, Clark USA contributed
$6.4 million in December 1995 to the Company. In November 1997, the Company
paid the Special Dividend to Clark USA.
In connection with the Blackstone Transaction, affiliates of Blackstone
received fees of $7.0 million, and the Company reimbursed Blackstone for all
out-of-pocket expenses incurred in connection with the Blackstone Transaction
and the Debt Offering. In addition, pursuant to a monitoring agreement, an
affiliate of Blackstone will receive a monitoring fee equal to $2.0 million
per annum (subject to increase relating to inflation and in respect of
additional acquisitions by the Company). Affiliates of Blackstone may in the
future receive customary fees for advisory services rendered to the Company.
Such fees will be negotiated from time to time with the independent members of
the Company's board of directors on an arm's-length basis and will be based on
the services performed and the prevailing fees then charged by third parties
for comparable services.
DESCRIPTION OF THE NEW NOTES
GENERAL
The New Senior Notes will be issued pursuant to an indenture (the "Senior
Note Indenture") between the Company and Bankers Trust Company as trustee (the
"Senior Note Trustee"), as supplemented and amended from time to time. The New
Senior Subordinated Notes will be issued pursuant to an indenture (the "Senior
Subordinated Note Indenture" and, together with the Senior Note Indenture, the
"Indentures") between the Company and Marine Midland Bank, as trustee (the
"Senior Subordinated Note Trustee" and, together with the Senior Note Trustee,
the "Trustees"), as supplemented and amended from time to time. Each series of
New Notes is subject to all provisions of the Indenture under which it is
issued, and holders of New Notes are referred to the Indentures for a complete
statement thereof. The following summary of certain provisions of the
Indentures and the Registration Agreement does not purport to be complete and
is qualified in its entirety by reference to the Indentures and the
Registration Agreement, including the definitions therein of certain terms
used below. A copy of each Indenture and the Registration Agreement is filed
as an exhibit to the Registration Statement of which this Prospectus is a
part. The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions." For purposes of this section, the
term the "Company" refers to Clark only and does not include its subsidiaries.
As of the date of the Indentures, each of the Company's Subsidiaries will be
a Restricted Subsidiary and none of the series of the New Notes will be
assigned an investment grade rating. However, under certain circumstances, the
Company will be able to designate current or future
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<PAGE>
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indentures.
In addition, upon the assignment by S&P and Moody's of an Investment Grade
Rating to a series of the New Notes, the Company will not be subject to
certain restrictive covenants set forth in the applicable Indenture.
NEW SENIOR NOTES
The New Senior Notes will be senior unsecured obligations of the Company
limited in aggregate principal amount to $100.0 million and will mature on
November 15, 2007. Interest on the New Senior Notes will accrue at the rate of
8 3/8% per annum and will be payable semiannually in arrears on May 15 and
November 15, commencing on May 15, 1998, to holders of record on the
immediately preceding May 1 and November 1, respectively.
NEW SENIOR SUBORDINATED NOTES
The New Senior Subordinated Notes will be senior subordinated unsecured
obligations of the Company and will mature on November 15, 2007. The New
Senior Subordinated Notes will be issued in an aggregate principal amount of
$175.0 million; however, the Senior Subordinated Note Indenture does not limit
the aggregate principal amount of New Senior Subordinated Notes that may be
issued thereunder from time to time in one or more series. Interest on the New
Senior Subordinated Notes will accrue at the rate of 8 7/8% per annum and will
be payable semiannually in arrears on May 15 and November 15, commencing on
May 15, 1998, to holders of record on the immediately preceding May 1 and
November 1, respectively.
INTEREST AND SETTLEMENT
Interest on the New Notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. The New Notes will be payable both as to principal and interest
at the office or agency of the Company maintained for such purpose within the
City and State of New York or, at the option of the Company, payment of
interest may be made by check mailed to the holders of the New Notes at their
addresses set forth in the register of holders of New Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The New Notes will be
issued in registered form, without coupons, and in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof.
Payments by the Company in respect of the New Notes (including principal,
premium, if any, and interest) will be made in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the New
Notes are expected to trade in the Depository's Same-Day Funds Settlement
System, and any secondary market trading activity in the New Notes will,
therefore, be required by the Depository to be settled in immediately
available funds. No assurance can be given as to the effect, if any, of such
settlement arrangements on trading activity in the New Notes.
RANKING AND SUBORDINATION
NEW SENIOR NOTES
The New Senior Notes will rank senior in right of payment to all
subordinated Indebtedness of the Company. The New Senior Notes will rank pari
passu in right of payment with all current and future senior borrowings of the
Company, including the 9 1/2% Notes and the Term Loan. The Company,
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however, is a party to the Credit Agreement and all borrowings under the
Credit Agreement are secured by a lien on substantially all of the Company's
cash and cash equivalents, receivables, crude oil, refined product and other
inventories and trademarks and other intellectual property. As of September
30, 1997, there was approximately $238.0 million outstanding under the Credit
Agreement in the form of letter of credit issuances and there were no
outstanding borrowings.
NEW SENIOR SUBORDINATED NOTES
The payment of principal of, premium, if any, and interest on the New Senior
Subordinated Notes will be subordinated in right of payment, as set forth in
the Senior Subordinated Note Indenture, to the prior payment in full in cash
of all Senior Debt, whether outstanding on the date of the Senior Subordinated
Note Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the holders of New Senior
Subordinated Notes will be entitled to receive any payment with respect to the
New Senior Subordinated Notes, and until all Obligations with respect to
Senior Debt are paid in full in cash, any distribution to which the holders of
New Senior Subordinated Notes would be entitled shall be made to the holders
of Senior Debt (except that holders of New Senior Subordinated Notes may
receive Permitted Junior Securities and payments made from the trust described
under "--Defeasance").
The Company also may not make any payment upon or in respect of the New
Senior Subordinated Notes (except in Permitted Junior Securities or from the
trust described under "--Defeasance") if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt occurs
and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the New Senior Subordinated Note Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Debt. Payments on the New
Senior Subordinated Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and
(b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Senior Subordinated Note Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been waived for a period of not less than 180 days.
The Senior Subordinated Note Indenture will further require that the Company
promptly notify holders of Senior Debt if payment of the New Senior
Subordinated Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of New Senior Subordinated Notes may
recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors--Subordinated and Unsecured Status of New Senior
Subordinated Notes."
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OPTIONAL REDEMPTION
NEW SENIOR NOTES
The New Senior Notes will be redeemable, at the Company's option, in whole
or in part, at any time on and after November 15, 2002, upon not less than 30
nor more than 60 days' notice mailed to each holder of New Senior Notes to be
redeemed at such holder's address appearing in the Company's Security
Register, in principal amounts of $1,000 or an integral multiple of $1,000, at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the 12-month period commencing on November 15 of
each of the years set forth below, plus, in each case, accrued interest
thereon to, but excluding, the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.......................................... 104.187%
2003.......................................... 102.094%
2004 and thereafter........................... 100.000%
</TABLE>
In addition, the Company may, at its option, use the net cash proceeds of
one or more Equity Offerings to the extent the net cash proceeds thereof are
contributed to the equity capital of the Company to redeem for cash up to 35%
in aggregate principal amount of the New Senior Notes originally issued under
the Senior Note Indenture at any time prior to November 15, 2001, at a
redemption price equal to 108.375% of the aggregate principal amount so
redeemed, plus accrued interest; provided that at least 65% of the principal
amount of New Senior Notes originally issued remain outstanding immediately
after such redemption. Any such redemption will be required to occur on or
prior to 120 days after the receipt by the Company of the net cash proceeds of
such Equity Offering and upon not less than 30 nor more than 60 days' notice
mailed to each holder of New Senior Notes to be redeemed at such holder's
address appearing in the Company's Security Register, in principal amounts of
$1,000 or an integral multiple of $1,000. The Company may not use the net cash
proceeds of any Equity Offering which alone or combined with a related series
of transactions result in a Change of Control to redeem New Senior Notes
pursuant to this paragraph.
NEW SENIOR SUBORDINATED NOTES
The New Senior Subordinated Notes will be redeemable, at the Company's
option, in whole or in part, at any time on and after November 15, 2002, upon
not less than 30 nor more than 60 days' notice mailed to each holder of New
Senior Subordinated Notes to be redeemed at such holder's address appearing in
the Company's Security Register, in principal amounts of $1,000 or an integral
multiple of $1,000, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing on November 15 of each of the years set forth below, plus, in each
case, accrued interest thereon to, but excluding, the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.......................................... 104.437%
2003.......................................... 102.958%
2004.......................................... 101.479%
2005 and thereafter........................... 100.000%
</TABLE>
In addition, the Company may, at its option, use the net cash proceeds of
one or more Equity Offerings to the extent the net cash proceeds thereof are
contributed to the equity capital of the Company to redeem for cash up to 35%
in aggregate principal amount of the New Senior Subordinated Notes originally
issued under the Senior Subordinated Note Indenture at any time prior to
November 15, 2001, at a redemption price equal to 108.875% of the aggregate
principal amount so redeemed, plus accrued interest; provided that at least
50% of the principal amount of New Senior Subordinated
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Notes originally issued remain outstanding immediately after such redemption.
Any such redemption will be required to occur on or prior to 120 days after the
receipt by the Company of the net cash proceeds of such Equity Offering and
upon not less than 30 nor more than 60 days' notice mailed to each holder of
New Senior Subordinated Notes to be redeemed at such holder's address appearing
in the Company's Security Register, in principal amounts of $1,000 or an
integral multiple of $1,000. The Company may not use the net cash proceeds of
any Equity Offerings which alone or combined with a related series of
transactions result in a Change of Control to redeem New Senior Subordinated
Notes pursuant to this paragraph.
If less than all of a series of New Notes are to be redeemed at any time, the
applicable Trustee shall select, in such manner as it shall deem fair and
appropriate, the particular New Notes to be redeemed or any portion thereof
that is an integral multiple of $1,000.
The indenture governing the 9 1/2% Notes (the "9 1/2% Note Indenture") and
the Credit Agreement restrict the Company's ability to optionally redeem the
New Notes. See "Description of Certain Debt Instruments."
CHANGE OF CONTROL
In the event that there shall occur a Change of Control resulting in a Rating
Decline, then the Company shall make an Offer (as described under "--Procedures
for Offers" below) to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of each holder's New Notes at a purchase price equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest to
the date of purchase. Such right to require the repurchase of New Notes shall
not continue after a discharge of the Company from its obligations with respect
to the New Notes (see "Defeasance" ). The Company's board of directors may not
waive this provision.
The Change of Control purchase feature of the New Notes may, in certain
circumstances, make it more difficult or discourage a takeover of the Company
and, as a result, may make removal of incumbent management more difficult. The
Change of Control purchase feature, however, is not the result of the Company's
knowledge of any specific effort to accumulate the Company's stock or to obtain
control of the Company by means of a merger, tender offer, solicitation or
otherwise, or part of
a plan by management to adopt a series of anti-takeover provisions. Instead,
the Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. The Company has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company could decide to do so in the future.
The Loan Agreement and the 9 1/2% Note Indenture contain "change of control"
provisions similar to the Change of Control provision in the Indentures. If a
Change of Control were to occur, it is likely that the Company would not have
sufficient assets to satisfy its obligation to purchase all of the New Notes
that might be delivered by holders seeking to exercise the purchase right and
any repurchase obligations pursuant to the Term Loan and the 9 1/2% Notes,
which will rank pari passu with the New Senior Notes and senior to the New
Senior Subordinated Notes. In addition, pursuant to the terms of the
Indentures, the Company is only required to offer to repurchase the New Notes
in the event that a Change of Control results in a Rating Decline. The Change
of Control provisions contained in the 9 1/2% Notes do not require that a
Rating Decline occur as a condition for the Company to offer to repurchase such
notes upon the occurrence of a Change of Control. Consequently, if a Change of
Control were to occur which does not result in a Rating Decline, the Company
would be required to offer to repurchase the 9 1/2% Notes, but would not be
required to offer to repurchase the New Notes offered hereby. A "change of
control" under the Credit Agreement is an event of default under the Credit
Agreement.
The provisions of the Indentures would not necessarily afford holders of the
New Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect such holders.
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PROVISION OF FINANCIAL INFORMATION
So long as any of the New Notes are outstanding, the Company will file with
the Commission the annual reports, quarterly reports and other documents that
the Company would have been required to file with the Commission pursuant to
Sections 13(a) and 15(d) of the Exchange Act if the Company were subject to
such Sections, and the Company will provide to all holders copies of such
reports and documents.
COVENANTS
Upon the occurrence of an Investment Grade Rating Event with respect to a
series of New Notes, the covenants imposed on the Company by the Indenture
governing such series of New Notes will change. See "--Certain Investment
Grade Covenants." An "Investment Grade Rating Event" shall occur on the first
day on which a series of New Notes is assigned an Investment Grade Rating. An
"Investment Grade Rating" means (i) a Moody's Rating of Baa3 or higher and an
S&P Rating of at least BB+ or (ii) an S&P Rating of BBB- or higher and a
Moody's Rating of at least Ba1 or, in each case, if Moody's or S&P shall
change their rating system, equivalent ratings.
CERTAIN NON-INVESTMENT GRADE COVENANTS
The Indentures contain, among others, the following covenants, each of which
shall apply to the Company from the Issue Date until the occurrence of an
Investment Grade Rating Event:
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless (i) at the time of and immediately after giving
effect to the proposed Restricted Payment, no Default or Event of Default
shall have occurred and be continuing, or would occur as a consequence
thereof, (ii) either the Company would (a) at the time of such Restricted
Payment and after giving pro forma effect thereto, have a Consolidated
Adjusted Net Worth exceeding $200.0 million or (b) be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Operating
Cash Flow Ratio test set forth in the first paragraph of the covenant
described under "--Limitation on Indebtedness," and (iii) at the time of and
immediately after giving effect to the proposed Restricted Payment (the value
of any such payment if other than cash, as determined in good faith by the
board of directors of the Company and evidenced by a Board Resolution), the
aggregate amount of all Restricted Payments (including Restricted Payments
permitted by clauses (b), (j), (l) and (m) of the next succeeding paragraph
and excluding the other Restricted Payments permitted by such paragraph)
declared or made subsequent to the Issue Date shall not exceed the sum of (a)
50% of the aggregate Consolidated Net Operating Income (or, if such aggregate
Consolidated Net Operating Income is a deficit, minus 100% of such deficit) of
the Company for the period (taken as one accounting period) from the first day
of the fiscal quarter that begins after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment plus (b) 100%
of the aggregate net proceeds, including cash and the fair market value of
property other than cash (as determined in good faith by the board of
directors of the Company and evidenced by a Board Resolution), received by the
Company since the Issue Date, from any Person other than a Subsidiary of the
Company as a result of the issuance of Capital Stock (other than any
Disqualified Capital Stock) of the Company including such Capital Stock issued
upon conversion of Indebtedness or upon exercise of warrants and any
contributions to the capital of the Company (other than Excluded
Contributions) received by the Company from any such Person plus (c) to the
extent that any Restricted Investment that was made after the Issue Date, is
sold for cash or otherwise liquidated or repaid for cash, the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any). For purposes of any calculation pursuant to the
preceding sentence which is required to be made within 60 days after the
declaration of a dividend by the Company, such dividend shall be deemed to be
paid at the date of declaration.
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The foregoing provisions of this covenant will not be violated by reason of
(a) the payment of any dividends or distributions payable solely in shares of
the Company's Capital Stock (other than Disqualified Capital Stock) or in
options, warrants or other rights to acquire the Company's Capital Stock
(other than Disqualified Capital Stock), (b) the payment of any dividend
within 60 days after the date of declaration thereof if, at such date of
declaration, such payment complied with the provisions described above, (c)
the payment of cash dividends or the making of loans or advances to Clark USA
after October 1, 2002, in an amount sufficient to enable Clark USA to make
cash payments of interest or dividends required to be made in respect of the
New Exchangeable Preferred Stock or the Exchange Debentures in accordance with
the terms thereof in effect on the date of the Indenture, (d) the payment of
cash dividends or the making of loans or advances in an amount sufficient to
enable Clark USA to make payments required to be made in respect of the 10
7/8% Notes in accordance with the terms thereof in effect on the date of the
Indenture, (e) the retirement of any shares of the Company's Capital Stock in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of, other shares of its Capital
Stock (other than Disqualified Capital Stock) or options, warrants or other
rights to purchase the Company's Capital Stock (other than Disqualified
Capital Stock) and the declaration and payment of dividends on such new
Capital Stock in an aggregate amount no greater than the amount of dividends
declarable and payable on such retired Capital Stock immediately prior to such
retirement, (f) the Chevron Payment, (g) the AOC Payment, (h) the Gulf
Payments, (i) other Restricted Payments in an aggregate amount not to exceed
$50 million, (j) the making of any payment in redemption of Capital Stock of
the Company or Clark USA or options to purchase such Capital Stock granted to
officers or employees of the Company or Clark USA pursuant to any stock
option, stock purchase or other stock plan approved by the board of directors
of the Company or Clark USA in connection with the severance or termination of
officers or employees not to exceed $8.0 million per annum or the payment of
cash dividends or the making of loans or advances to Clark USA to permit it to
make such payments, (k) the declaration and payment of dividends to holders of
any class or series of preferred stock of the Company and its Restricted
Subsidiaries issued in accordance with the covenant "Limitation on
Indebtedness," (l) the payment of dividends on the Company's common stock,
following the first public offering of the Company's or Clark USA's common
stock after the Issue Date, of up to 6% per annum of the net proceeds received
by the Company in such public offering or the payment of funds to Clark USA in
amounts necessary to permit Clark USA to make such payments to the extent the
proceeds of such offering were contributed to the equity capital of the
Company, (m) so long as no Default or Event of Default shall have occurred and
be continuing (or would result therefrom), the payment to Clark USA (in the
form of dividends, loans, advances or otherwise) of 100% of the proceeds of
Indebtedness incurred pursuant to clause (xv) of the definition of "Permitted
Indebtedness" to redeem, repurchase, defease or otherwise acquire or retire
for value the 10 7/8% Notes; provided, however, that at the time of such
redemption, repurchase, defeasance or other acquisition or retirement for
value, the Consolidated Operating Cash Flow Ratio of the Company, after giving
effect to the incurrence of Indebtedness in connection therewith, would be
greater than 1.75-to-1.0, (n) the payment of dividends or the making of loans
or advances by the Company to Clark USA in an amount not to exceed $2.0
million in any fiscal year for costs and expenses incurred by Clark USA in its
capacity as a holding company or for services rendered to the Company, (o)
Restricted Investments not to exceed at any one time an aggregate of $75.0
million, and (p) Restricted Investments made with Excluded Contributions.
The board of directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not
cause a Default or Event of Default; provided that, in no event shall the
business currently operated by the Company or Clark USA be transferred to or
held by an Unrestricted Subsidiary, unless after giving pro forma effect to
such transfer the Company could have incurred an additional $1.00 of
Indebtedness pursuant to the Consolidated Operating Cash Flow Ratio test set
forth in the first paragraph of the covenant described under "--Limitation on
Indebtedness." For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in
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the Subsidiary so designated shall be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this Limitation on Restricted Payments
covenant. All such outstanding Investments shall be deemed to constitute
Investments in an amount equal to the greatest of (x) the net book value of
such Investments at the time of such designation, (y) the fair market value of
such Investments at the time of such designation, and (z) the original fair
market value of such Investments at the time they were made. Such designation
will only be permitted if such Restricted Payment would be permitted at such
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, incur any Indebtedness (including
Acquired Debt) other than (i) the New Notes, and (ii) Permitted Indebtedness,
unless after giving effect to the incurrence of such Indebtedness and the
receipt and application of the proceeds therefrom, the Company's Consolidated
Operating Cash Flow Ratio is greater than 2-to-1. Notwithstanding the
foregoing, the Company's Unrestricted Subsidiaries may incur Non-Recourse
Debt; provided, however, that if any such Indebtedness ceases to be Non-
Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company.
Other than the limitations on incurrence of indebtedness contained in this
covenant, there are no provisions in the Indenture that would protect the
holders of the New Notes in the event of a highly leveraged transaction.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES OF THE COMPANY. The Company will not, and will not permit any
Restricted Subsidiary of the Company (other than a Securitization Special
Purpose Entity) to, create or otherwise cause or suffer to exist or become
effective, any consensual encumbrance or restriction which, by its terms,
restricts the ability of any Restricted Subsidiary of the Company (other than
a Securitization Special Purpose Entity) to (i) pay dividends or make any
other distributions on any such Restricted Subsidiary's Capital Stock or pay
any Indebtedness owed to the Company or any Restricted Subsidiary of the
Company, (ii) make any loans or advances to the Company or any Restricted
Subsidiary of the Company, or (iii) transfer any of its property or assets to
the Company or any Restricted Subsidiary of the Company, except for, in the
case of clauses (i), (ii) and (iii) above, any restrictions (a) existing under
the Indenture and any restrictions existing on the Issue Date pursuant to any
agreement relating to Existing Indebtedness of the Company or any Restricted
Subsidiary, (b) pursuant to an agreement relating to Indebtedness incurred by
such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company and outstanding on such date and not
incurred in anticipation of becoming a Restricted Subsidiary, (c) imposed by
virtue of applicable corporate law or regulation and relating solely to the
payment of dividends or distributions to stockholders, (d) with respect to
restrictions of the nature described in clause (iii) above, included in a
contract entered into in the ordinary course of business and consistent with
past practices that contains provisions restricting the assignment of such
contract, (e) pursuant to an agreement effecting a renewal, extension,
refinancing, refunding or replacement of Indebtedness referred to in (a) or
(b) above; provided, however, that the provisions contained in such renewal,
extension, refinancing, refunding or replacement agreement relating to such
encumbrance or restriction, taken as a whole, are not materially more
restrictive than the provisions contained in the agreement the subject
thereof, as determined in good faith by the board of directors, or (f) which
will not in the aggregate cause the Company not to have the funds necessary to
pay the principal of, premium, if any, or interest on the New Notes at their
Stated Maturity.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. The Company
will not, and will not permit any Restricted Subsidiary of the Company to,
directly or indirectly, conduct any business or enter into any transaction or
series of similar transactions (including, without limitation, the purchase,
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sale, transfer, lease or exchange of any property or the rendering of any
service) with (i) any direct or indirect holder of more than 5% of any class
of Capital Stock of the Company or of any Restricted Subsidiary of the Company
(other than transactions between or among the Company and/or its Restricted
Subsidiaries except for Restricted Subsidiaries owned in any part by the
Principal Shareholders) or (ii) any Affiliate of the Company (other than
transactions between or among the Company and/or its Restricted Subsidiaries
except for Restricted Subsidiaries owned in any part by the Principal
Shareholders) (each of the foregoing, a "Shareholder/Affiliate Transaction")
unless the terms of such business, transaction or series of transactions (a)
are set forth in writing and (b) are as favorable to the Company or such
Restricted Subsidiary in all material respects as terms that would be
obtainable at the time for a comparable transaction or series of similar
transactions in arm's-length dealings with a Person which is not such a
stockholder or Affiliate and, if such transaction or series of transactions
involves payment for services of such a stockholder or Affiliate, (x) for
amounts greater than $10.0 million and less than $25.0 million per annum, the
Company shall deliver an Officers' Certificate to the Trustee certifying that
such Shareholder/Affiliate Transaction complies with clause (b) above or (y)
for amounts equal to or greater than $25.0 million per annum, then (A) a
majority of the disinterested members of the board of directors shall in good
faith determine that such payments are fair consideration for the services
performed or to be performed (evidenced by a Board Resolution) or (B) the
Company must receive a favorable opinion from a nationally recognized
investment banking firm chosen by the Company or, if no such investment
banking firm is in a position to provide such opinion, a similar firm chosen
by the Company (having expertise in the specific area which is the subject of
the opinion), that such payments are fair consideration for the services
performed or to be performed (a copy of which shall be delivered to the
Trustee); provided that the foregoing requirements shall not apply to (i)
Shareholder/Affiliate Transactions involving the purchase or sale of crude oil
in the ordinary course of the Company's business, so long as such transactions
are priced in line with the market price of a crude benchmark and the pricing
of such transactions are equivalent to the pricing of comparable transactions
with unrelated third parties; and provided further that the Gulf Payments
shall not be deemed a Shareholder/Affiliate Transaction, (ii) Restricted
Payments permitted by the provisions of the Indentures described under
"Limitation on Restricted Payments", (iii) payments made in connection with
the Blackstone Transaction, including fees to Blackstone, (iv) payment of
annual management, consulting, monitoring and advisory fees and related
expenses to Blackstone and its Affiliates, (v) payment of reasonable and
customary fees paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Restricted
Subsidiary, (vi) payments by the Company or any of its Restricted Subsidiaries
to Blackstone and its Affiliates made for any financial advisory, financing,
underwriting or placement services or in respect of other investment banking
activities, including, without limitation, in connection with acquisitions or
divestitures which payments are approved by a majority of the board of
directors of the Company in good faith, (vii) payments or loans to employees
or consultants which are approved by a majority of the board of directors of
the Company in good faith, (viii) any agreement in effect on the Issue Date
and any amendment thereto (so long as any such amendment is not
disadvantageous to the holders of the New Notes in any material respect) or
any transaction contemplated thereby, or (ix) any stockholder agreement or
registration rights agreement to which the Company is a party on the Issue
Date and any similar agreements which it may enter into thereafter; provided
that the performance by the Company or any of its Restricted Subsidiaries of
obligations under any future amendment or under such a similar agreement
entered into after the Issue Date shall only be permitted by this clause (ix)
to the extent that the terms of any such amendment or new agreement are not
disadvantageous to the holders of the New Notes in any material respect.
LIMITATION ON CERTAIN ASSET DISPOSITIONS. The Company will not, and will not
permit any Restricted Subsidiary of the Company to, make any Asset Disposition
unless (i) the Company or such Restricted Subsidiary receives consideration at
the time of such disposition (or in the case of a lease, over the term of such
lease) at least equal to the fair market value of the shares or assets
disposed of (which shall be as determined in good faith by the Company), and
(ii) at least 75% of the consideration
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for such disposition consists of cash or Cash Equivalents; provided that the
following will be deemed to be cash for purposes of this covenant: (1) the
amount of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or such Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the applicable series of New Notes) that are assumed by the
transferee of any such assets and (2) any notes or other obligations received
by the Company or such Restricted Subsidiary from a transferee that are
converted by the Company or such Restricted Subsidiary into cash within 180
days after such Asset Disposition; provided, further, that the 75% limitation
referred to above in clause (ii) will not apply to (x) any disposition of
assets in which the cash portion of such consideration received therefor on an
after-tax basis, determined in accordance with the foregoing proviso, is equal
to or greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation, (y) any
disposition of assets (other than the Port Arthur Refinery) in exchange for
assets of comparable fair market value related to the Principal Business of
the Company, provided that in any such exchange of assets of the Company or a
Restricted Subsidiary with a fair market value in excess of $20.0 million
occurring when Blackstone fails to hold, directly or indirectly, 30% or more
of the total voting power of all classes of stock of the Company, the Company
shall obtain an opinion or report from a nationally recognized investment
banking firm, valuation expert or accounting firm confirming that the assets
received by the Company and such Restricted Subsidiary in such exchange have a
fair market value at least equal to the assets so exchanged, or (z) any
disposition of Securitization Program Assets to any Securitization Special
Purpose Entity in exchange for Indebtedness of, procurement of letters of
credit and similar instruments by, or equity or other interests in, such
Securitization Special Purpose Entity.
Within 360 days of the later of (a) the receipt of the Net Available
Proceeds and (b) the date of such applicable Asset Disposition, the Company
may elect to (i) apply the Net Available Proceeds from such Asset Disposition
to permanently redeem or repay Indebtedness of the Company or any Restricted
Subsidiary, other than Indebtedness of the Company which is subordinated to
the applicable series of New Notes or (ii) apply the Net Available Proceeds
from such Asset Disposition to invest in assets related to the Principal
Business of the Company or Capital Stock of any Person primarily engaged in
the Principal Business if, as a result of such acquisition, such Person
becomes a Restricted Subsidiary. Pending the final application of any such Net
Available Proceeds, the Company may temporarily invest such Net Available
Proceeds in any manner permitted by the Indentures. Any Net Available Proceeds
from an Asset Disposition not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." The
Credit Agreement may prohibit the use of Excess Proceeds to prepay the New
Senior Subordinated Notes.
As soon as practical, but in no event later than ten (10) Business Days
after any date (an "Asset Disposition Trigger Date") that the aggregate amount
of Excess Proceeds exceeds $25.0 million, the Company will commence an Offer
(as described below under "Procedures for Offers") to purchase the maximum
principal amount of New Notes that may be purchased out of the Excess
Proceeds, at an Offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. To the extent that any Excess Proceeds remain after completion of an
Offer, the Company may use the remaining amount for general corporate
purposes. Upon completion of such Offer, the amount of Excess Proceeds will be
reset to zero.
LIMITATION ON LIENS. The Company will not, directly or indirectly, create,
incur, assume or suffer to exist any Lien (other than Permitted Liens) on any
asset now owned or hereafter acquired, or on any income or profits therefrom,
or assign or convey any right to receive income therefrom to secure any
Indebtedness which is pari passu with or subordinate in right of payment to
the applicable series of New Notes, unless such New Notes are secured equally
and ratably simultaneously with or prior to the creation, incurrence or
assumption of such Lien for so long as such Lien exists; provided, that in
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any case involving a Lien securing Indebtedness which is subordinated in right
of payment to such New Notes, such Lien is subordinated to the Lien securing
such New Notes to the same extent that such subordinated debt is subordinated
to such New Notes.
LIMITATION ON MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company shall
not consolidate or merge with or into (whether or not the Company is the
Surviving Person), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or more
related transactions to another Person unless (i) the Surviving Person is a
corporation organized and existing under the laws of the United States, any
state thereof or the District of Columbia, (ii) the Surviving Person (if other
than the Company) assumes all of the obligations of the Company under the New
Notes and the applicable Indentures pursuant to supplemental indentures in a
form reasonably satisfactory to the Trustees, (iii) at the time of and
immediately after such transaction, no Default or Event of Default shall have
occurred and be continuing, and (iv) except with respect to a merger with or
into Clark USA that does not result in a Rating Decline, after giving pro
forma effect to the transaction, either (a) the Surviving Person would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Operating Cash Flow Ratio test set forth in the first paragraph
of the covenant described under "--Limitations on Indebtedness" or (b) the
Consolidated Operating Cash Flow Ratio of the Surviving Person would be no
less than such ratio for the Company immediately prior to such transaction.
LIMITATION ON ISSUANCE OF GUARANTEES OF INDEBTEDNESS. The Company will not
permit any Restricted Subsidiary, directly or indirectly, to guarantee or
secure the payment of any Indebtedness of the Company unless such Restricted
Subsidiary simultaneously executes and delivers supplemental indentures to the
Indentures providing for the guarantee or security of the payment of the New
Notes by such Restricted Subsidiary (other than the grant of security
interests in cash and cash equivalents, receivables and product inventories to
secure obligations under the Credit Agreement). If the Indebtedness to be
guaranteed is subordinated to a series of New Notes, the guarantee or security
of such Indebtedness shall be subordinated to the guarantee or security of
such New Notes to the same extent as the Indebtedness to be guaranteed is
subordinated to such New Notes under the applicable Indenture. Notwithstanding
the foregoing, any such guarantee or security by a Restricted Subsidiary of
the New Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon either (i) the release or
discharge of such guarantee or security of payment of such other Indebtedness,
except a discharge by or as a result of payment under such guarantee or
security or (ii) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provision of
the applicable Indenture.
NO SENIOR SUBORDINATED INDEBTEDNESS
The Senior Subordinated Note Indenture also provides that the Company will
not incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the New Senior
Subordinated Notes.
CERTAIN INVESTMENT GRADE COVENANTS
Upon the occurrence of an Investment Grade Rating Event with respect to a
series of New Notes, each of the covenants (except for "--Limitation on
Issuance of Guarantees of Indebtedness" and clauses (i), (ii) and (iii) of "--
Limitation on Merger, Consolidation and Sale of Assets" and, with respect to
the New Senior Subordinated Notes, "--No Senior Subordinated Indebtedness")
described above under "--Certain Non-Investment Grade Covenants" shall be of
no further force and effect and shall cease to apply to the Company. In
addition, each of the Indentures contains, among other things, the following
covenants, each of which will apply to the Company upon and after the
occurrence of an Investment Grade Rating Event with respect to the New Notes
issued thereunder.
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RESTRICTIONS ON SECURED INDEBTEDNESS. If the Company shall incur, issue,
assume or guarantee any Indebtedness secured by a Lien on any Principal
Property of the Company or on any share of stock or Indebtedness of any
Restricted Subsidiary (other than a Securitization Special Purpose Entity),
the Company will secure the New Notes equally and ratably with (or, at the
Company's option, prior to) such secured Indebtedness so long as such
Indebtedness shall be so secured, unless the aggregate amount of all such
secured Indebtedness, together with all Attributable Indebtedness of the
Company with respect to any sale and leaseback transactions involving
Principal Properties (with the exception of such transactions which are
excluded as described in clauses (i) through (v) under "--Restrictions on
Sales and Leasebacks" below), would not exceed 10% of Consolidated Net
Tangible Assets. The above restriction does not apply to, and there will be
excluded from secured Indebtedness in any computation under such restriction,
Indebtedness secured by: (i) Liens on property of, or on any share of stock or
Indebtedness of, any corporation existing at the time such corporation becomes
a Restricted Subsidiary and Liens on any property acquired from a corporation
which is merged with or into the Company or a Subsidiary, (ii) Liens in favor
of the Company, (iii) Liens in favor of governmental bodies to secure
progress, advance or other payments, (iv) Liens upon any property acquired
after the date of the Indenture, securing the purchase price thereof or
created or incurred simultaneously with (or within 270 days after) such
acquisition to finance the acquisition of such property or existing on such
property at the time of such acquisition, or Liens on improvements after such
date, in each case subject to certain conditions and provided that the
principal amount of the obligation or indebtedness secured by such Lien shall
not exceed 100% of the cost or fair value (as determined in good faith by the
Company), whichever shall be lower, of the property at the time of the
acquisition, construction or improvement thereof, (v) Liens securing
industrial revenue or pollution control bonds, (vi) Liens arising out of any
final judgment for the payment of money aggregating not in excess of $25.0
million which remains unstayed, in effect and unpaid for a period of 60
consecutive days or Liens arising out of any judgments which are being
contested in good faith, (vii) Permitted Liens in existence on the date of the
Investment Grade Rating Event, (viii) Liens to secure obligations arising from
time to time under the Credit Agreement, or (ix) any extension, renewal, or
replacement of any Lien referred to in the foregoing clauses (i) through
(viii) inclusive.
RESTRICTIONS ON SALES AND LEASEBACKS. The Company may not enter into any
sale and leaseback transaction involving any Principal Property, unless the
aggregate amount of all Attributable Indebtedness of the Company with respect
to such transaction plus all secured Indebtedness (with the exception of
secured Indebtedness which is excluded as described in clauses (i) through
(ix) under "--Restrictions on Secured Indebtedness" above) would not exceed
10% of Consolidated Net Tangible Assets. This restriction does not apply to,
and there shall be excluded from Attributable Indebtedness in any computation
under such restriction, any sale and leaseback transaction if: (i) the lease
is for a period, including renewal rights, not in excess of three years; (ii)
the sale of the Principal Property is made within 270 days after its
acquisition, construction or improvements; (iii) the lease secures or relates
to industrial revenue or pollution control bonds; (iv) the transaction is
between the Company and a Restricted Subsidiary; or (v) the Company, within
270 days after the sale is completed, applies to the retirement of
Indebtedness of the Company or a Restricted Subsidiary, or to the purchase of
other property which will constitute a Principal Property, an amount not less
than the greater of (1) the net proceeds of the sale of the Principal Property
leased or (2) the fair market value (as determined by the Company in good
faith) of the Principal Property leased. The amount to be applied to the
retirement of Indebtedness shall be reduced by (x) the principal amount of any
debentures or notes (including the Notes) of the Company or a Restricted
Subsidiary surrendered within 270 days after such sale to the applicable
trustee for retirement and cancellation, (y) the principal amount of
Indebtedness, other than the items referred to in the preceding clause (x),
voluntarily retired by the Company or a Restricted Subsidiary within 270 days
after such sale and (z) associated transaction expenses.
Procedures for Offers
Within 30 days following a Change of Control resulting in a Rating Decline
and on any Asset Disposition Trigger Date, the Company will mail to each
holder of New Notes, at such holder's
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registered address, a notice stating: (i) the Offer is being made as a result
of a Change of Control or one or more Asset Dispositions, the length of time
the Offer shall remain open, and the maximum aggregate principal amount of New
Notes that will be accepted for payment pursuant to such Offer, (ii) the
purchase price, the amount of accrued and unpaid interest as of the Purchase
Date, and the Purchase Date, (iii) in the case of a Change of Control, the
circumstances and material facts regarding such Change of Control, to the
extent known to the Company (including, but not limited to, information with
respect to pro forma and historical financial information after giving effect
to such Change of Control, and information regarding the Person or Persons
acquiring control), and (iv) such other information required by the Indenture
and applicable laws and regulations.
On the Purchase Date for any Offer, the Company will (1) in the case of an
Offer resulting from a Change of Control, accept for payment all New Notes
tendered pursuant to such Offer and, in the case of an Offer resulting from one
or more Asset Dispositions, accept for payment the maximum principal amount of
New Notes tendered pursuant to such Offer that can be purchased out of Excess
Proceeds from such Asset Dispositions, (2) deposit with the Paying Agent the
aggregate purchase price of all New Notes accepted for payment and any accrued
and unpaid interest on such New Notes as of the Purchase Date, and (3) deliver
or cause to be delivered to the Trustee all New Notes tendered pursuant to the
Offer. If less than all New Notes tendered pursuant to any Offer are accepted
for payment by the Company for any reason, selection of the New Notes to be
purchased will be in compliance with the requirements of the principal national
securities exchange, if any, on which the New Notes are listed or, if the New
Notes are not so listed, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that New Notes accepted for payment in part
shall only be purchased in integral multiples of $1,000. The Paying Agent will
promptly mail to each holder of New Notes accepted for payment an amount equal
to the Purchase price for such New Notes plus any accrued and unpaid interest.
The Trustee will promptly authenticate and mail to such holder of New Notes
accepted for payment in part new New Notes equal in principal amount to any
unpurchased portion of the New Notes, and any New Notes not accepted for
payment in whole or in part shall be promptly returned to the holder thereof.
On and after a Purchase Date, interest will cease to accrue on the New Notes
accepted for payment. The Company will announce the results of the Offer to
holders of the New Notes on or as soon as practicable after the Purchase Date.
The Company will comply with all applicable requirements of Rule 14e-1 under
the Exchange Act and all other applicable securities laws and regulations
thereunder, to the extent applicable, in connection with any Offer.
Events of Default
The following will be Events of Default under each of the Indentures: (a)
failure to pay any interest on any New Note issued under such Indenture when
due, continued for 30 days; (b) failure to pay principal of (or premium, if
any, on) any New Note issued under such Indenture when due; (c) failure to
perform or comply with the provisions described under "--Certain Covenants--
Limitation on Merger, Consolidation and Sale of Assets;" (d) failure to perform
any other covenant or warranty of the Company in the Indenture, continued for
30 days after written notice as provided in the Indenture; (e) failure to pay,
at final maturity, in excess of $25.0 million principal amount of any
indebtedness of the Company or any Subsidiary of the Company, or acceleration
of any indebtedness of the Company or any Subsidiary of the Company in an
aggregate principal amount in excess of $25.0 million; (f) the rendering of a
final judgment or judgments (not subject to appeal) against the Company or any
of its Subsidiaries in an aggregate principal amount in excess of $50.0 million
which remains unstayed, in effect and unpaid for a period of 60 consecutive
days thereafter; and (g) certain events in bankruptcy, insolvency or
reorganization affecting the Company or any Subsidiary of the Company.
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If an Event of Default shall occur and be continuing, either the Trustee or
the holders of at least 25% in aggregate principal amount of the outstanding
New Notes issued under an Indenture may accelerate the maturity of all New
Notes issued under such Indenture; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the
holders of a majority in aggregate principal amount of outstanding New Notes
issued under such Indenture may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the nonpayment of
accelerated principal, have been cured or waived as provided in the Indenture.
For information as to waiver of defaults, see "--Modification and Waiver."
No holder of any New Note will have any right to institute any proceeding
with respect to an Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless the holders of at least 25% in aggregate principal
amount of the outstanding New Notes issued under such Indenture shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee, and the Trustee shall not have received
from the holders of a majority in aggregate principal amount of the
outstanding New Notes issued under such Indenture a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a holder
of a New Note for enforcement of payment of the principal of (and premium, if
any) or interest on such New Note on or after the respective due dates
expressed in such New Note.
Subject to the provisions of the applicable Indenture relating to the duties
of the Trustee in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under such Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable indemnity. Subject
to such provisions for the indemnification of the Trustee, the holders of a
majority in aggregate principal amount of the outstanding New Notes issued
under an Indenture will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
The Company will be required to furnish to each Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
applicable Indentures and as to any default in such performance.
Defeasance
The Indentures provide that, at the option of the Company, (A) if
applicable, the Company will be discharged from any and all obligations in
respect of the outstanding New Notes issued under such Indenture or (B) if
applicable, the Company may omit to comply with certain restrictive covenants,
and that such omission shall not be deemed to be an Event of Default under the
applicable Indenture and the New Notes issued thereunder, and that such New
Notes shall no longer be subject to the subordination provisions in the case
of either (A) or (B) upon irrevocable deposit with the Trustee, in trust, of
money and/or U.S. government obligations which will provide money in an amount
sufficient in the opinion of a nationally recognized accounting firm to pay
the principal of and premium, if any, and each installment of interest, if
any, on the outstanding New Notes issued under such Indenture. With respect to
clause (B), the obligations under the applicable Indenture other than with
respect to such covenants and the Events of Default other than the Event of
Default relating to such covenants above shall remain in full force and
effect. Such trust may only be established if, among other things (i) with
respect to clause (A), the Company has received from, or there has been
published by, the IRS a ruling or there has been a change in law, which in the
Opinion of Counsel provides that holders of the New Notes will not recognize
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case
if such deposit, defeasance
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and discharge had not occurred; or, with respect to clause (B), the Company
has delivered to the Trustee an Opinion of Counsel to the effect that the
holders of the New Notes will not recognize gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred; (ii) no Event of Default or event that, with the passing of time or
the giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing; (iii) the Company has delivered to the Trustee an
Opinion of Counsel to the effect that such deposit shall not cause the Trustee
or the trust so created to be subject to the Investment Company Act of 1940;
and (iv) certain other customary conditions precedent.
Modification and Waiver
Modifications and amendments of any of the Indentures may be made by the
Company and the applicable Trustee with the consent of the holders of a
majority in aggregate principal amount of the outstanding New Notes in the
affected series; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding New Note affected
thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any New Note, (b) reduce the principal amount of
(or the premium), or interest on, any New Notes, (c) change the place or
currency of payment of principal of (or premium), or interest on, any New
Notes, (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any New Notes, (e) reduce the above-stated
percentage of outstanding New Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding New Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, or (g) modify
any provisions of the Indenture relating to the modification and amendment of
the Indenture or the waiver of past defaults or covenants, except as otherwise
specified.
The holders of a majority in aggregate principal amount of the outstanding
New Notes of a series may waive compliance by the Company with certain
restrictive provisions of the applicable Indenture. The holders of a majority
in aggregate principal amount of the outstanding New Notes of a series may
waive any past default under the applicable Indenture.
The Trustee
Each Indenture provides that, except during the continuance of an Event of
Default, the applicable Trustee will perform only such duties as are
specifically set forth in such Indenture. During the existence of an Event of
Default, the applicable Trustee will exercise such rights and powers vested in
it under such Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
Each Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim
as security or otherwise. The Trustees are permitted to engage in other
transactions with the Company or any Affiliate; provided, however, that if it
acquires any conflicting interest (as defined in the Indenture or in the Trust
Indenture Act), it must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the Indentures for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
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"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AOC Payment" means all payments made to AOC Limited Partnership, a limited
partnership organized under the laws of the State of Missouri, constituting
"Additional Redemption Consideration" required to be paid by Clark USA
pursuant to Section 2.4 of the Stock Purchase and Redemption Agreement.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted
Subsidiaries (including a consolidation or merger or other sale of any such
Restricted Subsidiaries with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary, but
excluding a disposition by a Restricted Subsidiary of such Person to such
Person or a Restricted Subsidiary of such Person or by such Person to a
Restricted Subsidiary of such Person) of (i) shares of Capital Stock (other
than directors' qualifying shares) or other ownership interests of a
Restricted Subsidiary of such Person, (ii) substantially all of the assets of
such Person or any of its Restricted Subsidiaries representing a division or
line of business, or (iii) other assets or rights of such Person or any of its
Restricted Subsidiaries outside of the ordinary course of business, which in
the case of either clause (i), (ii) or (iii), whether in a single transaction
or a series of related transactions, result in Net Available Proceeds in
excess of $10.0 million; provided that (x) any transfer, conveyance, sale,
lease or other disposition of assets securing the Credit Agreement in
connection with the enforcement of the security interests therein and (y) any
sale of crude oil pursuant to the contracts governing the Gulf Transaction
shall not be deemed an Asset Disposition hereunder.
"Attributable Indebtedness" means the total net amount of rent required to
be paid during the remaining primary term of any particular lease under which
any person is at the time liable, discounted at the rate per annum equal to
the weighted average interest rate borne by the New Notes.
"Blackstone" means Blackstone Capital Partners III Merchant Banking Fund
L.P. and its affiliates.
"Blackstone Transaction" means the acquisition of 13,500,000 shares of
common stock of Clark USA previously held by Trizec Hahn Corporation and
certain of its subsidiaries.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
95% of the accounts receivable owned by the Company and its Restricted
Subsidiaries (excluding any accounts receivable from Restricted Subsidiaries
and any accounts receivable that are more than 90 days past due) as of such
date, plus (ii) 90% of the market value of inventory owned by the Company and
its Restricted Subsidiaries as of such date, plus (iii) 100% of the cash and
Cash Equivalents owned by the Company and its Restricted Subsidiaries as of
such date that are, as of such date, held in one or more separate accounts
under the direct control of the agent bank under the Credit Agreement and that
are as of such date pledged to secure working capital borrowings under the
Credit Agreement, minus (iv) the principal amount of borrowings outstanding as
of such date under the Credit Agreement to the extent that the amount of such
borrowings exceeds the sum of clauses (i) and (ii) above, all of the foregoing
calculated on a consolidated basis in accordance with GAAP.
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"Capital Lease" means, at the time any determination thereof is to be made,
any lease of property, real or personal or mixed, in respect of which the
present value of the minimum rental commitment would be capitalized on a
balance sheet of the lessee in accordance with GAAP.
"Capitalized Lease Obligation" of any Person means any lease of any property
(whether real, personal or mixed) by such Person as lessee which, in
conformity with GAAP, is required to be accounted for as a Capital Lease on
the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of any association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, and (iii) in the case of a partnership, partnership interests
(whether general or limited).
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper having
the highest rating obtainable from Moody's or S&P and, in each case, maturing
within six months after the date of acquisition.
"Change of Control" means any transaction the result of which is that any
Person (an "Acquiring Person") other than Blackstone, or a Person, a majority
of whose voting equity is owned by Blackstone, becomes the Beneficial Owner,
directly or indirectly, of shares of stock of the Company or Clark USA
entitling such Acquiring Person to exercise 50% or more of the total voting
power of all classes of stock of the Company or Clark USA, as the case may be,
entitled to vote in elections of directors. The term "Beneficial Owner" shall
be determined in accordance with Rule 13d-3 under the Exchange Act.
"Chevron Payment" means that certain contingent payment obligation of Clark
USA to Chevron U.S.A. Inc. based on industry refining margins and the volume
of refined oil products produced at the Port Arthur Refinery over a five-year
period, pursuant to Section 3.1(d) of the Asset Purchase Agreement, dated as
of August 18, 1994, between Clark USA and Chevron U.S.A. Inc., as amended.
"Clark USA" means Clark USA, Inc., a Delaware corporation and the direct
parent of the Company.
"Consolidated Adjusted Net Worth" of any Person means the total amount of
consolidated stockholder's equity (par value plus additional paid-in capital
(including all Capital Stock except as excluded below) plus retained earnings
or minus accumulated deficit) of such Person as reflected on the consolidated
balance sheet of such Person and its Restricted Subsidiaries for the most
recent Quarter prior to the event requiring such determination to be made,
after excluding (to the extent otherwise included therein and without
duplication) the following (the amount of such stockholder's equity and
deductions therefrom to be computed, except as noted below, in accordance with
GAAP consistently applied): (i) any amount receivable but not paid from sales
of Capital Stock of such Person or its Restricted Subsidiaries determined on a
consolidated basis; (ii) any revaluation or other write-up in book value of
assets subsequent to the date hereof (other than write-ups of oil inventory
previously written down and other than reevaluations or write-ups upon the
acquisition of assets acquired in a transaction to be accounted for by
purchase accounting under GAAP); (iii) treasury stock; (iv) an amount equal to
the excess, if any, of the amount reflected on the books and records of such
Person
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or its Restricted Subsidiaries for the securities of any Person which is not a
Restricted Subsidiary of such Person over the lesser of cost or market value
(as determined in good faith by the board of directors of such Person or such
Restricted Subsidiary); (v) Disqualified Capital Stock; (vi) equity securities
of such Person or its Restricted Subsidiaries which are not Disqualified
Capital Stock but which are exchangeable for or convertible into debt
securities of such Person or such Restricted Subsidiary, as the case may be,
other than at the option of such Person or such Restricted Subsidiary except
to the extent that the exchange or conversion rights in such other equity
securities cannot, under any circumstances, be exercised prior to Maturity;
(vii) the cumulative foreign currency translation adjustment, if any; and
(viii) write-offs of non-cash items in an amount not to exceed $80.0 million.
"Consolidated Net Operating Income" means, when used with reference to any
Person, for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP, provided that (i) the Net Income of any Person which
is not a Subsidiary of such Person or is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid to such Person or its Restricted Subsidiaries, (ii) the Net
Income of any Unrestricted Subsidiary shall be excluded (except to the extent
distributed to the Company or one of its Subsidiaries), (iii) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded, (iv) extraordinary
gains and losses and gains and losses from the sale of assets outside the
ordinary course of such Person's business shall be excluded, (v) the
cumulative effect of changes in accounting principles in the year of adoption
of such changes shall be excluded, and (vi) the tax effect of any of the items
described in clauses (i) through (v) above shall be excluded.
"Consolidated Net Tangible Assets" of a Person means the consolidated total
assets of such Person and its Restricted Subsidiaries determined in accordance
with GAAP, less the sum of (i) all current liabilities and current liability
items and (ii) all goodwill, trade names, trademarks, patents, organization
expense, unamortized debt discount and expense and other similar intangibles
properly classified as intangibles in accordance with GAAP.
"Consolidated Operating Cash Flow" means with respect to any Person,
Consolidated Net Operating Income of such Person and its Restricted
Subsidiaries without giving effect to gains and losses on securities
transactions (net of related taxes) for the period described below, increased
by the sum of (i) consolidated Fixed Charges of such Person and its Restricted
Subsidiaries which reduced Consolidated Net Operating Income for such period,
(ii) consolidated income tax expense (net of taxes relating to gains and
losses on securities transactions) of such Person and its Restricted
Subsidiaries which reduced Consolidated Net Operating Income for such period,
(iii) consolidated depreciation and amortization expense (including
amortization of purchase accounting adjustments) of such Person and its
Restricted Subsidiaries and other noncash items to the extent any of which
reduced Consolidated Net Operating Income for such period, (iv) expenses
incurred in connection with the Blackstone Transaction in an amount not to
exceed $9.0 million, and (v) any annual management monitoring, consulting and
advisory fees and related expenses paid to Blackstone and its affiliates in an
amount not to exceed $2.0 million, less noncash items which increased
Consolidated Net Operating Income for such period, all as determined for such
Person and its consolidated Restricted Subsidiaries in accordance with GAAP
for the four full Quarters for which financial information in respect thereof
is available immediately prior to the Transaction Date.
"Consolidated Operating Cash Flow Ratio" means, with respect to any Person,
the ratio of (i) Consolidated Operating Cash Flow of such Person and its
Restricted Subsidiaries for the four Quarters for which financial information
in respect thereof is available immediately prior to the Transaction Date to
(ii) the aggregate Fixed Charges of such Person and its Restricted
Subsidiaries
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for such four Quarters, such Fixed Charges and Preferred Stock Dividends to be
calculated on the basis of the amount of the Indebtedness, Capitalized Lease
Obligations and Preferred Stock of such Person and its Restricted Subsidiaries
outstanding on the Transaction Date and assuming the continuation of market
interest rate levels prevailing on the Transaction Date in any calculation of
interest rates in respect of floating interest rate obligations; provided,
however, that if such Person or any Restricted Subsidiary of such Person shall
have acquired, sold or otherwise disposed of any Material Asset or engaged in
an Equity Offering during the four full Quarters for which financial
information in respect thereof is available immediately prior to the
Transaction Date or during the period from the end of such fourth full Quarter
to and including the Transaction Date, the calculation required in clause (i)
above will be made giving effect to such acquisition, sale or disposition or
the other investment of the Net Available Proceeds of such Equity Offering on
a pro forma basis as if such acquisition, sale, disposition or investment had
occurred at the beginning of such four full Quarter period without giving
effect to clause (iii) of the definition of "Consolidated Net Operating
Income" (that is, including in such calculation the Net Income for the
relevant prior period of any Person acquired in a pooling of interests
transaction, notwithstanding the provisions of said clause (iii)); provided,
further, that Fixed Charges of such Person during the applicable period shall
not include the amount of consolidated interest expense which is directly
attributable to Indebtedness to the extent such Indebtedness is reduced by the
proceeds of the incurrence of such Indebtedness which gave rise to the need to
calculate the Consolidated Operating Cash Flow Ratio. Any such pro forma
calculation may include adjustments appropriate, in the reasonable
determination of the Company as set forth in an Officer's Certificate, to (i)
reflect operating expense reductions reasonably expected to result from the
acquisition by the Company of such Material Assets or (ii) eliminate the
effect of any extraordinary accounting event with respect to any acquired
Person on Consolidated Net Operating Income.
"Credit Agreement" means that certain Credit Agreement, dated as of
September 25, 1997, by and among the Company and the financial institutions
party thereto, including any related notes, recorded or otherwise perfected
under applicable law (including any conditional sale or other title
guarantees, collateral documents, instruments and agreements executed in
connection therewith), and in each case as amended, modified, extended,
renewed, refunded, replaced or refinanced from time to time.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Agreement, (ii) the Senior Note Indenture, (iii) the Term Loan, and
(iv) any other Senior Debt permitted under the Senior Subordinated Note
Indenture, the principal amount of which is $20.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such
Person is the Surviving Person) or the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of such Person's
assets.
"Disqualified Capital Stock" means any Capital Stock of the Company that,
either by its terms or by the terms of any security into which it is
convertible or exchangeable, is, or upon the happening of any event or passage
of time would be, required to be redeemed or purchased (other than pursuant to
an offer to repurchase such Capital Stock following a change of control, which
offer may not be completed until 45 days after completion of the Offer
described under "--Change of Control"), including at the option of the holder,
in whole or in part, or has, or upon the happening of an event or passage of
time would have, a redemption, sinking fund or similar payment due, on or
prior to November 15, 2007.
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"Equity Offering" means any public or private sale of Capital Stock
(including options, warrants or rights with respect thereto) of the Company or
of Clark USA.
"Excluded Contribution" means the net cash proceeds received by the Company
after the Issue Date from (a) contributions to its common equity capital and
(b) the sale (other than to a Subsidiary or to any Company or Subsidiary
management equity plan or stock option plan or any other management or
employee benefit plan or agreement) of Capital Stock of the Company (other
than Disqualified Stock), in each case, designated as Excluded Contributions
pursuant to an Officers' Certificate.
"Existing Indebtedness" means any outstanding Indebtedness of the Company
and its Subsidiaries as of the Issue Date and in any event Indebtedness
evidenced by the Credit Agreement whether or not outstanding on the Issue
Date.
"Fixed Charges" of any Person means, for any period, the sum of (i)
consolidated Interest Expense of such Person and its Restricted Subsidiaries,
plus (ii) all but the principal component of rentals in respect of
consolidated Capitalized Lease Obligations of such Person and its Restricted
Subsidiaries paid, accrued or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period, and determined in
accordance with GAAP, plus (iii) all cash dividend payments (excluding items
eliminated in consolidation) on any series of preferred stock of such Person.
For purposes of this definition, (a) interest on Indebtedness which accrues on
a fluctuating basis for periods succeeding the date of determination shall be
deemed to accrue at a rate equal to the average daily rate of interest in
effect during such immediately preceding Quarter and (b) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined in good faith by the chief financial officer, treasurer
or controller of such Person to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP (including Statement of
Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entities as have been approved by a significant segment of the
accounting profession, which are in effect on the Issue Date.
"Guaranty" means a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Gulf Payments" means all payments (other than the initial purchase price of
$26.9 million under the Gulf Oil Purchase Contract) to Gulf Resources
Corporation, a Panamanian corporation, and/or any of its Affiliates, in each
case, pursuant to the Gulf Merger Agreement, the Gulf Oil Purchase Contract,
the Gulf Stockholders' Agreement and the Gulf Pledge Agreement, as each is in
effect on the date hereof.
"Indebtedness" with respect to any Person, means any indebtedness,
including, in the case of the Company, the indebtedness evidenced by the
Notes, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant
to Capital Leases) (except any such balance that constitutes a trade payable
in the ordinary course of business that is not overdue by more than 90 days
from the invoice date or is being contested in good faith), if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
balance sheet of such Person prepared on a consolidated basis in accordance
with GAAP, and shall also include, to the extent not otherwise
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included, the Guaranty of Indebtedness of other Persons not included in the
financial statements of the Company, the maximum fixed redemption or
repurchase price of Disqualified Capital Stock (or if not redeemable or
subject to repurchase, the issue price) and the maximum fixed redemption or
repurchase price (or if not redeemable or subject to repurchase, the issue
price) of Preferred Stock issued by any Restricted Subsidiary of the Company
to any Person other than to the Company or a Restricted Subsidiary.
"Interest Expense" of any Person means, for any period, the aggregate amount
of interest expense in respect of Indebtedness (excluding (a) the Chevron
Payment, (b) the AOC Payment, (c) the Gulf Payments and (d) the amortization
of debt issuance expense relating to the Securities, but including without
limitation or duplication (i) amortization of debt issuance expense with
respect to other Indebtedness, (ii) amortization of original issue discount on
any Indebtedness, and (iii) the interest portion of any deferred payment
obligation, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financings and the net
cost associated with Interest Swap Obligations) paid, accrued or scheduled to
be paid or accrued by such Person during such period, determined in accordance
with GAAP.
"Interest Swap Obligations" means, when used with reference to any Person,
the obligations of such person under (i) interest rate swap agreements,
interest rate exchange agreements, interest rate cap agreements, and interest
rate collar agreements, (ii) currency swap agreements and currency exchange
agreements, and (iii) other similar agreements or arrangements, which are, in
each such case, designed solely to protect such Person against fluctuations in
interest rates or currency exchange rates.
"Investment" means, when used with reference to any Person, any direct or
indirect advances, loans or other extensions of credit or capital
contributions by such Person to (by means of transfers of property to others
or payments for property or services for the account or use of others, or
otherwise), or purchases or acquisitions by such Person of Capital Stock,
bonds, notes, debentures or other securities issued by, any other Person or
any Guaranty or assumption of any liability (contingent or otherwise) by such
Person of any Indebtedness or Obligations of any other Person and all other
items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means November 21, 1997.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind (except for taxes not yet owing)
in respect of such asset, whether or not filed, retention agreement, any lease
in the nature thereof, any option or other agreement to sell and, with respect
to which, any filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Loan Agreement" means the term loan agreement, dated as of November 21,
1997, among the Company, certain lenders and Goldman Sachs Credit Partners
L.P., as agent, as amended from time to time.
"Maturity" means, with respect to any New Notes, the date on which the
principal of such New Notes becomes due and payable as provided in the
Indenture, whether at the Stated Maturity or by declaration of acceleration,
call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means cash or readily marketable cash equivalents
received (including by way of sale or discounting of a note, installment
receivable or other receivable, but excluding any other consideration received
in the form of assumption by the acquiree of Indebtedness or other obligations
relating to such properties or assets or received in any other noncash form)
net of (i) all legal and accounting expenses, commissions and other fees and
expenses incurred and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such issuance and
(ii) all payments made by such Person or its Subsidiaries on any Indebtedness
which must, in order to obtain a necessary consent to such issuance or by
applicable law, be repaid out of the proceeds from such issuance.
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"Net Income" of any Person for any period means the net income (loss) from
continuing operations of such Person for such period, determined in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
"Obligations" means any principal (and premium, if any), interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Indebtedness" means Indebtedness incurred by the Company or its
Restricted Subsidiaries (i) to renew, extend, refinance or refund Indebtedness
that is permitted to be incurred pursuant to the Consolidated Operating Cash
Flow Ratio test set forth in the covenant described under "--Limitation on
Indebtedness" and clauses (ii) through (iv) and (xi) below; provided, however,
that such Indebtedness does not exceed the principal amount of the
Indebtedness so renewed, extended, refinanced or refunded plus the amount of
any premium required to be paid in connection with such refinancing pursuant
to the terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by the Company or such Restricted Subsidiary as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated repurchase, plus the expenses of the Company or such
Restricted Subsidiary incurred in connection with such refinancing; and
provided, however, that Indebtedness the proceeds of which are used to
refinance or refund such Indebtedness shall only be permitted if (A) in the
case of any refinancing or refunding of Indebtedness that is pari passu with
the New Notes the refinancing or refunding Indebtedness is made pari passu
with the New Notes or subordinated to the New Notes, (B) in the case of any
refinancing or refunding of Indebtedness that is subordinated to the New Notes
the refinancing or refunding of Indebtedness is made subordinated to the New
Notes at least to the same extent as such Indebtedness being refinanced or
refunded was subordinated to the New Notes and (C) in the case of the
refinancing or refunding of Indebtedness that is subordinated to the New
Notes, the refinancing or refunding Indebtedness by its terms, or by the terms
of any agreement or instrument pursuant to which such Indebtedness is issued,
(x) does not provide for payments of principal of such Indebtedness at the
stated maturity thereof or by way of a sinking fund applicable thereto or by
way of any mandatory redemption, defeasance, retirement or repurchase thereof
by the Company or such Restricted Subsidiary (including any redemption,
retirement or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such
Indebtedness upon an event of default thereunder), in each case prior to the
final stated maturity of the Indebtedness being refinanced or refunded and (y)
does not permit redemption or other retirement (including pursuant to an offer
to purchase made by the Company or such Restricted Subsidiary) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refinanced or refunded, other than a
redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the Company
or such Restricted Subsidiary), which is conditioned upon the change of
control of the Company or such Restricted Subsidiary; (ii) arising from time
to time under the Credit Agreement in an aggregate principal amount which,
together with any obligations under clause (xi) below, do not exceed the
greater of (a) $500.0 million at any one time outstanding less the aggregate
amount of all proceeds of all Asset Dispositions that have been applied since
the Issue Date to permanently reduce the outstanding amount of such
Indebtedness and (b) the amount of the Borrowing Base as of such date
(calculated on a pro forma basis after giving effect to such borrowing and the
application of the
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proceeds therefrom); (iii) outstanding on the Issue Date; (iv) evidenced by
trade letters of credit incurred in the ordinary course of business not to
exceed $20 million in the aggregate at any time; (v) between or among the
Company and/or its Restricted Subsidiaries other than Restricted Subsidiaries
owned in any part by the Principal Shareholders; (vi) which is Subordinated
Debt; (vii) arising out of Sale and Leaseback Transactions or Capitalized
Lease Obligations relating to computers and other office equipment and
elements, catalysts or other chemicals used in connection with the refining of
petroleum or petroleum by-products; (viii) the proceeds of which are used to
make the Chevron Payment, the AOC Payment and the Gulf Payments; (ix) arising
out of Interest Swap Obligations; (x) in connection with capital projects
qualifying under Section 142(a) (or any successor provision) of the Internal
Revenue Code of 1986, as amended, in an amount not to exceed $75.0 million in
the aggregate at any time; (xi) obligations of the Company or any Restricted
Subsidiary in connection with any Qualified Securitization Transaction in an
amount which, together with any amount under clause (ii) above, does not
exceed the greater of (a) $500.0 million at any one time outstanding less the
aggregate amount of all proceeds of all Asset Dispositions that have been
applied since the Issue Date to permanently reduce the outstanding amount of
such Indebtedness and (b) the amount of the Borrowing Base as of such date
(calculated on a pro forma basis after giving effect to such borrowing and the
application of the proceeds therefrom); (xii) any guarantee by the Company of
Indebtedness of any of its Restricted Subsidiaries so long as the incurrence
of such Indebtedness is permitted to be incurred under the covenant
"Limitation on Indebtedness;" (xiii) Indebtedness or preferred stock of
Persons that are acquired by the Company or any of its Restricted Subsidiaries
or merged into the Company or a Restricted Subsidiary in accordance with the
terms of the applicable Indenture; provided that such Indebtedness or
preferred stock is not incurred in contemplation of such acquisition or
merger; and provided further that after giving effect to such acquisition or
merger either (A) the Company would be permitted to incur at least $1.00 of
additional Indebtedness under the Consolidated Operating Cash Flow Ratio test
set forth in the first paragraph of "--Limitation on Indebtedness" or (B) the
Company's Consolidated Operating Cash Flow Ratio is equal to or greater than
such ratio immediately prior to such acquisition or merger; (xiv) in an amount
not greater than twice the aggregate amount of cash contributions made to the
capital of the Company; (xv) in exchange for, or the proceeds of which are
used to refund or refinance the 10 7/8% Notes; provided, however, that after
giving effect to such exchange, refunding or refinancing, the Consolidating
Operating Cash Flow Ratio exceeds 1.75-to-1.0 and such Indebtedness shall be
subordinated to the New Senior Notes to at least the same extent as the New
Senior Subordinated Notes are subordinated to the New Senior Notes; and (xvi)
in addition to Indebtedness permitted by clauses (i) through (xv) above,
Indebtedness not to exceed on a consolidated basis for the Company and its
Restricted Subsidiaries at any time $75.0 million.
"Permitted Junior Securities" means Capital Stock (and all warrants, options
or other rights to acquire Capital Stock) in the Company or debt securities
that are subordinated to the New Senior Subordinated Notes (and any debt
securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the New Senior Subordinated Notes are
subordinated to Senior Debt pursuant to the Senior Subordinated Note
Indenture.
"Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend
to any assets other than those of the Person merged into or consolidated with
the Company; (iii) Liens on property existing at the time of acquisition
thereof by the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition; (iv) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (v)
Liens existing on the Issue Date; (vi) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any
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reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (vii) Liens imposed by law, such as
mechanics', carriers', warehousemen's, materialmen's, and vendors' Liens,
incurred in good faith in the ordinary course of business with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings if a reserve or other appropriate provisions, if any, as shall be
required by GAAP shall have been made therefor; (viii) zoning restrictions,
easements, licenses, covenants, reservations, restrictions on the use of real
property or minor irregularities of title incident thereto that do not, in the
aggregate, materially detract from the value of the property or the assets of
the Company or impair the use of such property in the operation of the
Company's business; (ix) judgment Liens to the extent that such judgments do
not cause or constitute a Default or an Event of Default; (x) Liens to secure
the payment of all or a part of the purchase price of property or assets
acquired or the construction costs of property or assets constructed in the
ordinary course of business on or after the Issue Date, provided that (a) such
property or assets are used in the Principal Business of the Company, (b) at
the time of incurrence of any such Lien, the aggregate principal amount of the
obligations secured by such Lien shall not exceed the lesser of the cost or
fair market value of the assets or property (or portions thereof) so acquired
or constructed, (c) each such Lien shall encumber only the assets or property
(or portions thereof) so acquired or constructed and shall attach to such
assets or property within 180 days of the purchase or construction thereof and
(d) any Indebtedness secured by such Lien shall have been permitted to be
incurred under the covenant entitled "Limitation on Indebtedness"; (xi) Liens
incurred in the ordinary course of business of the Company with respect to
obligations that do not exceed 5% of Consolidated Net Tangible Assets at any
one time outstanding; (xii) Liens incurred in connection with Interest Swap
Obligations; (xiii) Liens on any Securitization Program Assets in connection
with any Qualified Securitization Transaction; (xiv) Liens to secure
obligations owing from time to time under the Credit Agreement; and (xv) with
respect to the Senior Subordinated Notes, Liens to secure Senior Debt.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, estate, unincorporated organization
or government or any agency or political subdivision thereof.
"Port Arthur Refinery" means the refinery in Port Arthur, Texas and certain
other assets acquired from Chevron U.S.A., Inc.
"Principal Business" means, with respect to the Company and its Restricted
Subsidiaries, (i) the business of the acquisition, processing, marketing,
refining, storage and/or transportation of hydrocarbons and/or royalty or
other interests in crude oil or associated products related thereto, (ii) the
acquisition, operation, improvement, leasing and other use of convenience
stores, retail service stations, truck stops and other public accommodations
in connection therewith, (iii) any business currently engaged in by the
Company or its Restricted Subsidiaries on the Issue Date, and (iv) any
activity or business that is a reasonable extension, development or expansion
of, or reasonably related to, any of the foregoing.
"Principal Property" means (i) any refinery and related pipelines,
terminalling and processing equipment or (ii) any other real property or
marketing assets or related group of such assets of the Company having a fair
market value in excess of $20.0 million.
"Principal Shareholders" means (i) Blackstone, (ii) Occidental Petroleum
Corporation, (iii) Gulf Resources Corporation, and (iv) Affiliates of the
Persons described in the foregoing clauses (i) through (iii), other than the
Company and its Subsidiaries.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any Subsidiary
pursuant to which the Company or any Subsidiary may sell, convey, grant a
security interest in or otherwise transfer to a Securitization Special Purpose
Entity, and such Securitization Special Purpose Entity may sell, convey, grant
a security interest in, or otherwise transfer to any other Person, any
Securitization Program Assets (whether now existing or arising in the future).
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"Quarter" means a fiscal quarterly period of the Company.
"Rating Agencies" means (i) S&P and Moody's or (ii) if S&P or Moody's or
both of them are not making ratings of the New Notes publicly available, a
nationally recognized U.S. rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories (any of which may include a "+" or "-"); AAA, AA, A, BBB, BB, B,
CCC, CC, C and D (or equivalent successor categories); (ii) with respect to
Moody's, any of the following categories (any of which may include a "1," "2"
or "3"); Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor
categories), and (iii) the equivalent of any such categories of S&P or Moody's
used by another Rating Agency, if applicable.
"Rating Decline" means that at any time within 90 days (which period shall
be extended so long as the rating of the New Notes is under publicly announced
consideration for possible down grade by any Rating Agency) after the date of
public notice of a Change of Control, or of the intention of the Company or of
any Person to effect a Change of Control, the rating of the New Notes is
decreased by both Rating Agencies by one or more categories and the ratings on
the New Notes following such downgrade is below Investment Grade.
"Receivables" means all rights of the Company or any Subsidiary of the
Company to payments (whether constituting accounts, chattel paper,
instruments, general intangibles or otherwise, and including the right to
payment of any interest or finance charges), which rights are identified in
the accounting records of the Company or such Subsidiary as accounts
receivable.
"Redemption Date," when used with respect to any New Note to be redeemed,
means the date fixed for such redemption by or pursuant to the applicable
Indenture.
"Redemption Price," when used with respect to any New Note to be redeemed,
means the price at which it is to be redeemed pursuant to the applicable
Indenture.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in-substance or legal defeasance) or other
acquisition or retirement for value (collectively a "prepayment") other than
in connection with a concurrent issuance of pari passu or Subordinated
Indebtedness, directly or indirectly, by the Company or a Restricted
Subsidiary of the Company, prior to the scheduled maturity on or prior to any
scheduled repayment of principal (and premium, if any) or sinking fund payment
in respect of Indebtedness of the Company (other than the New Notes) which is
subordinate in right of payment to the applicable series of New Notes.
"Restricted Investment" means any direct or indirect Investment by the
Company or any Restricted Subsidiary of the Company in (i) any Affiliate of
the Company which is not a Restricted Subsidiary of the Company and (ii) any
Unrestricted Subsidiary of the Company, other than direct or indirect
investments in (a) Polymer Asphalt L.L.C., a Missouri limited liability
company, (b) Bagel Street Holdings, Inc., and (c) any pipeline company in
which the Company or any of its Restricted Subsidiaries now owns or hereafter
acquires any interest; provided that the aggregate amount of Investments made
by the Company or any of its Restricted Subsidiaries pursuant to clauses (a),
(b) and (c) above shall not exceed $25.0 million in the aggregate at any one
time outstanding provided, that no Investment in a Securitization Special
Purpose Entity in connection with a Qualified Securitization Transaction shall
be a Restricted Investment.
"Restricted Payment" means (i) any Stock Payment, (ii) any Restricted
Investment, or (iii) any Restricted Debt Prepayment. Notwithstanding the
foregoing, Restricted Payments shall not include (a) payments by the Company
to any Restricted Subsidiary of the Company, (b) payments by any Restricted
Subsidiary of the Company to the Company or any other Restricted Subsidiary of
the Company, (c) the Chevron Payment, (d) the AOC Payment, and (e) the Gulf
Payments.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect
Subsidiary of an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Services and its successors.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after
the acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Securitization Program Assets" means (a) all Receivables and inventory which
are described as being transferred by the Company or any Subsidiary of the
Company pursuant to documents relating to any Qualified Securitization
Transaction, (b) all Securitization Related Assets, and (c) all collections
(including recoveries) and other proceeds of the assets described in the
foregoing clauses.
"Securitization Related Assets" means (i) any rights arising under the
documentation governing or relating to Receivables (including rights in respect
of Liens securing such Receivables and other credit support in respect of such
Receivables) or to inventory, (ii) any proceeds of such Receivables or
inventory and any lockboxes or accounts in which such proceeds are deposited,
(iii) spread accounts and other similar accounts (and any amounts on deposit
therein) established in connection with a Qualified Securitization Transaction,
(iv) any warranty, indemnity, dilution and other intercompany claim arising out
of the documents relating to such Qualified Securitization Transaction, and (v)
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable or inventory.
"Securitization Special Purpose Entity" means a Person (including, without
limitation, a Subsidiary of the Company) created in connection with the
transactions contemplated by a Qualified Securitization Transaction, which
Person engages in no activities other than those incidental to such Qualified
Securitization Transaction.
"Senior Debt" means (i) all Indebtedness outstanding under the Credit
Agreement and the Loan Agreement, (ii) Indebtedness represented by the New
Senior Notes and the 9 1/2% Notes, (iii) any other Indebtedness permitted to be
incurred by the Company under the terms of the Senior Subordinated Note
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the New Senior Subordinated Notes, and (iv) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (v) Indebtedness represented by
preferred stock, (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables, or (z) any
Indebtedness that is incurred in violation of the Senior Subordinated Note
Indenture; provided, however, that any Indebtedness incurred under the Credit
Agreement, in respect of which the lenders or the agent thereunder receive from
the Company a representation that such Indebtedness is Senior Debt for all
purposes under the Senior Subordinated Note Indenture, shall be Senior Debt for
all purposes under the Senior Subordinated Note Indenture notwithstanding this
clause (z).
"Stated Maturity" means November 15, 2007.
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"Stock Payment" means, with respect to the Company, any dividend, either in
cash or in property (except dividends payable in Capital Stock of the Company
which is not convertible into Indebtedness), on, or the making by the Company
of any other distribution in respect of, its Capital Stock, now or hereafter
outstanding, or the redemption, repurchase, retirement, defeasance or any
acquisition for value by the Company, directly or indirectly, of its Capital
Stock or any warrants, rights or options to purchase or acquire shares of any
class of its Capital Stock, now or hereafter outstanding (other than in
exchange for the Company's Capital Stock (other than Disqualified Capital
Stock) or options, warrants or other rights to purchase the Company's Capital
Stock (other than Disqualified Capital Stock)).
"Stock Purchase and Redemption Agreement" means that certain Stock Purchase
and Redemption Agreement dated as of December 30, 1992, by and among AOC
Limited Partnership, P. Anthony Novelly, Samuel R. Goldstein, G&N Investments,
Inc., The Horsham Corporation, the Company and Clark USA.
"Subordinated Indebtedness" means, with respect to any series of New Notes,
any Indebtedness of the Company which is subordinated in right of payment to
such series of New Notes and with respect to which no payments of principal
(by way of sinking fund, mandatory redemption, maturity or otherwise)
including, without limitation, at the option of the holder thereof (other than
pursuant to an offer to repurchase such Subordinated Indebtedness following a
change of control, which offer may not be completed until 45 days after
completion of the Offer described under "--Change of Control") are required to
be made by the Company at any time prior to the Stated Maturity of such series
of New Notes.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
total voting power of all classes of the outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and
one or more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and the power to direct the policies, management and
affairs thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"Transaction Date" means the date on which the Indebtedness giving rise to
the need to calculate the Consolidated Operating Cash Flow Ratio was incurred
or the date on which, pursuant to the terms of this Indenture, the transaction
giving rise to the need to calculate the Consolidated Operating Cash Flow
Ratio occurred.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the Issue Date; provided, however, that in the event the Trust Indenture Act
of 1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
board of directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to
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subscribe for additional Capital Stock (including options, warrants or other
rights to acquire Capital Stock) or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries. The board of directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under "--Certain
Covenants--Limitation on Indebtedness," and (ii) no Default or Event of
Default would be in existence following such designation.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wholly Owned U.S. Restricted Subsidiary" of any Person means a Wholly Owned
Restricted Subsidiary of such Person which is organized under the laws of any
state in the United States or of the District of Columbia.
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BOOK ENTRY; DELIVERY AND FORM
GENERAL
The New Notes are being offered to existing Holders of the Old Notes. The
New Notes will be issued only in fully registered form, without interest
coupons. The New Notes will not be issued in bearer form.
Each series of New Notes will initially be represented by a single permanent
global certificate (each a "Global Note" and collectively the "Global Notes").
The Global Notes will be deposited with the Senior Note Trustee or the Senior
Subordinated Note Trustee, as the case may be, as custodian for DTC in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant in DTC as
described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
In addition, transfer of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time. Beneficial
interests in the Global Notes may not be exchanged for New Notes in certified
form except in the limited circumstances described below. See "--Exchange of
Interests in Global Notes for Certificated Notes."
EXCHANGE OF INTERESTS IN GLOBAL NOTES FOR GLOBAL NOTES
As long as DTC, or its nominee, is the registered holder of the Global
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner and holder of the New Notes represented by such Global Notes for all
purposes under the Indenture, and the New Notes. Unless DTC notifies the
Company that it is unwilling or unable to continue as depository for the
Global Notes, or ceases to be a "Clearing Agency" registered under the
Exchange Act, or announces an intention permanently to cease doing business or
does in fact do so, or an Event of Default has occurred and is continuing with
respect to either Global Note, owners of beneficial interests in a Global Note
will not be entitled to have any portions of such Global Note registered in
their names, will not receive or be entitled to receive a physical delivery of
such applicable New Note in definitive form and will not be considered the
owners or holders of such Global Note (or any New Notes represented thereby)
under the applicable Indenture or series of New Notes. In addition, no
beneficial owner of an interest in a Global Note will be able to transfer that
interest except in accordance with DTC's applicable procedures (in addition to
those under the applicable Indenture referred to herein). In the event that
owners of beneficial interests in a Global Note become entitled to receive
such applicable New Notes in certificated form, such New Notes will be issued
only as New Notes in certificated form in denominations of $1,000 and integral
multiples thereof.
DEPOSITORY PROCEDURES WITH RESPECT TO GLOBAL NOTES
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures
are solely within the control of the respective settlement systems and are
subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
Upon the issuance of the Global Notes, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Notes to the accounts with DTC ("Participants") or
persons who hold interests through Participants. Ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interest of persons other than Participants).
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AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF THE GLOBAL
NOTES, DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE
OWNER AND HOLDER OF THE NEW NOTES REPRESENTED BY SUCH GLOBAL NOTES FOR ALL
PURPOSES UNDER THE INDENTURES AND THE NEW NOTES. Unless DTC notifies the
Company that it is unwilling or unable to continue as depository for the
Global Notes, or ceases to be a "Clearing Agency" registered under the
Exchange Act, or announces an intention permanently to cease business or does
in fact do so, or an Event of Default has occurred and is continuing with
respect to the Global Notes, owners of beneficial interests in a Global Note
will not be entitled to have any portions of such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
such applicable New Notes in definitive form and will not be considered the
owners or holders of such Global Notes (or any applicable New Notes presented
thereby) under the applicable Indenture or series of New Notes. In addition,
no beneficial owner of an interest in the Global Notes will be able to
transfer that interest except in accordance with DTC's applicable procedures
(in addition to those under the Indenture referred to herein). In the event
that owners of beneficial interests in a Global Note become entitled to
receive such applicable New Notes in definitive form, such New Notes will be
issued only in registered form in denominations of $1,000 and integral
multiples thereof.
Payments of the principal of, premium, if any, and interest on Global Notes
will be made to DTC or its nominee as the registered owner thereof. Neither
the Company, the Trustee nor any of their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
All payments with respect to the New Notes will be made by the Company in
immediately available funds. Subject to the following considerations,
beneficial interests in the Global Notes will trade in DTC's Settlement System
unit maturity, and secondary market trading activity in such interests will
therefore settle in immediately available funds. The Company expects that DTC
or its nominee, upon receipt of any payment of principal or interest in
respect of a Global Note representing any New Notes held by it or its nominee,
will immediately credit participants' accounts with payment in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note representing such New Notes as shown on the records of DTC
or its nominee. The Company also expects the payments by Participants to
owners of beneficial interest in such Global Notes held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name." Such payments will be the
responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more Participants
to whose account with DTC interests in the Global Notes are credited and only
in respect of such portion of the aggregate principal amount of the New Notes
as to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the New Notes, DTC reserves the
right to exchange the Global Notes for legended New Notes in certificated
form, and to distribute such New Notes to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its
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Participants, thereby eliminating the need for physical transfer and delivery
of certificates. Direct Participants of the Depository ("Direct Participants")
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. The Depository is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to the DTC and its Participants are on file with the
Commission.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Notes among
Participants of DTC it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Company, the Trustees nor any of their respective agents will have
any responsibility for the performance by DTC, its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing
the records relating to, or payments made on account of, beneficial ownership
interests in Global Notes.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depository for
the reasons set forth above under "--Depository Procedures with Respect to
Global Notes," the Company will issue certificates for the New Notes in
definitive, fully registered, non-global form without interest coupons in
exchange for the Global Notes.
The holder of a New Note in non-global form may transfer by surrendering it
at the office or agency maintained by the Company for such purpose in the
Borough of Manhattan, The City of New York, which initially will be the office
of the Trustees.
Notwithstanding any statement herein, the Company and the Trustee reserve
the right to impose such transfer, certification, exchange or other
requirements, and to require such restrictive legends on certificates
evidencing New Notes, as they may determine are necessary to ensure compliance
with the Securities Laws of the United States and any other applicable laws,
or as DTC may require.
DESCRIPTION OF CERTAIN DEBT INSTRUMENTS
Set forth below is a summary of certain debt instruments to which the
Company is a party. The summary does not purport to be complete, and where
reference is made to particular provisions of a debt instrument, such
provisions, including the definition of certain terms, are incorporated by
reference as a part of such summaries or terms, which are qualified in their
entirety by such reference. Copies of such agreements are available from the
Company.
CREDIT AGREEMENT
The Company's Credit Agreement provides for revolving loan borrowings and
letter of credit issuances of up to the lesser of $400.0 million or the amount
of a borrowing base, calculated with respect to the Company's cash and cash
equivalents, eligible investments, eligible receivables and certain eligible
hydrocarbon inventories, provided that revolving loans are limited to the
principal amount of $50.0 million. The proceeds of revolving loans may be used
for working capital and other general corporate purposes.
Borrowings under the Credit Agreement are secured by a lien on substantially
all of the Company's cash and cash equivalents, receivables, crude oil and
refined product inventories of the Company located at its refineries and
terminals and in transit via pipelines and trademarks.
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Outstanding principal balances under the Credit Agreement bear interest at
annual floating rates equal to the LIBOR Rate plus marginal rates between
0.625% and 2.25% or the agent bank's prime rate plus marginal rates between 0%
and 1.250%. The marginal rates are subject to adjustment under the Credit
Agreement, based upon changes in the Company's ratio of cash, cash equivalents
and eligible investments to the face amount of outstanding letters of credit
and the Company's ratio of indebtedness to twelve-month-trailing EBITDA. The
Credit Agreement terminates, and all amounts outstanding thereunder are due
and payable, on December 31, 1999. The Credit Agreement contains
representations and warranties, funding and yield protection provisions,
borrowing conditions precedent, financial and other covenants and
restrictions, events of default and other provisions customary for bank credit
agreements of this type.
Covenants and provisions contained in the Credit Agreement restrict (with
certain exceptions), among other things, the Company's and its subsidiaries'
ability: (i) to create or incur liens, (ii) to engage in certain asset sales,
(iii) to engage in mergers, consolidations, and sales of substantially all
assets, (iv) to make loans and investments, (v) to incur additional
indebtedness, (vi) to engage in certain transactions with affiliates, (vii) to
use loan proceeds to acquire or carry margin stock, or to acquire securities
in violation of certain sections of the Exchange Act, (viii) to create or
become or remain liable with respect to certain contingent liabilities, (ix)
to enter into certain joint ventures, (x) to enter into certain lease
obligations, (xi) to make certain dividend and other restricted payments,
(xii) to change the nature of its principal business, (xiii) to make any
significant change in its accounting practices, (xiv) to incur certain
liabilities or engage in certain prohibited transactions under ERISA, (xv) to
maintain deposit accounts not under the control of the banks, or to take
certain other action with respect to its bank accounts, (xvi) to engage in
speculative trading, and (xvii) to amend, modify or terminate certain material
agreements. The Company is also required to comply with certain financial
covenants. The financial covenants are: (i) maintenance of working capital (as
defined) of at least $150.0 million at all times; (ii) maintenance of a
tangible net worth (as defined) of at least $300.0 million; and
(iii) maintenance of minimum levels of balance sheet cash (as defined) of
$50.0 million at all times. The covenants also provide for a cumulative cash
flow test, as defined in the Credit Agreement, that, from March 31, 1997,
shall not be less than or equal to zero at all times. The Credit Agreement
also limits the amount of future additional indebtedness outside of the
cumulative cash flow covenant that may be incurred by the Company in an amount
equal to $25.0 million.
Events of default under the Credit Agreement include, among other things:
(i) any failure of the Company to pay principal thereunder when due, or to pay
interest or any other amount due within three days after the date due; (ii)
material inaccuracy of any representation or warranty given by the Company
therein; (iii) breach by the Company of certain covenants contained therein;
(iv) the continuance of a default by the Company in the performance of or the
compliance with other covenants and agreements for 20 days after the
occurrence thereof; (v) breach of or default under any indebtedness in excess
of $5.0 million and continuance beyond any applicable grace period; (vi)
certain acts of bankruptcy or insolvency; (vii) the occurrence of certain
events under ERISA; (viii) certain judgments, writs or warrants of attachment
of similar process remaining undischarged, unvacated, unbonded, or unstayed
for a period of 10 days; (ix) the occurrence of a change of control; (x) the
loss of material licenses of permits; (xi) the failure of the liens of the
banks to be first priority perfected liens, subject to certain permitted
liens; or (xii) Clark USA incurs any indebtedness in the aggregate in excess
of $25.0 million.
LOAN AGREEMENT
On November 21, 1997, the Company entered into a Loan Agreement with certain
lenders and Goldman Sachs Credit Partners L.P., as Agent, pursuant to which
the Company borrowed $125.0 million. The proceeds of the term loan were used,
together with the net proceeds from the Debt Offering to redeem the Company's
outstanding 10 1/2% Notes. The remaining net proceeds were used to replenish
the Company's cash reserves.
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Borrowings under the Loan Agreement are senior unsecured obligations of the
Company. One quarter of the borrowings under the Loan Agreement will mature on
November 15, 2003, and the remaining three-quarters plus all other amounts
outstanding thereunder mature on November 15, 2004. The Company is able to
prepay the borrowings in whole or in part in an amount equal to 102.50% of the
aggregate principal amount so prepaid prior to November 15, 1998, 101.25% of
the aggregate principal amount so prepaid after November 15, 1998, and prior
to November 15, 1999, and 100% of the aggregate principal amount so prepaid
after November 15, 1999 plus, in each case, accrued interest thereon through
but excluding the date of such prepayment.
In the event that there shall occur a Change of Control resulting in a
Rating Decline, the Company shall make an offer to prepay the outstanding
balance under the Loan Agreement in an amount equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
prepayment.
Outstanding principal balances under the Loan Agreement bear interest at the
LIBOR Rate (as defined in the Loan Agreement) plus a margin of 275 basis
points.
The Loan Agreement contains customary representations and warranties.
Covenants and events of default under the Loan Agreement are substantially
similar to those of the New Notes, as described under "Description of the New
Notes--Certain Covenants" and "--Events of Default."
Lenders under the Loan Agreement have customary voting, participation,
indemnification and assignment rights.
9 1/2% NOTES
The 9 1/2% Notes are governed by the 9 1/2% Note Indenture.
Interest on the 9 1/2% Notes is payable in cash semi-annually on March 15
and September 15 of each year. The 9 1/2% Notes are not convertible or
exchangeable into any other security.
A sinking fund payment with respect to the 9 1/2% Notes, in the amount of
$87.5 million, is required to be made prior to September 15, 2003.
The 9 1/2% Notes are senior obligations of the Company, ranking pari passu
in right of payment with all other senior debt of the Company.
The 9 1/2% Notes are redeemable at the option of the Company at any time on
or after September 15, 1997, in whole or in part from time to time, at
104.750% of principal amount thereof, plus accrued interest, reducing to
102.375% of principal amount thereof, plus accrued interest on September 15,
1998, and to 100% of the principal amount thereof, plus accrued interest, on
or after September 15, 1999.
The Company is required to offer to purchase all outstanding 9 1/2% Notes at
101% of their principal amount, plus accrued interest, in the event of a
Change of Control (as defined in the 9 1/2% Note Indenture, which definition
is substantially similar to that contained in the Indentures, except that the
change of control need not be accompanied by a rating decline).
The Company is required to make an offer to purchase up to 10% of the
principal amount of the 9 1/2% Notes originally issued at 100% of their
principal amount, plus accrued interest, if the Company's Consolidated
Adjusted Net Worth (as defined) as of the end of any two consecutive fiscal
quarters is less than $100 million.
The Company is required to make an offer to purchase all outstanding 9 1/2%
Notes at the applicable redemption price if the Company or a subsidiary makes
an Asset Disposition (as defined in
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<PAGE>
the 9 1/2% Note Indenture) and the sale proceeds are not reinvested. The offer
to purchase is limited to the net proceeds from such Asset Disposition.
The 9 1/2% Note Indenture contains certain covenants that, among other
things, limit the ability of the Company and its subsidiaries to pay cash
dividends on or repurchase capital stock, enter into agreements restricting
the ability of a subsidiary to pay money or transfer assets to the Company,
enter into certain transactions with their affiliates, engage in speculative
trading, incur additional indebtedness, create liens, engage in sale and
leaseback transactions, dispose of certain assets and engage in mergers and
consolidations.
Events of Default under the 9 1/2% Note Indenture include: (i) failure to
pay any interest on any 9 1/2% Notes when due, continued for 30 days; (ii)
failure to pay principal of or premium, if any, on the 9 1/2% Notes when due
at maturity (upon acceleration, redemption or otherwise); (iii) failure to
comply with the covenant regarding mergers and consolidations; (iv) failure to
perform any other covenant or agreement of the Company in the 9 1/2% Note
Indenture, continued for 30 days after written notice as provided in the 9
1/2% Note Indenture; (v) failure to pay at final maturity in excess of $5.0
million principal amount of any indebtedness of the Company or any subsidiary
of the Company, or acceleration of any indebtedness of the Company or any
subsidiary of the Company in an aggregate principal amount in excess of $5.0
million; (vi) the entry of a final judgment or judgments against the Company
or any subsidiary in an amount in excess of $5.0 million, that are not paid,
discharged or stayed within 60 days; and (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or any significant subsidiary.
As a result of the Blackstone Transaction, the 9 1/2% Notes are subject to a
repurchase offer which expires on March 9, 1998.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal tax
considerations relevant to the purchase, ownership and disposition of the New
Notes by the Holders thereof. The discussion is limited to Holders of New
Notes exchanged for Old Notes of which such Holders were the original
purchasers and does not address the tax consequences to other, e.g.
subsequent, holders of the New Notes. This summary does not purport to be a
complete analysis of all the potential federal income tax effects relating to
the purchase, ownership and disposition of the New Notes. There can be no
assurance that the IRS will take a similar view of such consequences. Further
the discussion does not address all aspects of taxation that may be relevant
to particular purchasers in light of their individual circumstances (including
the effect of any foreign, state or local tax laws) or to certain types of
purchasers (including dealers in securities, insurance companies, financial
institutions and tax-exempt entities) subject to special treatment under
United States federal income tax laws. The discussion below assumes that the
New Notes are held as capital assets.
The discussion of the United States federal income tax consequences set
forth below is based upon provisions of the Code, judicial decisions, and
administrative interpretation all in effect as of the date hereof, all of
which are subject to change at any time, and any such change may be applied
retroactively. Because individual circumstances may differ, each prospective
Holder of the New Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the particular tax effects of any
state, local, non-United States, or other tax laws and possible changes in the
tax laws.
As used herein, the term "United States Holder" means a beneficial owner of
a New Note who or which is for United States federal income tax purposes
either (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in the United States or under
111
<PAGE>
the laws of the United States or of any State thereof, (iii) an estate, the
income of which is subject to United States federal income taxation regardless
of its source, or (iv) a "United States Trust." A United States Trust is (a)
for taxable years beginning after December 31, 1996, or if the trustee of a
trust elects to apply the following definition to an earlier taxable year
ending after August 20, 1996, any trust if, and only if, (i) a court within
the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more U.S. persons have the
authority to control all substantial decisions of the trust, and (b) for all
other taxable years, any trust whose income is includible in gross income for
United States federal income tax purposes regardless of its source. The term
"United States Holder" also includes certain former citizens of the United
States whose income and gain on the New Notes will be subject to United States
taxation. As used herein, the term Foreign Holder means a beneficial owner of
a New Note that is not a United States Holder.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
will not be taxable to an exchanging Holder for federal income tax purposes.
As a result (i) an exchanging Holder will not recognize any gain or loss on
the exchange; (ii) the holding period for the New Note will include the
holding period for the Old Note; (iii) the basis of the New Note will be the
same as the basis for the Old Note; and (iv) the original issue discount
("OID") on the New Note will be the same as on the Old Note.
The Exchange Offer will result in no federal income tax consequences to a
nonexchanging holder of Old Notes.
The treatment of interest described below with respect to the New Notes is
based in part upon the Company's determination that, as of the date of
issuance of the Old Notes, the possibility that additional interest would be
paid to holders of such Notes pursuant to a Registration Default was remote,
in which case the possibility of such payment would not, as of the issue date,
have caused the Old Notes to be treated as having been issued with OID under
Treasury Regulations with respect to OID and contingent payments, which ignore
"remote" or "incidental" contingencies. The IRS may take a different position,
which could affect the timing and character of interest income reported by
Holders of the New Notes. The Company's determination that such payments are a
remote contingency for these purposes is binding on a Holder, unless such
Holder discloses in the proper manner to the IRS that it is taking a different
position.
PAYMENTS OF INTEREST
Interest paid on a New Note will generally be taxable to a United States
Holder as ordinary interest income at the time it accrues or is received in
accordance with the United States Holder's method of accounting for federal
income tax purposes.
DE MINIMIS ORIGINAL ISSUE DISCOUNT
The Old Notes were issued with "de minimis" OID because the Old Notes'
"stated redemption price at maturity" exceeded their issue price, but by less
than a "de minimis amount" (as defined below). Generally, the issue price of
an Old Note was the first price at which a substantial amount of Old Notes
included in the issue of which the Old Note was a part was sold to other than
bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers. The stated
redemption price at maturity of an Old Note was the total of all payments
provided by the Old Note that were not payments of "qualified stated
interest." A qualified stated interest payment is generally any one of a
series of stated interest payments on an obligation that are unconditionally
payable at least annually at a single fixed rate (with certain exceptions for
lower rates paid during some periods) applied to the outstanding principal
amount of the obligation.
112
<PAGE>
In general, because the excess of an Old Note's stated redemption price at
maturity over its issue price was less than 1/4 of 1 percent of the Old Note's
stated redemption price at maturity multiplied by the number of complete years
to its maturity (the "de minimis amount"), such excess constitutes "de minimis
original issue discount" and is not subject to inclusion in a United States
Holder's gross income calculated on a constant yield method before the receipt
of cash attributable to such income (absent the election referred to below).
The New Notes are a continuation of the Old Notes for which they are exchanged
for federal income tax purposes, including with respect to de minimis OID on
such Old Notes. Accordingly, unless a United States Holder makes an election
to treat all interest including stated interest and de minimis OID on a New
Note as OID, which is subject to inclusion in gross income on a constant yield
basis, a United States Holder of a New Note with de minimis original issue
discount will include such de minimis original issue discount in gross income
as stated principal payments on the New Note are made. The includible amount
(which will be treated as a gain on retirement of a New Note, as described
below) with respect to each such payment will equal the product of the total
amount of the New Note's de minimis original issue discount and a fraction,
the numerator of which is the amount of the principal payment made and the
denominator of which is the stated principal amount of the New Note.
SALE, EXCHANGE OR RETIREMENT OF NEW NOTES
Upon the sale, exchange or retirement of a New Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such Holder's adjusted tax
basis in the New Note. A United States Holder's adjusted tax basis in a New
Note exchanged for an Old Note will equal the cost of the Old Note to such
Holder, reduced by any principal payments received by such Holder and
increased by any gain (e.g. de minimis OID) recognized on the receipt of any
such principal payments.
Gain or loss realized on the sale, exchange or retirement of a New Note
(including gain attributable to de minimis OID) by a United States Holder will
be capital gain or loss, and will be long-term capital gain or loss if at the
time of the sale, exchange or retirement the New Note has been held for more
than one year. The holding period of a New Note for this purpose would include
the Holder's holding period for the Old Note which was exchanged for the New
Note. The excess of net long-term capital gains over net short-term capital
losses is taxed at a lower rate (not in excess of 28%) than ordinary income
for certain non-corporate taxpayers, but not for corporate taxpayers. Also,
under the Taxpayer Relief Act of 1997, even lower rates (generally not in
excess of 20%) apply to the sale or exchange of capital assets by certain
noncorporate taxpayers who have held such assets for more than 18 months. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
TAX CONSEQUENCES TO FOREIGN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal of and interest on the New Notes by the Company
or any paying agent to a beneficial owner of a New Note that is a Foreign
Holder, as defined above, will not be subject to United States federal
withholding tax, provided that, in the case of interest, (i) such Holder
does not own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of stock of the Company entitled to
vote, (ii) such Holder is not, for United States federal income tax
purposes, a controlled foreign corporation related, directly or indirectly,
to the Company through stock ownership, (iii) such Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code, and (iv)
the certification requirements under Section 871(h) or Section 881(c) of
the Code and Treasury regulations thereunder (summarized below) are met;
113
<PAGE>
(b) a Foreign Holder of a New Note will not be subject to United States
federal income tax on gain realized on the sale, exchange or other
disposition of such New Note, unless (i) such Holder is an individual who
is present in the United States for 183 days or more in the taxable year of
sale, exchange or other disposition, and certain conditions are met or (ii)
such gain is effectively connected with the conduct by such Holder of a
trade business in the United States; and
(c) a New Note held by an individual who is not a citizen or resident of
the United States at the time of his death will not be subject to United
States federal estate tax as a result of such individual's death, provided
that, at the time of such individual's death, the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of the Company entitled to vote and payments
with respect to such New Note, if received at the time of the individual's
death, would not have been effectively connected to the conduct by such
individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder
require that, in order to obtain the exemption from withholding tax described
in paragraph (a) above, either (i) the beneficial owner of a New Note must
certify, under penalties of perjury, to the Company or paying agent, as the
case may be, that such owner is a Foreign Holder and must provide such owner's
name and address, and United States taxpayer identification number, if any, or
(ii) a securities clearing organization, bank or other financial institution
that holds customers securities in the ordinary course of its trade or
business (a "Financial Institution") and holds the New Note on behalf of the
beneficial owner thereof must certify, under penalties of perjury, to the
Company or paying agent, as the case may be, that such certificate has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and must furnish the payor with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest made to the certifying Foreign Holder after delivery of
the certificate in the calendar year of its delivery and the two immediately
succeeding calendar years. Such requirement will be fulfilled if the
beneficial owner of a New Note certifies on IRS Form W-8, under penalties of
perjury, that it is a Foreign Holder and provides its name and address, and
any Financial Institution holding the New Note on behalf of the beneficial
owner files a statement with the withholding agent to the effect that it has
received such a statement from the beneficial owner (and furnishes the
withholding agent with a copy thereof).
The United States Treasury Department recently adopted new Treasury
Regulations (the "New Regulations") with respect to withholding and backup
withholding generally effective for payments after December 31, 1998. The New
Regulations similarly require a certification on Form W-8 in a manner similar
to that described above as the basis for a withholding tax exception, but also
provide that the certification requirement may be satisfied with other
documentary evidence for interest paid after December 31, 1998 with respect to
an offshore account or through certain foreign intermediaries.
If a Foreign Holder of a New Note is engaged in a trade or business in the
United States, and if interest on the New Note, or gain realized on the sale,
exchange or other disposition of the New Note, is effectively connected with
the conduct of such trade or business, the Foreign Holder, although exempt
from United States withholding tax, will generally be subject to regular
United States income tax on such interest or gain in the same manner as if it
were a United States Holder. In lieu of the certificate described in the
preceding paragraph, such a holder will be required to provide to the Company
a properly executed IRS Form 4224 in order to claim an exemption from
withholding tax. The New Regulations, though, will require a Form W-8 in place
of the Form 4224. In addition, if such Foreign Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest on and any gain recognized on the
sale, exchange or other disposition of a New Note will be included in the
earnings and profits of such Foreign Holder if such interest or gain is
effectively connected with the conduct by the Foreign Holder of a trade or
business in the United States.
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<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% backup withholding
tax requirement applies to certain payments of interest on, and the proceeds
of a sale, exchange or redemption of, the New Notes. In addition, certain
persons making such payments are required to submit information returns (i.e.
IRS Forms 1099) to the IRS with regard to those payments.
Backup withholding and information reporting will generally not apply with
respect to payments made to certain exempt recipients such as corporations or
certain exempt entities. In the case of a non-corporate United States Holder,
backup withholding generally will apply only if such holder (i) fails to
furnish its Taxpayer Identification Number ("TIN") which, for an individual,
would be his Social Security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that it has failed to properly report payments of interest
and dividends, or (iv) under certain circumstances, fails to certify, under
penalties of perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments.
In the case of a Foreign Holder, information reporting on IRS Form 1099
(including IRS Form 1099B) and backup withholding will not apply to payments
made by the Company or any paying agent thereof on a New Note if such Holder
has provided the required certification on Form W-8 (as described above under
"Tax Consequences to Foreign Holders") under penalties of perjury that it is
not a United States Holder or has otherwise established an exemption, provided
in each case that the Company or such paying agent, as the case may be, does
not have actual knowledge that the payee is a United States Holder. The New
Regulations have similar rules. However, interest on a New Note beneficially
owned by a Foreign Holder will be required to be reported annually on IRS Form
1042S.
If payments on a New Note are made to or through a foreign office of a
custodian, nominee, broker or other agent acting on behalf of a beneficial
owner of a New Note, such custodian, nominee or other agent will not be
required to apply backup withholding or information reporting to such payments
made to such beneficial owner. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person 50% or more of
whose gross income is effectively connected with the conduct of a United
States trade or business for a specified three-year period, such payments will
not be subject to backup withholding but will be subject to information
reporting, unless (1) such custodian, nominee, agent or broker has documentary
evidence in its records that the beneficial owner is not a United States
person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption. Under the New Regulations, backup
withholding will not apply to such payments absent actual knowledge that the
payee is a United States person.
Payments on the sale, exchange or other disposition of a New Note made to or
through a foreign office of a broker generally will not be subject to backup
withholding. Such payments, however, will be subject to information reporting
if the broker is a United States person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50% or more of
whose gross income is effectively connected with the conduct of a United
States trade or business for a specified three-year period, unless the broker
has in its records documentary evidence that the beneficial owner is not a
United States person and certain other conditions are met, or the beneficial
owner otherwise establishes an exemption. Under the New Regulations, backup
withholding will apply if such broker has actual knowledge that the payee is a
United States Holder. Payments to or through the United States office of a
broker will be subject to backup withholding and information reporting unless
the Holder certifies, under penalties of perjury, that it is not a United
States Holder and the payor does not have actual knowledge to the contrary, or
otherwise establishes an exemption.
Holders of New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure
115
<PAGE>
for obtaining such an exemption, if available. Any amounts withheld from
payment under the backup withholding rules will be allowed as a credit against
a Holder's United States federal income tax liability and may entitle such
holder to a refund, provided that the required information is furnished to the
IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-
U.S. INCOME TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX
LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities and not acquired directly from the Company. The Company has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of New Notes
and any commissions or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay the
expenses incident to the Exchange Offer and will indemnify the Holders of the
Old Notes against certain liabilities, including liabilities under the
Securities Act, in connection with the Exchange Offer.
LEGAL MATTERS
The validity of and other matters related to the New Notes will be passed
upon for the Company by Mayer, Brown & Platt.
116
<PAGE>
EXPERTS
The Company's consolidated balance sheets as of December 31, 1995 and 1996,
and the consolidated statements of earnings, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1996
included in this Prospectus have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
117
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Clark Refining & Marketing, Inc. and Subsidiary:
Annual Financial Statements
Report of Independent Accountants .................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 ......... F-3
Consolidated Statements of Earnings for the years ended December 31,
1994, 1995 and 1996.................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996.................................................. F-5
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1994, 1995 and 1996..................................... F-6
Notes to Consolidated Financial Statements............................ F-7
Interim Financial Statements
Consolidated Balance Sheet as of September 30, 1997................... F-18
Consolidated Statements of Earnings for the nine months ended
September 30, 1996 and 1997.......................................... F-19
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997.......................................... F-20
Notes to Consolidated Financial Statements............................ F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Clark Refining & Marketing, Inc.:
We have audited the accompanying consolidated balance sheets of Clark
Refining & Marketing, Inc. and Subsidiary (a Delaware corporation), as of
December 31, 1995 and 1996 and the related consolidated statements of
earnings, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Clark
Refining & Marketing, Inc. and Subsidiary as of December 31, 1995 and 1996 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 4, 1997
F-2
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REFERENCE DECEMBER 31, DECEMBER 31,
NOTE 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents................ 2 $ 60,477 $ 319,378
Short-term investments................... 2,3 46,116 14,881
Accounts receivable...................... 2 179,200 171,733
Inventories.............................. 2,4 290,444 277,095
Prepaid expenses and other............... 18,875 15,411
---------- ----------
Total current assets................... 595,112 798,498
PROPERTY, PLANT AND EQUIPMENT.............. 2,5 549,292 555,691
OTHER ASSETS............................... 2,6 43,930 39,131
---------- ----------
$1,188,334 $1,393,320
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable......................... 7 $ 315,236 $ 303,141
Accrued expenses and other............... 8,9 41,501 49,384
Accrued taxes other than income.......... 45,240 46,484
---------- ----------
Total current liabilities.............. 401,977 399,009
LONG-TERM DEBT............................. 8,9 420,441 417,606
DEFERRED INCOME TAXES...................... 2,12 22,861 802
OTHER LONG-TERM LIABILITIES................ 11 38,937 41,774
CONTINGENCIES.............................. 15 -- --
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value per share;
1,000 shares authorized and 100 shares
issued and outstanding.................. -- --
Paid-in capital.......................... 10,13 195,610 464,210
Retained earnings........................ 3,7 108,508 69,919
---------- ----------
Total stockholder's equity............. 304,118 534,129
---------- ----------
$1,188,334 $1,393,320
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
REFERENCE -------------------------------------
NOTE 1994 1995 1996
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES AND OPERATING
REVENUES..................... $ 2,440,028 $ 4,486,083 $ 5,072,718
EXPENSES:
Cost of sales............... (2,092,516) (4,018,274) (4,559,982)
Operating expenses.......... (219,883) (373,377) (418,903)
General and administrative
expenses................... (51,439) (52,280) (59,169)
Depreciation................ 2 (26,540) (31,435) (37,290)
Amortization................ 2,6 (10,797) (12,001) (11,127)
Recovery of inventory market
value write-down........... 4 26,500 -- --
----------- ----------- -----------
(2,374,675) (4,487,367) (5,086,471)
----------- ----------- -----------
OPERATING INCOME (LOSS)....... 65,353 (1,284) (13,753)
Interest and finance costs,
net........................ 8 (37,547) (39,916) (38,688)
----------- ----------- -----------
EARNINGS (LOSS) BEFORE
INCOME TAXES................. 27,806 (41,200) (52,441)
Income tax (provision)
benefit.................... 2,12 (9,732) 15,656 13,914
----------- ----------- -----------
NET EARNINGS (LOSS)........... $ 18,074 $ (25,544) $ (38,527)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................ $ 18,074 $ (25,544) $ (38,527)
Adjustments:
Depreciation............................. 26,540 31,435 37,290
Amortization............................. 11,973 17,370 17,842
Realized loss on sales of investments.... 5,396 -- --
Share of earnings of affiliates, net of
dividends............................... (468) (1,413) (136)
Deferred income taxes.................... 9,732 (15,656) (22,059)
Recovery of inventory market value write-
down.................................... (26,500) -- --
Other.................................... 1,271 1,385 1,062
Cash provided by (reinvested in) working cap-
ital--
Accounts receivable, prepaid expenses and
other..................................... (21,135) (110,966) 12,758
Inventories................................ 22,995 (138,978) 13,266
Accounts payable, accrued expenses, taxes
other than income and other............... 5,859 156,814 (4,640)
---------- ---------- ---------
Net cash provided by (used in)
operating activities.................. 53,737 (85,553) 16,856
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments........ (89,987) (41,500) --
Sales of short-term investments............ 187,785 25,942 31,135
Expenditures for property, plant and
equipment................................. (100,276) (42,093) (44,996)
Expenditures for turnaround................ (11,191) (6,525) (13,862)
Refinery acquisition expenditures.......... (13,514) (71,776) --
Proceeds from disposals of property, plant
and equipment............................. 5,941 1,866 4,359
Advance crude oil purchase receivable...... -- -- 235,400
---------- ---------- ---------
Net cash provided by (used in)
investing activities.................. (21,242) (134,086) 212,036
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt payments.................... (585) (1,620) (2,835)
Proceeds from capital lease transactions... -- 24,301 --
Capital contribution....................... -- 165,610 33,600
Deferred financing costs................... (4,804) (13,625) (756)
---------- ---------- ---------
Net cash provided by (used in)
financing activities.................. (5,389) 174,666 30,009
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 27,106 (44,973) 258,901
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 78,344 105,450 60,477
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of period..... $ 105,450 $ 60,477 $ 319,378
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ -------- -------- --------
<S> <C> <C> <C> <C>
Balance--January 1, 1994................... $ -- $ 30,000 $115,978 $145,978
Change in unrealized short-term
investment gains and losses, net of
taxes................................... -- -- (1,200) (1,200)
Net earnings............................. -- -- 18,074 18,074
----- -------- -------- --------
Balance--December 31, 1994................. -- 30,000 132,852 162,852
----- -------- -------- --------
Change in unrealized short-term
investment gains and losses, net of
taxes................................... -- -- 1,200 1,200
Capital contributions.................... -- 165,610 -- 165,610
Net loss................................. -- -- (25,544) (25,544)
----- -------- -------- --------
Balance--December 31, 1995................. -- 195,610 108,508 304,118
----- -------- -------- --------
Change in unrealized short-term
investment gains and losses, net of
taxes................................... -- -- (62) (62)
Capital contributions.................... -- 268,600 -- 268,600
Net loss................................. -- -- (38,527) (38,527)
----- -------- -------- --------
Balance--December 31, 1996................. $ -- $464,210 $ 69,919 $534,129
===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(TABULAR DOLLAR AMOUNTS IN THOUSANDS)
1. GENERAL
Clark Refining & Marketing, Inc., a Delaware corporation ("Clark" or "the
Company"), is wholly owned by Clark USA, Inc., a Delaware corporation ("Clark
USA"). Clark's principal operations include crude oil refining, wholesale and
retail marketing of refined petroleum products and retail marketing of
convenience store items in the Central United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
The Company's earnings and cash flow from operations are primarily dependent
upon processing crude oil and selling quantities of refined petroleum products
at margins sufficient to cover operating expenses. Crude oil and refined
petroleum products are commodities, and factors largely out of the Company's
control can cause prices to vary, in a wide range, over a short period of
time. This potential margin volatility can have a material effect on financial
position, current period earnings and cash flow.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents; Short-term Investments
Clark considers all highly liquid investments, such as time deposits, money
market instruments, commercial paper and United States and foreign government
securities, purchased with an original maturity of three months or less, to be
cash equivalents. Short-term investments consist of similar investments, as
well as United States government security funds, maturing more than three
months from date of purchase and are carried at fair value (see Note 3 "Short-
term Investments"). Clark invests only in AA rated or better fixed income
marketable securities or the short-term rated equivalent.
The Company classifies checks issued which have not yet cleared the bank
account as accounts payable. Such balances included in "Accounts payable" were
$12.1 million and $12.9 million at December 31, 1995 and 1996, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. Credit risk on trade
receivables is minimized as a result of the credit quality of the Company's
customer base and industry collateralization practices. As of December 31,
1996, the Company had $36.4 million (1995--$17.0 million) due from Chevron USA
Products Co. ("Chevron"). Sales to Chevron in 1996 totaled $455.8 million
(1995--$448.8 million).
Inventories
Inventories are stated at the lower of cost, predominantly using the last-
in, first-out "LIFO" method, or market on an aggregate basis. During the year
ended December 31, 1996, total petroleum inventory quantities were reduced,
resulting in a LIFO liquidation, the effect of which increased pretax earnings
by $2.4 million. There was no such effect in the year ended December 31, 1995.
F-7
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
To limit risk related to price fluctuations, Clark employs risk strategies
using crude oil and refined products futures and options contracts to manage
potentially volatile market movements on aggregate physical and contracted
inventory positions. At December 31, 1996, Clark's open contracts represented
0.7 million barrels of crude oil and refined products, and had terms extending
into February, 1997. At December 31, 1995, Clark's open contracts represented
1.7 million barrels of crude oil and refined products, and had terms extending
into December, 1996.
The Company considers all futures and options contracts to be part of its
risk management strategy. Unrealized gains and losses on open contracts are
recognized as a product cost component unless the contract can be identified
as a price risk hedge of specific inventory positions or open commitments, in
which case the unrealized gain or loss is deferred and recognized as an
adjustment to the carrying amount of petroleum inventories or accounts payable
if related to open commitments. Deferred gains and losses on these contracts
are recognized as an adjustment to product cost when such inventories are sold
or consumed. At December 31, 1996, the Company had net unrealized gains on
open futures and options contracts of $1.2 million (1995--unrealized loss of
$0.4 million) all of which have been recognized in operations.
Property, Plant and Equipment
Property, plant and equipment additions are recorded at cost. Depreciation
of property, plant and equipment is computed using the straight-line method
over the estimated useful lives of the assets or group of assets. The cost of
buildings and marketing facilities on leased land and leasehold improvements
are amortized on a straight-line basis over the shorter of the estimated
useful life or the lease term. The Company capitalizes the interest cost
associated with major construction projects based on the effective interest
rate on aggregate borrowings.
Expenditures for maintenance and repairs are expensed. Major replacements
and additions are capitalized. Gains and losses on assets depreciated on an
individual basis are included in current income. Upon disposal of assets
depreciated on a group basis, unless unusual in nature or amount, residual
cost less salvage is charged against accumulated depreciation.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121 concerning "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The standard requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable with future cash flows. The Company adopted this standard
beginning January 1, 1996 which did not have any effect on the financial
statements. The Company believes that if a project initiated to produce low
sulfur diesel fuel at the Hartford refinery ("DHDS Project"), which was
delayed in 1992 due to an expectation of narrow differentials between low and
high sulfur diesel fuel, does not proceed due to continued relatively narrow
price differentials between low and high sulfur diesel fuel, future cash flows
from the asset would not likely support the carrying value which is
approximately $24.1 million as of December 31, 1996. Effective January 1,
1996, the Company began to depreciate the DHDS Project over 30 years.
Environmental Costs
Environmental expenditures are expensed or capitalized depending upon their
future economic benefit. Costs which improve a property as compared with the
condition of the property when originally constructed or acquired and costs
which prevent future environmental contamination are capitalized. Costs which
return a property to its condition at the time of acquisition or original
construction are expensed.
F-8
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Turnaround and Financing Costs
A turnaround is a periodically required standard procedure for maintenance
of a refinery that involves the shutdown and inspection of major processing
units and generally occurs approximately every three years. Turnaround costs,
which are included in "Other assets", are amortized over the period to the
next scheduled turnaround, beginning the month following completion.
Financing costs related to obtaining or refinancing of debt are deferred and
amortized over the expected life of the debt.
Income Taxes
Clark files a consolidated U.S. federal income tax return with Clark USA but
computes its provision on a separate company basis. The Company provides for
deferred taxes under the asset and liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") (see Note 12 "Income Taxes"). Deferred taxes are
classified as current, included in prepaid or accrued expenses, or noncurrent
depending on the classification of the assets and liabilities to which the
temporary differences relate. Deferred taxes arising from temporary
differences that are not related to a specific asset or liability are
classified as current or noncurrent depending on the periods in which the
temporary differences are expected to reverse. In accordance with the
provisions of SFAS 109, the Company records a valuation allowance when
necessary to reduce the net deferred tax asset to an amount expected to be
realized.
Employee Benefit Plans
The Clark Refining & Marketing, Inc. Savings Plan and separate Trust (the
"Plan"), a defined contribution plan, covers substantially all employees of
Clark. Under terms of the Plan, Clark matches the amount of employee
contributions, subject to specified limits. Contributions to the Plan during
1996 were $6.4 million (1995--$5.5 million; 1994--$3.4 million).
Clark provides certain benefits for most retirees once they have reached a
specified age and specified years of service. These benefits include health
insurance in excess of social security and an employee paid deductible amount,
and life insurance equal to the employee's annual salary.
3. SHORT-TERM INVESTMENTS
The Company's short-term investments are all considered Available-for-Sale
and are carried at fair value with the resulting unrealized gain or loss (net
of applicable taxes) shown as a component of retained earnings.
Short-term investments consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------------------------------- --------------------------------
AMORTIZED UNREALIZED AGGREGATE AMORTIZED UNREALIZED AGGREGATE
MAJOR SECURITY TYPE COST GAIN/(LOSS) FAIR VALUE COST GAIN/(LOSS) FAIR VALUE
------------------- --------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Debt Securities.... $46,116 $ -- $46,116 $14,981 $(100) $14,881
</TABLE>
The net unrealized position at December 31, 1996 included gains of $0.0
million and losses of $0.1 million (1995--gains of $0.1 million and losses of
$0.1 million).
F-9
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contractual maturities of the short-term investments at December 31,
1996 were:
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 3,019 $ 3,002
Due after one year through five years................... 11,962 11,879
------- -------
$14,981 $14,881
======= =======
</TABLE>
Although some of the contractual maturities of these short-term investments
are over one year, management's intent is to use the funds for current
operations and not hold the investments to maturity.
For the year ended December 31, 1996, the proceeds from sales of short-term
investments were $31.1 million with no realized gains or losses recorded for
the period. For the same period in 1995 and 1994, the proceeds from the sale
of short-term investments were $25.9 million and $187.8 million, respectively,
with no realized gains or losses in 1995 and $5.4 million realized losses in
1994. Realized gains and losses are presented in "Interest and financing
costs, net" and are computed using the specific identification method.
The change in the net unrealized holding gains or losses on Available-for-
Sale securities for the year ended December 31, 1996, was a loss of $0.1
million ($0.1 million after taxes). For the same period in 1995, there was a
net unrealized holding gain of $1.9 million ($1.2 million after taxes), and in
1994, there was a net unrealized holding loss of $1.9 million ($1.2 million
after taxes).
Cash and cash equivalents include $20.0 million of debt securities whose
cost approximated market value at December 31, 1996 (1995--$45.0 million), and
for which there were no realized gains or losses recorded in the period.
4. INVENTORIES
The carrying value of inventories consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Crude oil................................................. $ 90,635 $105,786
Refined products and blendstocks.......................... 163,915 136,747
Convenience products...................................... 20,532 17,643
Warehouse stock and other................................. 15,362 16,919
-------- --------
$290,444 $277,095
======== ========
</TABLE>
The market value of the crude and refined product inventories at December
31, 1996 was approximately $81.7 million above the carrying value (1995--$5.4
million above the carrying value). In the first half of 1994, crude oil and
related refined product prices rose substantially, allowing the reversal of
the inventory write-down to market which was recorded in 1993 due to falling
crude oil and product prices.
F-10
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Land................................................... $ 20,006 $ 19,650
Refineries............................................. 418,675 434,623
Retail stores.......................................... 187,921 210,033
Product terminals and pipelines........................ 59,151 62,580
Other.................................................. 11,346 12,051
--------- ---------
697,099 738,937
Accumulated depreciation and amortization.............. (147,807) (183,246)
--------- ---------
$ 549,292 $ 555,691
========= =========
</TABLE>
At December 31, 1996 property, plant and equipment included $43.8 million
(1995--$52.2 million) of construction in progress. Capital lease assets, at
cost, of $25.3 million (1995--$25.3 million) are included in property, plant
and equipment at December 31, 1996.
6. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred financing costs.................................... $20,255 $14,439
Deferred turnaround costs................................... 14,243 16,978
Investment in non-consolidated affiliate.................... 6,291 6,427
Other....................................................... 3,141 1,287
------- -------
$43,930 $39,131
======= =======
</TABLE>
Amortization of deferred financing costs for the year ended December 31,
1996, was $6.5 million (1995--$5.2 million; 1994--$1.2 million). Amortization
of turnaround costs for the year ended December 31, 1996 was $11.1 million
(1995--$12.0 million; 1994--$10.8 million).
7. WORKING CAPITAL FACILITY
At all times during 1996, Clark had in place a working capital facility
which provided a revolving line of credit principally for the issuance of
letters of credit which are used primarily for securing purchases of crude
oil, other feedstocks and refined products, and for limited cash borrowings.
This facility is collateralized by substantially all of Clark's current assets
and certain intangibles. The amount of the facility is the lesser of $400
million or the amount available under a defined borrowing base, representing
specified percentages of cash, investments, accounts receivable, inventory and
other working capital items ($489.5 million at December 31, 1996). Clark is
required to comply with certain financial covenants including maintaining
defined levels of working capital, cash, tangible net worth, maximum
indebtedness to tangible net worth and a minimum ratio of adjusted cash flow
to debt service. At December 31, 1996, $298.5 million (1995--$221.0 million)
of the line of credit was utilized for letters of credit, of which $78.4
million (1995--$91.4 million) supported commitments for future deliveries of
petroleum products. There were no direct cash borrowings under the facility at
December 31, 1996 and 1995.
F-11
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
10 1/2% Senior Notes due December 1, 2001 ("10
1/2% Notes").......................................... $225,000 $225,000
9 1/2% Senior Notes due September 15, 2004 ("9
1/2% Notes").......................................... 175,000 175,000
Obligations under capital leases and other notes........ 23,498 20,673
-------- --------
423,498 420,673
Less current portion.................................. 3,057 3,067
-------- --------
$420,441 $417,606
======== ========
</TABLE>
The estimated fair value of long-term debt at December 31, 1996 was $431.8
million, (1995--$442.0 million), determined using quoted market prices for
these issues. The capital leases and other notes have a market value which
approximates cost.
The 9 1/2% Notes and 10 1/2% Notes were issued by Clark in September 1992
and December 1991, respectively, and are unsecured. The 9 1/2% Notes and 10
1/2% Notes are redeemable at the Company's option beginning September 1997 and
December 1996, respectively, at a redemption price which starts at 105.25% and
decreases to 100% of principal two years later.
The Clark note indentures contain certain restrictive covenants including
limitations on the payment of dividends, limitations on the payment of amounts
to related parties, limitations on the level of debt, provisions related to
change of control and incurrence of liens. Under these covenants, Clark must
maintain a minimum net worth of $100 million.
During 1995, Clark entered into two sale/leaseback lease transactions for a
total of $24.3 million. Each capital lease has a term of five years. One lease
has a fixed rate of 8.36% and the other lease rate floats at a spread of 2.25%
over the London Interbank Offer Rate (LIBOR).
The scheduled maturities of long-term debt during the next five years are
(in thousands): 1997--$3,067 (included in "Accrued expenses and other");
1998--$3,828; 1999--$3,737; 2000--$6,775; 2001--$225,012; 2002 and
thereafter--$175,057.
Interest and financing costs
Interest and financing costs, net, included in the statements of earnings,
consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Interest expense.................................. $40,979 $42,150 $42,929
Financing costs................................... 1,178 5,244 6,526
Interest and finance income....................... (2,201) (6,074) (9,734)
------- ------- -------
39,956 41,320 39,721
Capitalized interest.............................. (2,409) (1,404) (1,033)
------- ------- -------
Interest and financing costs, net................. $37,547 $39,916 $38,688
======= ======= =======
</TABLE>
Cash paid for interest expense in 1996 was $42.9 million (1995--$42.2
million; 1994--$40.3 million). Accrued interest payable at December 31, 1996
of $6.8 million (December 31, 1995--$6.8 million) is included in "Accrued
expenses and other."
F-12
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASE COMMITMENTS
The Company leases premises and equipment under lease arrangements, many of
which are non-cancelable. The Company leases store property and equipment with
lease terms extending to 2015, some of which have escalation clauses based on
a set amount of increases in the Consumer Price Index. The Company also has
operating lease agreements for certain equipment at the refineries, retail
stores, and the general office. These lease terms range from 1 to 8 years with
the option to purchase some of the equipment at the end of the lease term at
fair market value. The leases generally provide that the Company pay taxes,
insurance, and maintenance expenses related to the leased assets. As of
December 31, 1996, future minimum lease payments under capital leases and non-
cancelable operating leases were as follows (in millions): 1997--$17.2; 1998--
$16.8; 1999--$15.8; 2000--$17.8; 2001--$9.8; and $122.0 in the aggregate
thereafter. Rental expense during 1996 was $16.5 million (1995--$9.1 million;
1994--$7.6 million).
10. RELATED PARTY TRANSACTIONS
Transactions of significance with related parties not disclosed elsewhere in
the footnotes are detailed below:
Clark USA, Inc.
Clark USA contributed $268.6 million of capital to its subsidiary, Clark,
during 1996. Clark USA contributed $33.6 million from the proceeds of debt
issued in the Occidental/Gulf transactions in January of 1996. In addition,
$235.0 million was contributed to Clark from the contribution and subsequent
sale of the Occidental advance crude oil purchase receivable and the
associated hedge contracts in October of 1996. During 1995, Clark USA
contributed $165.6 million to Clark. Upon the issuance of stock in the first
quarter of 1995, Clark USA contributed $150.0 million for the purchase of the
Port Arthur Refinery (see Note 13 "Acquisition of Port Arthur Refinery") and
also contributed $9.2 million for operating purposes. In addition, from the
proceeds of debt issued in the Occidental/Gulf transactions, Clark USA
contributed $6.4 million in December 1995 to Clark.
HSM Insurance Inc.
Clark USA paid premiums of $2.0 million in 1994 to HSM Insurance, Inc., an
affiliate of TrizecHahn Corporation (formerly the Horsham Corporation)
("TrizecHahn"), the Clark USA's 46% shareholder, for providing environmental
impairment liability insurance. No loss claims have been made under the
policy. The policy was terminated on December 31, 1994.
Management Services and Trade Credit Guarantees
TrizecHahn and Clark have agreements to provide certain management services
to each other from time to time. Clark established trade credit with various
suppliers of its petroleum requirements, occasionally requiring the guarantee
of TrizecHahn. Fees related to trade credit guarantees totaled $0.1 million,
$0.2 million and $0.2 million in 1994, 1995 and 1996, respectively. The last
trade credit guarantee was terminated in August 1996.
F-13
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The following table sets forth the unfunded status for the post retirement
health and life insurance plans:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $12,045 $11,889
Fully eligible plan participants......................... 1,288 873
Other plan participants.................................. 20,025 16,687
------- -------
Total.................................................. 33,358 29,449
Accrued postretirement benefit cost........................ -- --
Plan assets at fair value.................................. -- --
Unrecognized net (gain)/loss............................... (1,921) (216)
Unrecognized prior service cost............................ -- 635
------- -------
Accrued postretirement benefit liability................... $31,437 $29,868
======= =======
</TABLE>
The components of net periodic postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service Costs.......................................... $ 415 $ 999 $1,074
Interest Costs......................................... 1,271 2,174 2,095
------ ------ ------
Net periodic postretirement benefit cost............... $1,686 $3,173 $3,169
====== ====== ======
</TABLE>
A discount rate of 7.50% (1995--7.25%) was assumed as well as a 4.25%
(1995--4.25%) rate of increase in the compensation level. For measuring the
expected postretirement benefit obligation, the health care cost trend rate
ranged from 7.25% to 10.25% in 1996, grading down to an ultimate rate in 2003
of 5.25%. The effect of increasing the average health care cost trend rates by
one percentage point would increase the accumulated postretirement benefit
obligation, as of December 31, 1996, by $4.3 million and increase the annual
aggregate service and interest costs by $0.6 million.
12. INCOME TAXES
The Company provides for deferred taxes under the asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
The income tax provision (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Earnings (loss) before provision for income
taxes........................................ $27,806 $(41,200) $(52,441)
======= ======== ========
Current provision (benefit)--Federal.......... $ -- $ -- $ 3,353
--State....................................... -- -- 4,754
------- -------- --------
-- -- 8,107
------- -------- --------
Deferred provision (benefit)--Federal......... 7,755 (15,656) (15,235)
--State....................................... 1,977 -- (6,786)
------- -------- --------
9,732 (15,656) (22,021)
------- -------- --------
Income tax provision (benefit)................ $ 9,732 $(15,656) $(13,914)
======= ======== ========
</TABLE>
F-14
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the income tax provision computed on pretax income
at the statutory federal rate and the actual provision for income taxes is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Federal taxes computed at 35%.................. $ 9,732 $(14,420) $(18,354)
State taxes, net of federal effect............. 1,285 (1,649) (1,320)
Nontaxable dividend income..................... (1,453) (2,172) (2,416)
Valuation allowance............................ -- -- 6,099
Other items, net............................... 168 2,585 2,077
------- -------- --------
Income tax provision (benefit)................. $ 9,732 $(15,656) $(13,914)
======= ======== ========
</TABLE>
The following represents the approximate tax effect of each significant
temporary difference giving rise to deferred tax liabilities and assets as of
December 31, 1995 and 1996.
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment........................... $ 79,191 $ 85,421
Turnaround costs........................................ 5,559 4,939
Inventory............................................... 19,204 18,008
Other................................................... 4,297 28
-------- --------
108,251 108,396
-------- --------
Deferred tax assets:
Alternative minimum tax credit.......................... 19,376 15,403
Trademarks.............................................. 4,491 4,376
Environmental and other future costs.................... 22,958 18,992
Tax loss carryforwards.................................. 36,438 68,980
Other................................................... 2,127 5,942
-------- --------
85,390 113,693
-------- --------
Valuation allowance....................................... -- (6,099)
-------- --------
Net deferred tax liability................................ $ 22,861 $ 802
======== ========
</TABLE>
As of December 31, 1996, the Company has made payments of $15.4 million
under the Federal alternative minimum tax system which are available to reduce
future regular income tax payments. As of December 31, 1996, the Company had a
Federal net operating loss carryforward of $183.1 million and Federal tax
credit carryforwards in the amount of $1.5 million. Such operating loss and
tax credit carryforwards have carryover periods of 15 years and are available
to reduce future tax liabilities through the years ending December 31, 2011
and 2010, respectively.
The Company recorded a valuation allowance of $6.1 million at December 31,
1996 (1995--None). In calculating the increase in the valuation allowance, the
Company assumed as future taxable income only future reversals of existing
taxable temporary differences.
During 1996, the Company made a Federal tax payment of $2.7 million in
settlement of an Internal Revenue Service examination for tax years ended
December 31, 1991 and December 31, 1992 and made net cash state tax payments
of $0.6 million. (1995--net cash tax payments of $0.7 million; 1994--net cash
tax refunds of $2.9 million).
F-15
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Section 382 of the Internal Revenue Code restricts the utilization of net
operating losses upon the occurrence of an ownership change, as defined. An
ownership change that restricts future operating loss utilization occurred
during 1995, but based upon and to the extent of future taxable income from
reversals of existing taxable temporary differences management believes such
limitations will not restrict the Company's ability to significantly utilize
the net operating losses over the 15 year carryforward period.
13. ACQUISITION OF PORT ARTHUR REFINERY
On February 27, 1995, the Company purchased Chevron U.S.A. Inc.'s
("Chevron") Port Arthur, Texas refinery, acquiring the refinery assets and
certain related terminals, pipelines, and other assets for a purchase price of
approximately $70 million (excluding acquired hydrocarbon and non-hydrocarbon
inventories of $121.7 million and assumed liabilities of $19.4 million) plus
related acquisition costs of $14.9 million and accrued liabilities of $5.7
million. The total assumed and accrued liabilities of $25.1 million were
considered non-cash activity for purposes of the Statement of Cash Flows. The
total cost of the acquisition was accounted for using the purchase method of
accounting with $110.0 million allocated to the refinery long-term assets and
$121.7 million charged to current assets for hydrocarbon and non-hydrocarbon
inventories.
The purchase agreement also provides for contingent payments to Chevron of
up to $125 million over a five year period from the closing date of the
acquisition in the event refining industry margin indicators exceed certain
escalating levels. These contingent payments are calculated annually and the
appropriate liability, if any, will be recorded at that time. At December 31,
1996 and 1995, the Company had no obligation to Chevron relating to the
contingent payment agreement. While Chevron retained primary responsibility
for required remediation of most pre-closing environmental contamination, the
Company assumed responsibility for environmental contamination beneath and
within 25 to 100 feet of the facility's active processing units. The Company
accrued $7.5 million as part of the acquisition for the expected cost of
remediating pipe trenches and the recovery of free phase hydrocarbons in its
responsibility area of the Port Arthur refinery.
On February 27, 1995, Clark USA obtained a portion of the funds necessary to
finance the Port Arthur acquisition from a subsidiary of its major
shareholder, TrizecHahn. Clark USA sold 9,000,000 shares of Class A Common
Stock, 562,500 shares of Class B Common Stock and 562,500 shares of Class C
Common stock for an aggregate consideration of $135 million. Subsequently, the
TrizecHahn subsidiary sold 8,000,000 shares of Class A Common Stock and
500,000 shares of Class C Common Stock to Tiger Management Corporation for
$120 million. Clark USA subsequently contributed $150 million to Clark for the
purchase of the Port Arthur refinery.
14. STOCK OPTION PLANS
The Company has adopted a compensatory Long-Term Performance Plan (the
"Performance Plan"). Under the Performance Plan, designated employees,
including executive officers, of Clark USA and its subsidiaries and other
related entities are eligible to receive awards in the form of stock options,
stock appreciation rights and stock grants. An aggregate of 1,250,000 shares
of Clark USA Common Stock may be awarded under the Performance Plan, either
from authorized, unissued shares which have been reserved for such purpose or
from shares purchased on the open market, subject to adjustment in the event
of a stock split, stock dividend, recapitalization or similar change in the
outstanding Common Stock of Clark USA. The options normally extend for 10
years and become exercisable within 3 years of the
F-16
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
grant date. Additionally, under this plan the stock options granted may not be
sold or otherwise transferred, and are not exercisable until after a public
offering of stock is completed by the Company or change of control (as defined
in the Plan). Stock granted under this plan is priced at the fair market value
at the date of grant.
During 1996 no additional shares were granted under this Plan. In 1995,
549,000 shares were granted under this Plan and priced at the fair market
value at the date of grant. As of December 31, 1996, 549,000 stock options
were outstanding (1995--549,000) at an exercise price of $15 per share.
15. CONTINGENCIES
Clark USA and the Company are subject to various legal proceedings related
to governmental regulations and other actions arising out of the normal course
of business, including legal proceedings related to environmental matters.
Among those actions and proceedings are the following:
The Equal Employment Opportunity Commission ("EEOC") has alleged that Clark
had engaged in age discrimination in violation of the Age Discrimination in
Employment Act. The action involves 38 former managers it believes have been
affected by an alleged pattern and practice. The relief sought by the EEOC
includes reinstatement or reassignment of the individuals allegedly affected,
payment of back wages and benefits, an injunction prohibiting employment
practices which discriminate on the basis of age, and institution of practices
to eradicate the effects of any past discriminatory practices.
A Petition entitled Anderson, et al vs. Chevron and Clark, was filed in
Jefferson County, Texas by forty individual plaintiffs who were Chevron
employees who did not receive offers of employment by Clark at the time of
purchase of the Port Arthur Refinery. Chevron and the outplacement service
retained by Chevron are also named as defendants. Subsequent to the filing of
the lawsuit, the plaintiffs have each filed individual charges with the EEOC
and the Texas Commission of Human Rights.
The Company is the subject of a purported class action lawsuit related to an
on-site electrical malfunction at Clark's Blue Island refinery on October 7,
1994, which resulted in the release to the atmosphere of used catalyst
containing low levels of heavy metals, including antimony, nickel and
vanadium. This release resulted in the temporary evacuation of certain areas
near the refinery, including a high school, and approximately fifty people
were taken to area hospitals. Clark offered to reimburse the medical expenses
incurred by persons receiving treatment. The purported class action lawsuit
was filed on behalf of various named individuals and purported plaintiff
classes, including residents of Blue Island, Illinois and Eisenhower High
School students, alleging claims based on common law nuisance, negligence,
willful and wanton negligence and the Illinois Family Expense Act as a result
of this incident. Plaintiffs seek to recover damages in an unspecified amount
for alleged medical expenses, diminished property values, pain and suffering
and other damages. Plaintiffs also seek punitive damages in an unspecified
amount.
While it is not possible at this time to establish the ultimate amount of
liability with respect to the Company's contingent liabilities, Clark USA and
the Company are of the opinion that the aggregate amount of any such
liabilities, for which provision has not been made, will not have a material
adverse effect on their financial position; however, an adverse outcome of any
one or more of these matters could have a material effect on quarterly or
annual operating results or cash flows when resolved in a future period.
F-17
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REFERENCE SEPTEMBER 30,
NOTE 1997
--------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................ $ 271,112
Short-term investments............................... 14,818
Accounts receivable.................................. 109,462
Inventories.......................................... 2 335,216
Prepaid expenses and other........................... 17,830
----------
Total current assets............................... 748,438
PROPERTY, PLANT AND EQUIPMENT.......................... 572,765
OTHER ASSETS........................................... 3 54,729
----------
$1,375,932
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... 5 $ 230,605
Accrued expenses and other........................... 4,5 51,011
Accrued taxes other than income...................... 45,030
----------
Total current liabilities.......................... 326,646
LONG-TERM DEBT......................................... 415,296
DEFERRED INCOME TAXES.................................. 128
OTHER LONG-TERM LIABILITIES............................ 43,362
CONTINGENCIES.......................................... 6 --
STOCKHOLDER'S EQUITY:
Common stock $.01 par value per share; 1,000 shares
authorized and 100 shares issued and outstanding.... --
Paid-in capital...................................... 464,210
Retained earnings.................................... 126,290
----------
Total stockholder's equity......................... 590,500
----------
$1,375,932
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
REFERENCE ------------------------
NOTE 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
NET SALES AND OPERATING REVENUES............ $ 3,724,393 $ 3,296,367
EXPENSES:
Cost of sales............................. (3,346,318) (2,791,363)
Operating expenses........................ (304,559) (319,001)
General and administrative expenses....... (43,954) (47,393)
Depreciation.............................. (28,134) (30,249)
Amortization.............................. 3 (8,835) (14,095)
----------- -----------
(3,731,800) (3,202,101)
----------- -----------
OPERATING INCOME (LOSS)..................... (7,407) 94,266
Interest and financing costs, net......... 3,4 (31,177) (26,240)
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES......... (38,584) 68,026
Income tax benefit (provision)............ 14,662 (11,697)
----------- -----------
NET EARNINGS (LOSS)......................... $ (23,922) $ 56,329
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................................... $ (23,922) $ 56,329
Adjustments:
Depreciation......................................... 28,134 30,249
Amortization......................................... 13,898 19,442
Share of earnings of affiliates, net of dividends.... (139) (103)
Deferred income taxes ............................... (14,965) (700)
Other, net........................................... (617) 655
Cash provided by (reinvested in) working capital--
Accounts receivable, prepaid expenses and other...... 10,467 70,425
Inventories.......................................... 5,252 (57,847)
Accounts payable, accrued expenses, taxes other than
income and other.................................... (48,450) (79,234)
--------- ---------
Net cash provided by (used in) operating
activities........................................ (30,342) 39,216
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.................... 85 131
Sales of short-term investments........................ 19,000 --
Expenditures for property, plant and equipment......... (23,327) (53,999)
Expenditures for turnaround............................ (7,174) (31,230)
Proceeds from disposals of property, plant and
equipment............................................. 3,890 3,691
--------- ---------
Net cash used in investing activities.............. (7,526) (81,407)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Long-term debt payments................................ (3,253) (2,310)
Capital contribution................................... 33,600 --
Deferred financing costs............................... (317) (3,765)
--------- ---------
Net cash provided by (used in) financing
activities........................................ 30,030 (6,075)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................ (7,838) (48,266)
CASH AND CASH EQUIVALENTS, beginning of period........... 60,477 319,378
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 52,639 $ 271,112
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED, TABULAR DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. BASIS OF PREPARATION
The unaudited consolidated balance sheet of Clark Refining & Marketing, Inc.
and Subsidiary (the "Company") as of September 30, 1997, and the related
consolidated statements of earnings and cash flows for the nine-month periods
ended September 30, 1996 and 1997, have been reviewed by independent
accountants. Clark Port Arthur Pipeline Company is included in the
consolidated results of the Company. In the opinion of the management of the
Company, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements have been
included therein. The results of this interim period are not necessarily
indicative of results for the entire year.
Certain reclassification have been made to the operating and general and
administrative expenses in the 1996 financial statements to conform to current
year presentation.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited financial
statements should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 1996.
The Company's earnings and cash flow from operations are primarily dependent
upon processing crude oil and selling quantities of refined petroleum products
at margins sufficient to cover operating expenses. Crude oil and refined
petroleum products are commodities, and factors largely out of the Company's
control can cause prices to vary, in a wide range, over a short period of
time. This potential margin volatility can have a material effect on financial
position, current period earnings and cash flow.
2. INVENTORIES
The carrying value of inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Crude oil...................................................... $108,574
Refined and blendstocks........................................ 186,275
Convenience products........................................... 22,899
Warehouse stock and other...................................... 17,468
--------
$335,216
========
</TABLE>
The market value of the crude oil and refined product inventories at
September 30, 1997, was approximately $35.0 million above the carrying value.
3. OTHER ASSETS
Amortization of deferred financing costs for the nine month period ended
September 30, 1997 was $5.3 million (1996--$4.9 million) and was included in
"Interest and financing costs, net".
Amortization of refinery maintenance turnaround costs for the nine month
period ended September 30, 1997 was $14.1 million (1996--$8.8 million).
F-21
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
4. INTEREST AND FINANCING COSTS, NET
Interest and financing costs, net, consisted of the following:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1997
------- --------
<S> <C> <C>
Interest expense.......................................... $32,207 $ 32,281
Financing costs........................................... 4,922 5,285
Interest income........................................... (5,198) (10,354)
------- --------
31,931 27,212
Capitalized interest...................................... (754) (972)
------- --------
$31,177 $ 26,240
======= ========
</TABLE>
Accrued interest payable at September 30, 1997, of $8.6 million was included
in "Accrued expenses and other".
5. INCOME TAXES
The income tax provision of $11.7 million for the nine-month period ended
September 30, 1997, was primarily related to the resolution of an Internal
Revenue Service examination for the years 1993 and 1994 as determined under
the Company's tax sharing agreement with Clark USA, Inc. ("Clark USA"). The
resolution had the effect of accelerating the recognition of certain net
taxable temporary differences and, as a result, required an increase in the
valuation allowance related to the Company's net deferred tax asset. The
provision includes $2.0 million of associated interest.
6. CONTINGENCIES
The Company is subject to various legal proceedings related to governmental
regulations and other actions arising out of the normal course of business,
including legal proceedings related to environmental matters. While it is not
possible at this time to establish the ultimate amount of liability with
respect to such contingent liabilities, the Company is of the opinion that the
aggregate amount of any such liabilities, for which provision has not been
made, will not have a material adverse effect on their financial position,
however, an adverse outcome of any one or more of these matters could have a
material effect on quarterly or annual operating results or cash flows when
resolved in a future period.
7. WORKING CAPITAL FACILITY
On September 25, 1997, the Company entered into a new $400 million revolving
credit facility. The credit facility, which expires on December 31, 1999,
provides for borrowings and the issuance of letters of credit of up to the
lesser of $400 million or the amount available under a defined borrowing base
calculated with respect to the Company's cash and cash equivalents, eligible
investments, eligible receivables and eligible petroleum inventories. Direct
borrowings under the credit facility are limited to $50 million. The Company
will use the facility primarily for the issuance of letters of credit to
secure purchases of crude oil. The Company is required to comply with certain
financial covenants including maintaining defined levels of working capital,
cash, cash equivalents and qualifying investments tangible net worth, and
cumulative cash flow, as defined.
8. SUBSEQUENT EVENT
On October 1, 1997, Clark USA, the Company's parent, reclassified all shares
of Class A Common Stock held by Tiger Management to a new Class E Common
Stock. Subsequently,
F-22
<PAGE>
CLARK REFINING & MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
TrizecHahn Corporation purchased all of the Class E Common Stock for $7.00 per
share in cash totaling $63 million. The new Class E Common Stock was then
converted into 63,000 shares ($1,000 liquidation preference per share) of 11
1/2% Senior Cumulative Exchangeable Preferred Stock, par value $0.01 per
share, which was sold on October 1, 1997 for face value to qualified
institutional buyers in reliance on Rule 144A under the Securities Act of
1933.
In connection with the above transactions all remaining shares of Class A
Common Stock were converted to Common Stock. In addition, Common Stock held by
affiliates of Occidental Petroleum ("Oxy") was converted to a new Class F
Common Stock which has voting rights limited to 19.9% of the total voting
power of all classes of Clark USA's voting stock, but is convertible into
Common Stock by any holder other than affiliates of Occidental Petroleum. Oxy
was also issued an additional 545,455 shares of Class F Common Stock in full
satisfaction of certain terms in the Oxy Stockholders' Agreement.
On November 3, 1997, an affiliate of Blackstone Capital Partners III
Merchant Banking Fund L.P. ("Blackstone") acquired the 13,500,000 shares of
Common Stock of Clark USA previously held by Trizec Hahn Corporation and
certain of its subsidiaries, as a result of which Blackstone obtained a 65%
controlling interest in Clark USA. This transaction triggered the Change of
Control covenant in Clark USA's Senior Secured Zero Coupon Notes, due 2000
("Zero Coupon Notes") and the Company's 9 1/2% Senior Notes, due 2004 and 10
1/2% Senior Notes, due 2001 ("10 1/2% Notes") and may trigger the Change of
Control covenant in Clark USA's 10 7/8% Senior Notes, 2005 if it results in a
Rating Decline (as defined). Under such covenants, noteholders would have the
right to require the Company and Clark USA to repurchase their notes at 101%
of face value or, in the case of the Zero Coupon Notes, accreted value.
However, market quotations for these notes were higher than 101% on November
4, 1997 and as a result, the Company does not believe this Change of Control
will have a material adverse effect on the Company. The Company's credit
facility was amended to permit the acquisition by Blackstone of Clark USA's
Common Stock.
In addition, the Blackstone transaction caused an "ownership change" of the
Clark USA consolidated tax return group (the "Group") under Section 382 of the
Internal Revenue Code of 1986, as amended. The result of the ownership change
is that utilization of the Group's tax attribute carryovers will be limited in
tax periods subsequent to the ownership change. While the Group has not
finally determined the effect of the limitation, the Company does not expect
that the book value of the Group's tax attribute carryovers would be
incrementally reduced. The Company expects to make a final determination by
the end of the year.
On November 21, 1997, the Company issued in a private placement to
institutional investors $100 million (issued at 99.266%) of 8 3/8% Senior
Notes Due 2007 and $175 million (issued at 99.281%) of 8 7/8% Senior
Subordinated Notes Due 2007 (the "Notes"). The Notes are not callable in the
first five years, but up to 35% of the aggregate principal amount may be
repurchased at a redemption price of 108.375% of the principal amount with the
proceeds from certain equity offerings.
The Company also borrowed $125 million under a floating rate term loan
agreement expiring 2004. Twenty-five percent of the principal outstanding must
be paid in 2003. The floating rate term loan is a senior unsecured obligation
of the Company and bears interest at the LIBOR Rate (as defined in the Loan
Agreement) plus a margin of 275 basis points. The loan may be repaid in whole
or in part at any time at a redemption price of 102.50% of the principal
amount in the first year, 101.25% of the principal amount in the second year
and at 100% of the principal amount thereafter.
F-23
<PAGE>
Proceeds from the above financings will be used for general corporate
purposes and to redeem on December 24, 1997 all $225 million of the Company's
outstanding 10 1/2% Senior Notes Due 2001. The redemption price will be 102
5/8% plus accrued interest, or $1,032.96 for each $1,000 principal amount of
the notes outstanding.
Separately, on November 21, 1997 Clark USA repurchased for $206.6 million,
$259.2 million (value at maturity) of notes tendered under a recent tender
offer for its $263.7 million (value at maturity) outstanding Senior Secured
Zero Coupon Notes Due 2000. To facilitate the repurchase, the Company returned
capital of $215 million to Clark USA.
As a result of the aforementioned transactions, the Company expects to
record an extraordinary charge to earnings for redemption premiums and
unamortized deferred financing costs of approximately $9.7 million on a pre-
tax basis and pay fees and expenses of $11 million associated with the
Blackstone transaction.
In the early 1990s the Company invested $25.0 million in a project initiated
to produce low-sulfur diesel fuel at the Hartford refinery (the "DHDS
Project") which was delayed in 1992 based on internal and third-party analyses
that indicated an oversupply of low-sulfur diesel fuel capacity in the
Company's markets. Based on these analyses, the Company projected relatively
narrow price differentials between low- and high-sulfur diesel products. This
projection has thus far been borne out. High sulfur diesel fuel is utilized by
the railroad, marine and farm industries. In December 1997, the Company
determined that equipment purchased for the DHDS Project could be better
utilized for other projects at its Hartford and Port Arthur refineries, rather
than remaining idle until low- and high-sulfur diesel fuel differentials
widened sufficiently to justify completing the DHDS Project. As a result, in
the fourth quarter of 1997 the Company expects to record a charge to earnings
of approximately $19 million principally for engineering costs specific to the
DHDS Project.
The Company also anticipates recording in the fourth quarter of 1997 a
noncash charge of approximately $20 million to reflect the decline in the
value of petroleum inventories below carrying value caused by a substantial
decrease in petroleum prices at the end of 1997. The Company is also
evaluating the adequacy of its accruals due to developments in pending legal
and environmental actions and currently expects to increase these accruals in
the fourth quarter of 1997.
F-24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law and Article Six of the
Registrant's Bylaws provide for indemnification of the Registrant's directors
and officers in a variety of circumstances, which may include liabilities
under the Securities Act of 1933, as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
A list of exhibits is set forth in the Exhibit Index appearing elsewhere
in this Registration Statement and is incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Clark Refining & Marketing, Inc.
Report of Independent Accountants...................................... S-1
</TABLE>
- --------
*Schedules other than those listed above have been omitted because of the
absence of the conditions under which they are required or because the
required information is presented in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Clayton, State of Missouri on January 16, 1998.
Clark Refining & Marketing, Inc.
/s/ Paul D. Melnuk
By: _________________________________
Its: President, Chief Executive
Officer and Chief Operating
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated and on January 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Paul D. Melnuk
- -------------------------------------------
Paul D. Melnuk President and Chief Executive Officer;
Chief Operating Officer; Director
(Principal Executive Officer)
/s/ Maura J. Clark*
- -------------------------------------------
Maura J. Clark Executive Vice President--Corporate
Development and Chief Financial Officer
(Principal Financial Officer)
/s/ Dennis R. Eichholz*
- -------------------------------------------
Dennis R. Eichholz Controller and Treasurer
(Principal Accounting Officer)
/s/ Marshall A. Cohen*
- -------------------------------------------
Marshall A. Cohen Director
/s/ David A. Stockman*
- -------------------------------------------
David A. Stockman Director
/s/ John R. Woodard*
- -------------------------------------------
John R. Woodard Director
/s/ David I. Foley*
- -------------------------------------------
David I. Foley Director
</TABLE>
/s/ Paul D. Melnuk
*By: ___________________________
Attorney-in-Fact
II-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of Clark Refining &
Marketing, Inc. (Incorporated by reference to Exhibit
3.1 filed with Clark Oil & Refining Corporation
Registration Statement on Form S-1 (Registration No. 33-
28146))
3.2 Certificate of Amendment to Certificate of Incorporation
of Clark Refining & Marketing, Inc. (Incorporated by
reference to Exhibit 3.2 filed with Clark Oil & Refining
Corporation Annual Report on Form 10-K (Registration No.
1-11392))
3.3 By-laws of Clark Refining & Marketing, Inc. (Incorporated
by reference to Exhibit 3.2 filed with Clark Oil &
Refining Corporation Registration Statement on Form S-1
(Registration No. 33-28146))
4.3 Indenture between Clark Refining & Marketing, Inc.
(formerly Clark Oil & Refining Corporation) and
NationsBank of Virginia, N.A. including the form of 9
1/2% Senior Notes due 2004 (Incorporated by reference to
Exhibit 4.1 filed with Clark Oil & Refining Corporation
Registration Statement on Form S-1 (File No. 33-50748))
4.4 Supplemental Indenture between Clark Refining &
Marketing, Inc. and NationsBank of Virginia, N.A., dated
February 17, 1995 (Incorporated by reference to Exhibit
4.6 filed with Clark USA, Inc. Annual Report on Form 10-
K for the year ended December 31, 1994 (File No. 33-
59144))
+4.5 Indenture between Clark Refining & Marketing, Inc. and
Bankers Trust Company, dated as of November 21, 1997,
including the form of 8 3/8% Senior Notes due 2007
+4.6 Indenture between Clark Refining & Marketing, Inc. and
Marine Midland Bank, dated as of November 21, 1997,
including the form of 8 7/8% Senior Subordinated Notes
due 2007
+4.6.1 Supplemental Indenture between Clark Refining &
Marketing, Inc. and Marine Midland Bank, dated as of
November 21, 1997
+4.7 Exchange and Registration Rights Agreement, dated
November 21, 1997, between Clark Refining & Marketing,
Inc., Goldman, Sachs & Co., BT Alex. Brown Incorporated,
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Lehman Brothers Inc.
4.8 Form of 8 3/8% New Senior Notes due 2007
4.9 Form of 8 7/8% New Senior Subordinated Notes due 2007
5.1 Opinion of Mayer, Brown & Platt as to the legality of the
notes
8.1 Opinion of Mayer, Brown & Platt as to certain tax matters
10.10 Credit Agreement, dated as of September 25, 1997, among
Clark Refining & Marketing, Inc., Bankers Trust Company,
as Administrative Agent, The Toronto-Dominion Bank, as
Syndication Agent, BankBoston, N.A., as Documentation
Agent, and the other financial institutions party
thereto. (Incorporated by reference to Exhibit 10.1
filed with Clark Refining & Marketing, Inc. Current
Report on Form 8-K, dated October 1, 1997 (File No. 1-
11392))
+10.11 Amendment No. 1 to Credit Agreement, dated as of October
29, 1997, among Clark Refining & Marketing, Inc.,
Bankers Trust Company, as Administrative Agent and
Collateral Agent, The Toronto-Dominion Bank, as
Syndication Agent, and BankBoston, N.A., as
Documentation Agent, and the other financial
institutions party thereto
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
+10.12 Amendment No. 2 to Credit Agreement, dated as of November
7, 1997, among Clark Refining & Marketing, Inc., Bankers
Trust Company, as Administrative Agent and Collateral
Agent, The Toronto-Dominion Bank, as Syndication Agent,
and BankBoston, N.A., as Documentation Agent, and the
other financial institutions party thereto
+10.13 Credit Agreement, dated as of November 21, 1997, among
Clark Refining & Marketing, Inc., Goldman, Sachs Credit
Partners L.P., as Arranger and Syndication Agent, and
State Street Bank and Trust Company of Missouri, N.A.,
as Payment Agent, the financial institutions listed on
the signature pages thereof, and Goldman Sachs Credit
Partners, as Administrative Agent
10.20 Clark Refining & Marketing, Inc. Stock Option Plan
(Incorporated by reference to Exhibit 10.5 filed with
Clark Registration Statement on Form S-1 (Registration
No. 33-43358))
10.21 Clark Refining & Marketing, Inc. Savings Plan, as amended
and restated effective as of October 1, 1989
(Incorporated by reference to Exhibit 10.6 filed with
Clark Oil & Refining Corporation Annual Report on Form
10-K for the year ended December 31, 1989 (Commission
File No. 1-11392))
10.22 Employment Agreement of Paul D. Melnuk (Incorporated by
reference to Exhibit 10.2 filed with Clark Refining &
Marketing, Inc. Current Report on Form 8-K, dated
October 1, 1997 (File No. 1-11392))
+10.23 Memorandum of Agreement, dated as of July 8, 1997,
between Clark Refining & Marketing, Inc. and Bradley D.
Aldrich
+10.24 Memorandum of Agreement, dated as of July 8, 1997,
between Clark Refining & Marketing, Inc. and Brandon K.
Barnholt
+10.25 Memorandum of Agreement, dated as of July 8, 1997,
between Clark Refining & Marketing, Inc. and Maura J.
Clark
+10.26 Memorandum of Agreement, dated as of July 8, 1997,
between Clark Refining & Marketing, Inc. and Edward J.
Stiften
10.30 Amended and Restated Asset Sale Agreement, dated as of
August 16, 1994 between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc., (Incorporated by reference
to Exhibit 10.3 filed with Clark USA, Inc. Current
Report on Form 8-K, dated February 27, 1995
(Registration No. 33-59144))
10.31 Chemical Facility Lease with Option to Purchase, dated as
of August 17, 1994 between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc., (Incorporated by reference
to Exhibit 10.9.2 filed with Clark USA, Inc.
Registration Statement on Form S-1 (Registration No. 33-
84192))
10.32 Sublease of Chemical Facility Lease, dated as of August
16, 1994, between Chevron U.S.A. Inc. and Clark Refining
& Marketing, Inc., (Incorporated by reference to Exhibit
10.9.3 filed with Clark USA, Inc. Registration Statement
on Form S-1 (Registration No. 33-84192))
10.33 PADC Facility Lease with Option to Purchase, dated as of
August 16, 1994, between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc., (Incorporated by reference
to Exhibit 10.9.4 filed with Clark USA, Inc.
Registration Statement on Form S-1 (Registration No. 33-
84192))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.34 Supply Agreement for the Chemical Facility, dated as of
August 16, 1994, between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc., (Incorporated by reference
to Exhibit 10.9.5 filed with Clark USA, Inc.
Registration Statement on Form S-1 (Registration No. 33-
84192))
10.35 Services Agreement for the Chemical Facility, dated as of
August 16, 1994, between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc., (Incorporated by reference
to Exhibit 10.9.6 filed with Clark USA, Inc.
Registration Statement on Form S-1 (Registration No. 33-
84192))
10.36 Supply Agreement for the PADC Facility, dated as of
August 16, 1994, between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc., (Incorporated by reference
to Exhibit 10.9.7 filed with Clark USA, Inc.
Registration Statement on Form S-1 (Registration No. 33-
84192))
10.37 Services Agreement for the PADC Facility, dated as of
August 16, 1994, between Chevron U.S.A. Inc. and Clark
Refining & Marketing, Inc. (Incorporated by reference to
Exhibit 10.9.8 filed with Clark USA, Inc. Registration
Statement on Form S-1 (Registration No. 33-84192))
10.60 Clark Refining & Marketing, Inc. Stock Option Plan
(Incorporated by reference to Exhibit 10.5 filed with
Clark Registration Statement on Form S-1 (Registration
No. 33-43358))
10.61 Clark Refining & Marketing, Inc. Savings Plan, as amended
and restated effective as of October 1, 1989
(Incorporated by reference to Exhibit 10.6 filed with
Clark Oil & Refining Corporation Annual Report on Form
10-K for the year ended December 31, 1989 (Commission
File No. 1-11392))
10.78 Stock Purchase and Redemption Agreement, dated as of
December 30, 1992, among AOC Limited Partnership, P.
Anthony Novelly, Samuel R. Goldstein, G & N Investments,
Inc., TrizecHahn Corporation, AOC Holdings, Inc. and
Clark Oil & Refining Corporation (Incorporated by
reference to Exhibit 10.11 filed with Clark R & M
Holdings, Inc. Registration Statement on Form S-4 (File
No. 33-59144))
+12.1 Computation of Ratio of Earnings to Fixed Charges
+21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Mayer, Brown & Platt (included in Exhibit 5.1)
+24.1 Power of Attorney (included on signature page)
+25.1 Statement of Eligibility and Qualification on Form T-1 of
Bankers Trust Company
+25.2 Statement of Eligibility and Qualification on Form T-1 of
Marine Midland Bank
99.1 Form of Letter of Transmittal from Clark Refining &
Marketing, Inc. to its shareholder relating to the
exchange offer
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
+Previously filed
<PAGE>
Exhibit 4.8
(Face of Security)
CLARK REFINING & MARKETING, INC.
8 3/8% SENIOR NOTES DUE 2007
No. __________ $98,500,000
Clark Refining & Marketing, Inc., a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co., or registered assigns, the
principal sum set forth above or such other principal sum indicated on the
Schedule attached hereto (which shall not exceed $100,000,000) in United States
Dollars on November 15, 2007, and to pay interest at the rate of 8 3/8% per
annum from the Issue Date or from the most recent Interest Payment Date to which
interest has been paid or duly provided for in cash in arrears on each May 15
and November 15 to the person whose name the Security is registered at the close
of business on the May 1 or November 1 next preceding such Interest Payment
Date, until the principal hereof is paid or made available for payment;
provided, however, in the event that (i) the Company has not filed the
registration statement relating to the Exchange Offer within 90 days following
the Issue Date, or (ii) such registration statement has not become effective
within 180 days following the Issue Date, (iii) the resale registration
statement has not become effective within 105 days of the date on which the
obligation to file such resale registration statement arose, or (iv) the
Exchange Offer has not been consummated within 30 business days after the
effectiveness deadline of the Exchange Offer Registration Statement, (v) the
Company has not filed the resale registration statement within 45 days after the
obligation to file such resale registration statement arose, or (vi) any
registration statement required by the Registration Rights Agreement is filed
and declared effective but shall thereafter cease to be effective (except as
specifically permitted therein) without being succeeded within 30 days by an
additional registration statement filed and declared effective (any such event
referred to in Clauses (i) through (vi), the "Registration Default"), then, as
liquidated damages for such Registration Default, subject to the Registration
Rights Agreement, the per annum interest rate on the Notes will increase by
0.25% ("Special Interest") for the period from the occurrence of the
Registration Default until such time as no Registration Default is in effect (at
which time the interest rate will be reduced to its initial rate). If the
Company has not consummated the Exchange Offer (or, if applicable, the resale
registration has not become effective), within 270 days following the Issue
Date, then the per annum dividend rate on the Securities will increase by an
additional 0.25% for so long as the Company has not consummated the Exchange
Offer (or until such resale registration becomes effective).
Any accrued and unpaid interest on this Security upon the issuance of
an Exchange Note in exchange for this Security shall cease to be payable to the
Holder hereof but such accrued and unpaid interest shall be payable on the next
Interest Payment Date for such Exchange Note to the Holder thereof on the
related Regular Record Date.
1
<PAGE>
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date at the
office or agency of the Company at New York, New York maintained for such
purpose and at any other office or agency maintained by the Company for such
purchase (any such location being called a "Place of Payment"); provided,
however, that at the option of the Company payment of interest may be made by
check to the address of the Person entitled thereto as such address shall appear
on the Security Register. Interest shall be payable in cash. Any such interest
not so punctually paid or duly provided, and interest on such defaulted interest
at the interest rate borne by the Securities, to the extent lawful, shall
forthwith cease to be payable to the Holder on such Regular Record Date and
shall be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a special
record date ("Special Record Date") for the payment of such defaulted interest
to be fixed by the Company with the consent of the Trustee, notice whereof shall
be given to Holders of Securities not less than 10 days prior to such Special
Record Date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements (if applicable) of any securities exchange on
which the Securities may be listed, and upon such notice as may be required by
such securities exchange, all as more fully provided in said Indenture.
If this Security is a Global Security, all payments in respect of this
Security will be payable to the Global Security Holder in its capacity as the
registered Holder under the Indenture. If this Security is not a Global
Security, payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the City and State of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, or at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register; provided,
however, that payment by wire transfer of immediately available funds will be
required with respect to principal of, premium, if any, and interest on, all
Global Securities and all other Securities the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: November 21, 1997
CLARK REFINING & MARKETING, INC.
By
-----------------------------
Name:
Title:
Certificate of Authentication
This is one of the 8 3/8% Senior Notes due 2007 referred to in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------------
Authorized Signatory
3
<PAGE>
(Back of Security)
THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY
BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE
MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S.
PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON
AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME
PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON
WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION
OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
4
<PAGE>
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. EACH IAI THAT IS NOT A QIB WILL BE
REQUIRED TO EFFECT ANY TRANSFER OF NOTES OR INTERESTS THEREIN (OTHER THAN
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT) THROUGH ONE OF THE INITIAL
PURCHASERS. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
This Security is one of a duly authorized issue of securities of the
Company designated as its 8 3/8% Senior Notes due 2007 (herein called the
"Securities"), issued and to be issued in one or more series under an Indenture,
dated as of November 21, 1997 (as it may from time to time be supplemented or
amended by one or more supplemental indentures, herein called the "Indenture"),
between the Company and Bankers Trust Company, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company and the Trustee of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This issue of Securities is limited in aggregate principal amount to
$100,000,000.
The Securities are subject to redemption at the option of the Company,
in whole or in part at any time on or after November 15, 2002, upon not less
than 30 nor more than 60 days' notice mailed to each holder of Securities to be
redeemed at such holder's address appearing on the Company' Securities
Registrar, in principal amounts of $1,000 or an integral multiple of $1,000, at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the 12-month period commencing on November 15 of each
of the years set forth below, plus, in each case, interest accrued thereon to,
but excluding, the date of redemption.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.187%
2003 102.094%
2004 and thereafter 100.000%
</TABLE>
In addition, the Company may, at its option, use the net cash proceeds
of one or more Equity Offerings to the extent the net cash proceeds thereof are
contributed to the equity capital of the Company to redeem for cash up to 35% in
aggregate principal amount of the Securities originally issued under the
Indenture at any time prior to November 15, 2001, at a redemption price equal to
108.375% of the aggregate principal amount so redeemed, plus accrued interest,
including Special Interest, to the Redemption Date; provided that at least 65%
of the principal amount of Securities originally issued remain outstanding
immediately after such
5
<PAGE>
redemption. Any such redemption shall be required to occur on or prior to 120
days after the receipt by the Company of the Net Available Proceeds of such
Equity Offering and upon not less than 30 nor more than 60 days' notice mailed
to each holder of Securities to be redeemed at such holder's address appearing
in the Company's Security Register, in principal amounts of $1,000 or an
integral multiple of $1,000. The Company may not use the Net Available Proceeds
of any Equity Offerings which alone or combined with a related series of
transactions result in a Change of Control to redeem Securities pursuant to this
paragraph.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select, in such manner as it shall deem fair and appropriate, the
particular Securities to be redeemed; provided that Securities redeemed in part
will only be redeemed in integral multiples of $1,000.
The Indenture provides that, subject to certain conditions, if (i)
certain Net Available Proceeds are available to the Company as a result of Asset
Dispositions or (ii) a Change of Control Triggering Event occurs, the Company
shall be required to make an Offer to purchase for some or all of the Securities
in accordance with the terms of the Indenture.
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of this Security or (ii) certain restrictive covenants
and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth therein.
In the event of redemption or purchase pursuant to a mandatory offer
to purchase of this Security in part only, a new Security or Securities for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities at the time Outstanding, on
behalf of the Holders of all Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. The Indenture also provides that, without
notice to or consent of any Holder, the Company and the Trustee may enter into
one or more supplemental indentures to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated securities in addition to or
in place of certificated Securities, or make any other change, in each case,
that does not adversely affect the rights of any Holder of a Security in any
material respect. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
6
<PAGE>
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest, including Special Interest, if any, on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture, the transfer of this Security is
registrable in the Security Register, upon surrender of this Security for
registration of transfer at the office or agency of the Company in any place
where the principal of (and premium, if any) and interest, including Special
Interest, if any, on this Security are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $100,000 and any integral multiples of $1,000. As provided in
the Indenture and subject to certain limitations therein set forth, Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made to the Holder for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No director, officer, employee, stockholder or incorporator, as such, of
the Company shall have any liability for any obligations of the Company under
the Securities or the Indenture for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
Interest on this Security shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
All terms used in this Security that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York (without giving effect to
conflicts of law principles thereof).
7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety by the
Company pursuant to Sections 10.09 and 9.16 of the Indenture, check the box: [_]
If you want to elect to have only a part of this Security purchased by the
Company pursuant to Sections 10.09 and 9.16 of the Indenture, state the amount
(which must be $1,000 or integral multiples thereof): $____________________.
Dated: ___________ Your Signature: _________________________________
(Sign exactly as name appears on the other side of this Security)
Signature Guarantee: ___________________________________________________
(Signature must be guaranteed by a member firm
of a national securities exchange or a commercial
bank or trust company)
8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and transfer
this Security to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: _________ Your Signature: _________________________________
(Sign exactly as name appears on the other side of this Security)
Signature Guarantee:
9
<PAGE>
SCHEDULE OF EXCHANGES OF SECURITIES
The following exchanges of a part of this Global Note for another Global
Note or for Definitive Securities have been made:
<TABLE>
<S> <C> <C> <C> <C>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Security authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Security
Date of Exchange this Global Security this Global Security (or increase) Custodian
- ---------------- --------------------- --------------------- ----------------------- ---------------------
</TABLE>
10
<PAGE>
Exhibit 4.9
(Face of Security)
CLARK REFINING & MARKETING, INC.
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007
No. __________ $175,000,000
Clark Refining & Marketing, Inc., a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co., or registered assigns, the
principal sum set forth above or such other principal sum indicated on the
Schedule attached hereto (which shall not exceed $175,000,000) in United States
Dollars on November 15, 2007, and to pay interest at the rate of 8 7/8% per
annum from the Issue Date or from the most recent Interest Payment Date to which
interest has been paid or duly provided for in cash in arrears on each May 15
and November 15 to the person whose name the Security is registered at the close
of business on the May 1 or November 1 next preceding such Interest Payment
Date, until the principal hereof is paid or made available for payment;
provided, however, in the event that (i) the Company has not filed the
registration statement relating to the Exchange Offer within 90 days following
the Issue Date, or (ii) such registration statement has not become effective
within 180 days following the Issue Date, (iii) the resale registration
statement has not become effective within 105 days of the date on which the
obligation to file such resale registration statement arose, or (iv) the
Exchange Offer has not been consummated within 30 business days after the
effectiveness deadline of the Exchange Offer Registration Statement, (v) the
Company has not filed the resale registration statement within 45 days after the
obligation to file such resale registration statement arose, or (vi) any
registration statement required by the Registration Rights Agreement is filed
and declared effective but shall thereafter cease to be effective (except as
specifically permitted therein) without being succeeded within 30 days by an
additional registration statement filed and declared effective (any such event
referred to in Clauses (i) through (vi), the "Registration Default"), then, as
liquidated damages for such Registration Default, subject to the Registration
Rights Agreement, the per annum interest rate on the Notes will increase by
0.25% ("Special Interest") for the period from the occurrence of the
Registration Default until such time as no Registration Default is in effect (at
which time the interest rate will be reduced to its initial rate). If the
Company has not consummated the Exchange Offer (or, if applicable, the resale
registration has not become effective), within 270 days following the Issue
Date, then the per annum dividend rate on the Securities will increase by an
additional 0.25% for so long as the Company has not consummated the Exchange
Offer (or until such resale registration becomes effective).
Any accrued and unpaid interest on this Security upon the issuance of
an Exchange Note in exchange for this Security shall cease to be payable to the
Holder hereof but such accrued and unpaid interest shall be payable on the next
Interest Payment Date for such Exchange Note to the Holder thereof on the
related Regular Record Date.
1
<PAGE>
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date at the
office or agency of the Company at New York, New York maintained for such
purpose and at any other office or agency maintained by the Company for such
purchase (any such location being called a "Place of Payment"); provided,
however, that at the option of the Company payment of interest may be made by
check to the address of the Person entitled thereto as such address shall appear
on the Security Register. Interest shall be payable in cash. Any such interest
not so punctually paid or duly provided, and interest on such defaulted interest
at the interest rate borne by the Securities, to the extent lawful, shall
forthwith cease to be payable to the Holder on such Regular Record Date and
shall be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a special
record date ("Special Record Date") for the payment of such defaulted interest
to be fixed by the Company with the consent of the Trustee, notice whereof shall
be given to Holders of Securities not less than 10 days prior to such Special
Record Date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements (if applicable) of any securities exchange on
which the Securities may be listed, and upon such notice as may be required by
such securities exchange, all as more fully provided in said Indenture.
If this Security is a Global Security, all payments in respect of this
Security will be payable to the Global Security Holder in its capacity as the
registered Holder under the Indenture. If this Security is not a Global
Security, payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the City and State of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, or at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register; provided,
however, that payment by wire transfer of immediately available funds will be
required with respect to principal of, premium, if any, and interest on, all
Global Notes and all other Securities the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: November 21, 1997
CLARK REFINING & MARKETING, INC.
Attest:
- ------------------------------- By __________________________
Name: Name:
Title: Title:
Certificate of Authentication
This is one of the Securities referred to in the within-mentioned
Indenture.
MARINE MIDLAND BANK,
as Trustee
By:_________________________________________
Authorized Signatory
3
<PAGE>
(Back of Security)
THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY
BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE
MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S.
PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON
AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME
PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON
WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION
OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST
4
<PAGE>
HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. EACH IAI THAT IS NOT A QIB
WILL BE REQUIRED TO EFFECT ANY TRANSFER OF NOTES OR INTERESTS THEREIN (OTHER
THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT) THROUGH ONE OF THE INITIAL
PURCHASERS. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
This Security is one of a duly authorized issue of securities of the
Company designated as its 8 7/8% Senior Subordinated Notes due 2007 (herein
called the "Securities"), issued and to be issued in one or more series under an
Indenture, dated as of November 21, 1997 (as it may from time to time be
supplemented or amended by one or more supplemental indentures, herein called
the "Indenture"), between the Company and Marine Midland Bank, as Trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company and the Trustee of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This issue of Securities is limited in aggregate
principal amount to $175,000,000.
The Securities are subject to redemption at the option of the Company,
in whole or in part at any time on or after November 15, 2002, upon not less
than 30 nor more than 60 days' notice mailed to each holder of Securities to be
redeemed at such holder's address appearing on the Company' Securities
Registrar, in principal amounts of $1,000 or an integral multiple of $1,000, at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the 12-month period commencing on November 15 of each
of the years set forth below, plus, in each case, interest accrued thereon to,
but excluding, the date of redemption.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.437%
2003 102.958%
2004 101.479%
2005 and thereafter 100.000%
</TABLE>
In addition, the Company may, at its option, use the net cash proceeds
of one or more Equity Offerings to the extent the net cash proceeds thereof are
contributed to the equity capital of the Company to redeem for cash up to 35% in
aggregate principal amount of the Securities originally issued under the
Indenture at any time prior to November 15, 2001, at a redemption price equal to
108.875% of the aggregate principal amount so redeemed, plus accrued interest,
including Special Interest, to the Redemption Date; provided that at least 50%
of the principal amount of Securities originally issued remain outstanding
immediately after such redemption. Any such redemption shall be required to
occur on or prior to 120 days after the
5
<PAGE>
receipt by the Company of the Net Available Proceeds of such Equity Offering and
upon not less than 30 nor more than 60 days' notice mailed to each holder of
Securities to be redeemed at such holder's address appearing in the Company's
Security Register, in principal amounts of $1,000 or an integral multiple of
$1,000. The Company may not use the Net Available Proceeds of any Equity
Offerings which alone or combined with a related series of transactions result
in a Change of Control to redeem Securities pursuant to this paragraph.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select, in such manner as it shall deem fair and appropriate, the
particular Securities to be redeemed; provided that Securities redeemed in part
will only be redeemed in integral multiples of $1,000.
The Indenture provides that, subject to certain conditions, if (i)
certain Net Available Proceeds are available to the Company as a result of Asset
Dispositions or (ii) a Change of Control Triggering Event occurs, the Company
shall be required to make an Offer to purchase for some or all of the Securities
in accordance with the terms of the Indenture.
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of this Security or (ii) certain restrictive covenants
and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth therein.
In the event of redemption or purchase pursuant to a mandatory offer
to purchase of this Security in part only, a new Security or Securities for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities at the time Outstanding, on
behalf of the Holders of all Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. The Indenture also provides that, without
notice to or consent of any Holder, the Company and the Trustee may enter into
one or more supplemental indentures to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated securities in addition to or
in place of certificated Securities, or make any other change, in each case,
that does not adversely affect the rights of any Holder of a Security in any
material respect. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
6
<PAGE>
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest, including Special Interest, if any, on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.
The Securities are subordinated in right of payment, to the extent and
in the manner provided in Article 11 of the Indenture, to the prior payment in
full of all Senior Debt, which includes (i) all Indebtedness outstanding under
the Credit Agreement and the Loan Agreement, (ii) Indebtedness represented by
the Senior Notes, the 10 1/2% Notes and the 9 1/2% Notes, (iii) any other
Indebtedness permitted to be incurred by the Company under the terms of this
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Securities and (iv) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (v) Indebtedness represented by preferred stock, (w) any
liability for federal, state, local or other taxes owed or owing by the Company,
(x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of this Indenture; provided, however, that any Indebtedness incurred
under the Credit Agreement, in respect of which the lenders or the agent
thereunder receive from the Company a representation that such Indebtedness is
Senior Debt for all purposes under this Indenture, shall be Senior Debt for all
purposes under this Indenture notwithstanding this clause (z). To the extent
provided in the Indenture, Senior Debt must be paid before the Securities may be
paid. The Company agrees and each Holder of Securities by accepting a Security
consents and agrees to the subordination provided in the Indenture and
authorizes the Trustee to give it effect.
As provided in the Indenture, the transfer of this Security is
registrable in the Security Register, upon surrender of this Security for
registration of transfer at the office or agency of the Company in any place
where the principal of (and premium, if any) and interest, including Special
Interest, if any, on this Security are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiples of $1,000. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made to the Holder for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this
7
<PAGE>
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary.
No director, officer, employee, stockholder or incorporator, as such,
of the Company shall have any liability for any obligations of the Company under
the Securities or the Indenture for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
Interest on this Security shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York (without giving effect to
conflicts of law principles thereof).
8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety
by the Company pursuant to Sections 10.09 and 9.16 of the Indenture, check the
box: [_]
If you want to elect to have only a part of this Security purchased by
the Company pursuant to Sections 10.09 and 9.16 of the Indenture, state the
amount (which must be $1,000 or integral multiples thereof):
$____________________.
Dated: ______ Your Signature: _________________________________
(Sign exactly as name appears on the other side of this Security)
Signature Guarantee: ___________________________________
(Signature must be guaranteed by a member firm
of a national securities exchange or a commercial
bank or trust company)
9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and transfer
this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: ______ Your Signature: _________________________________
(Sign exactly as name appears on the other side of this Security)
Signature Guarantee:
10
<PAGE>
SCHEDULE OF EXCHANGES OF SECURITIES
The following exchanges of a part of this Global Note for another Global
Note or for Definitive Securities have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of Amount of of this Global authorized
decrease in increase in Security officer of
Principal Amount Principal Amount following such Trustee or
Date of of this Global of this Global decrease Security
Exchange Security Security (or increase) Custodian
- -------- ---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
</TABLE>
11
<PAGE>
Exhibit 5.1
January 16, 1998
Clark Refining & Marketing, Inc.
8182 Maryland Avenue
St. Louis, Missouri 63105
Re: Clark Refining & Marketing, Inc.
Registration Statement on Form S-4
----------------------------------
Dear Ladies and Gentlemen:
We have represented Clark Refining & Marketing, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of a Registration Statement on Form S-4 (the "Registration Statement") relating
to the Company's 8 3/8% New Senior Notes due November 15, 2007 (the "New Senior
Notes") and 8 7/8% New Senior Subordinated Notes due November 15, 2007 (the "New
Senior Subordinated Notes" and, together with the New Senior Notes, the "New
Notes") to be issued under the indentures, dated as of November 21, 1997,
between the Company and Bankers Trust Company for the New Senior Notes, and
Marine Midland Bank for the New Senior Subordinated Notes.
In connection with our representation, we have examined such corporate
and other records, instruments, certificates and documents as we consider
necessary to enable us to express the opinions set forth below.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware.
2. The Indentures constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the enforceability of creditors' rights generally and to court
decisions with respect thereto and to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
3. The New Notes, upon the due execution, authentication, issuance and
delivery thereof in accordance with the Indentures, will constitute valid and
legally binding obligations of the Company entitled to the benefits provided by
the Indentures, and enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the enforceability of creditors' rights generally and to court
decisions with respect thereto and to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to this firm in such Registration
Statement.
Very truly yours,
/s/ Mayer, Brown & Platt
Mayer, Brown & Platt
<PAGE>
Exhibit 8.1
[LETTERHEAD OF MAYER, BROWN & PLATT]
January 16, 1998
Clark Refining & Marketing, Inc.
8182 Maryland Avenue
St. Louis, Missouri 63105
Re: Clark Refining & Marketing, Inc.
Registration Statement on Form S-4
----------------------------------
Dear Ladies and Gentlemen:
We have acted as counsel to Clark Refining & Marketing, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, of a Registration Statement on Form S-4 (the "Registration Statement")
relating to the Company's 8 3/8% New Senior Notes due November 15, 2007 (the
"New Senior Notes") and 8 7/8% New Senior Subordinated Notes due November 15,
2007 (the "New Senior Subordinated Notes") to be issued under the respective
indentures, dated as of November 21, 1997, between the Company and Bankers Trust
Company as trustee for the New Senior Notes, and Marine Midland Bank as trustee
for the New Senior Subordinated Notes. Capitalized terms used herein but not
otherwise defined are used as defined in the Registration Statement.
In connection with the registration of the New Senior Notes and the New
Senior Subordinated Notes, you have requested our opinion concerning the
information in the Registration Statement under the heading "CERTAIN U.S.
FEDERAL INCOME TAX CONSIDERATIONS."
In formulating our opinion, we have reviewed and relied upon the
Registration Statement, other documents and information provided by you, and
such applicable provisions of law including the Internal Revenue Code of 1986,
as amended (the "Code") and other records, instruments, certificates and
documents as we have considered necessary or desirable to enable us to express
the opinion set forth below. For purposes of our opinion, we have not made an
independent investigation of the facts set forth in such documents including the
Registration Statement. We have consequently relied upon representations that
the information presented therein or otherwise forwarded to us accurately and
completely describe all material facts. No facts have come to our attention,
however that would cause us to question the accuracy or completeness of such
facts or documents in or material used.
In rendering this opinion, we have assumed that the transactions
contemplated by the foregoing documents will be consummated in accordance with
the operative documents, and that such documents accurately reflect the material
facts of such transactions. In addition, the opinion set forth below is based
on the correctness of the assumption that there has been no change in the Code,
the regulations promulgated thereunder by the Treasury Department, and the
interpretation of the Code and such regulations by the courts and the Internal
Revenue Service, all as they are in effect and exist at the date of this letter.
With respect to this assumption it should be noted that statutes, regulations,
judicial decisions and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A material change
that is made after the date hereof in any of the foregoing bases for our
opinion, could affect our conclusion.
Based upon and subject to the foregoing, it is our opinion that the
information in the Registration Statement under the heading "CERTAIN U.S.
FEDERAL INCOME TAX CONSIDERATIONS", to the extent that it constitutes matters of
law or legal conclusions, has been reviewed by us and is correct in all material
respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Mayer, Brown & Platt
Mayer, Brown & Platt
<PAGE>
EXHIBIT 23.1
To the Board of Directors of
Clark Refining & Marketing, Inc.:
We consent to the inclusion in this Registration Statement on Form S-4 of our
report dated February 4, 1997, on our audits of the consolidated financial
statements of Clark Refining & Marketing, Inc. We also consent to the reference
to our Firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 16, 1998
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
8 3/8% SENIOR NOTES DUE NOVEMBER 15, 2007 AND
8 7/8% SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2007
OF
CLARK REFINING & MARKETING, INC.
Pursuant to the Prospectus dated January , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998 UNLESS EXTENDED.
TO: BANKERS TRUST COMPANY, AS EXCHANGE AGENT FOR THE 8 3/8% SENIOR NOTES
By Registered or Certified Mail: By Overnight Courier:
BT Services Tennessee, Inc. BT Services Tennessee, Inc.
Attn: Reorganization Unit Corporate Trust & Agency Group
P.O. Box 292737 Attn: Reorganization Unit
Nashville, Tennessee 37229-2737 648 Grassmere Park Road
Nashville, Tennessee 37211
By Hand:
Bankers Trust Company
Corporate Trust & Agency Group
Attn: Reorganization Department
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
By Facsimile:
(615) 835-3701
TO: MARINE MIDLAND BANK, AS EXCHANGE AGENT FOR THE 8 7/8% SENIOR SUBORDINATED
NOTES
By Registered or Certified Mail: By Overnight Courier:
Marine Midland Bank Marine Midland Bank
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
140 Broadway, Level A 140 Broadway, Level A
New York, New York 10005-1180 New York, New York 10005-1180
By Hand:
Marine Midland Bank
140 Broadway, Level A
New York, New York 10005-1180
By Facsimile:
(212) 658-2292
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
<PAGE>
The undersigned acknowledges that he or she has received the Prospectus,
dated January , 1998 (the "Prospectus"), of Clark Refining & Marketing, Inc.
(the "Company") and this Letter of Transmittal (the "Letter of Transmittal")
which may be amended from time to time, which together constitute the Company's
offer (the "Exchange Offer") to exchange (i) its 8 3/8% New Senior Notes due
November 15, 2007 (the "New Senior Notes") for an equal principal amount of its
8 3/8% Senior Notes due November 15, 2007 (the "Old Senior Notes") and (ii) its
8 7/8% New Senior Subordinated Notes due November 15, 2007 (the "New Senior
Subordinated Notes") for an equal principal amount of its 8 7/8% Senior
Subordinated Notes due November 15, 2007 (the "Old Senior Subordinated Notes").
The Old Senior Notes and the Old Senior Subordinated Notes are collectively
referred to herein as the "Old Notes" and the New Senior Notes and the New
Senior Subordinated Notes are collectively referred to herein as the "New
Notes." The form and terms of the New Senior Notes and the New Senior
Subordinated Notes are the same as the form and terms of the Old Senior Notes
and Old Senior Subordinated Notes, respectively, except that the New Notes have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and hence will not bear legends restricting the transfer thereof. The
term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term shall mean the latest date and time to
which the Exchange Offer is extended. Capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by Holders of Old Notes if (i)
certificates representing the Old Notes are to be physically delivered to the
Exchange Agent herewith by such Holder or (ii) tender of Old Notes is to be
made by book-entry transfer to the Exchange Agent's account at the Depository
Trust Company ("DTC") pursuant to the procedures set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering" by any
financial institution that is a participant in the DTC system and whose name
appears on a security position listing as the owner of Old Notes and
instructions are not being transmitted through the DTC Automated Tender Offer
Program ("ATOP"), or (iii) if tender of the Old Notes is to be made according
to the guaranteed delivery procedures described in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures."
Holders of Old Notes who are tendering by book-entry transfer to the Exchange
Agent's account at DTC can execute the tender through ATOP for which the
transaction will be eligible. DTC participants that are accepting the Exchange
Offer must transmit their acceptance to DTC, which will verify the acceptance
and execute a book-entry delivery of the Exchange Agent's account at DTC. DTC
will then send an Agent's Message to the Exchange Agent for its acceptance.
Delivery of the Agent's Message by DTC will satisfy the terms of the Exchange
Offer as to execution and delivery of this Letter of Transmittal by the
participant identified in the Agent's Message. The term "Agent's Message" means
a message, transmitted by DTC to and received by the Exchange Agent and forming
a part of a book-entry confirmation, which states that DTC has received an
express acknowledgment from the tendering participant, which acknowledgment
states that such participant has received and agrees to be bound by the Letter
of Transmittal and that the Company may enforce such Letter of Transmittal
against such participant.
Delivery of this Letter of Transmittal or other documents to DTC does not
constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person (i) in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder or (ii) whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer to DTC. The undersigned has completed,
executed and delivered this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer. Holders who
wish to tender their Old Notes must complete this letter in its entirety.
2
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE APPLICABLE BOX OR BOXES ENTITLED
"DESCRIPTION OF OLD SENIOR NOTES" AND "DESCRIPTION OF OLD SENIOR SUBORDINATED
NOTES," AS THE CASE MAY BE, AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE OLD SENIOR NOTES AND/OR OLD SENIOR SUBORDINATED NOTES, AS THE
CASE MAY BE, AS SET FORTH IN SUCH BOXES BELOW.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE APPLICABLE BOX OR BOXES
DESCRIPTION OF OLD SENIOR NOTES
<TABLE>
- -------------------------------------------------------
<CAPTION>
NAMES AND
ADDRESS(ES)
OF PRINCIPAL
REGISTERED AGGREGATE AMOUNT TENDERED
HOLDER(S) PRINCIPAL (MUST
(PLEASE AMOUNT BE IN INTEGRAL
FILL IN, IF CERTIFICATE REPRESENTED BY MULTIPLES
BLANK) NUMBER(S)* CERTIFICATE(S) OF $1,000)**
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
<S> <C> <C> <C>
Total
- -------------------------------------------------------
</TABLE>
DESCRIPTION OF OLD SENIOR SUBORDINATED NOTES
<TABLE>
- -------------------------------------------------------
<CAPTION>
NAMES AND
ADDRESS(ES)
OF PRINCIPAL
REGISTERED AGGREGATE AMOUNT TENDERED
HOLDER(S) PRINCIPAL (MUST
(PLEASE AMOUNT BE IN INTEGRAL
FILL IN, IF CERTIFICATE REPRESENTED BY MULTIPLES
BLANK) NUMBER(S)* CERTIFICATE(S) OF $1,000)**
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
<S> <C> <C> <C>
Total
- -------------------------------------------------------
</TABLE>
*Need not be completed by Holders tendering by book-entry transfer.
**Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Senior Notes and/or Old Senior Subordinated
Notes, as the case may be, will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the certificate numbers
and principal amounts on a separate signed schedule and affix the list to
this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount. All other
tenders must be integral multiples of $1,000.
3
<PAGE>
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes in a certificates for Old Notes in a
principal amount not tendered, principal amount not tendered,
or New Notes issued in exchange or New Notes issued in exchange
for Old Notes accepted for for Old Notes accepted for
exchange, are to be issued in exchange, are to be sent to
the name of someone other than someone other than the
the undersigned, or if the Old undersigned, or to the
Notes tendered by book-entry undersigned at an address other
transfer that are not accepted than that shown above.
for exchange are to be credited
to an account at DTC.
Deliver certificate(s) to:
Issue certificate(s) to: Name: ___________________________
(PLEASE PRINT)
Name: ___________________________
(PLEASE PRINT) Address: ________________________
Address: ________________________ ---------------------------------
(INCLUDE ZIP CODE)
---------------------------------
(INCLUDE ZIP CODE) ---------------------------------
(TAX IDENTIFICATION OR SOCIAL
--------------------------------- SECURITY NO.)
(TAX IDENTIFICATION OR SOCIAL
SECURITY NO.)
4
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPANT BROKER-DEALER") AND WISH TO RECEIVE ADDITIONAL COPIES OF THE
PROSPECTUS AND/OR OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Deliver Prospectuses to:
(QUANTITY)
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Attention __________________________________________________________________
Telephone __________________________________________________________________
Facsimile __________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
5
<PAGE>
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to the Old Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent also acts as the agent of the Company) with respect to the
tendered Old Notes with full power of substitution to (i) deliver certificates
for such Old Notes to the Company, or transfer ownership of such Old Notes on
the account books maintained by DTC, and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company and (ii)
present such Old Notes for transfer on the books of the Company and receive
all benefits and otherwise exercise all rights of beneficial ownership of such
Old Notes, all in accordance with the terms of the Exchange Offer. The power
of attorney granted in this paragraph shall be deemed to be irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course
of business of the person receiving such New Notes, whether or not such person
is the undersigned, that neither the Holder nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder nor any such other
person is an "affiliate," as defined in Rule 405 under the Securities Act, of
the Company. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes, it represents that the Old Notes to be exchanged for New
Notes were acquired as a result of market-making activities or other trading
activities and not acquired directly from the Company, and it acknowledges
that it will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company
to be necessary or desirable to complete the assignment, transfer and purchase
of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
6
<PAGE>
Unless otherwise indicated under "Special Registration Instructions," please
issue the certificates representing the New Notes issued in exchange for the
Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged, in the name(s) of the undersigned. Similarly,
unless otherwise indicated under "Special Delivery Instructions," please send
the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and any certificates for Old Notes not tendered or
not exchanged (and accompanying documents, as appropriate) to the undersigned
at the address shown below the undersigned's signature(s), unless, in either
event, tender is being made through DTC. In the event that both "Special
Registration Instructions" and "Special Delivery Instructions" are completed,
please issue the certificates representing the New Notes issued in exchange
for the Old Notes accepted for exchange in the name(s) of, and return any
certificates for Old Notes not tendered or not exchanged to, the person(s) so
indicated. The undersigned understands that the Company has no obligation
pursuant to the "Special Registration Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
Holder(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent,
or who cannot complete the procedure for book-entry transfer, prior to the
Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The
Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1 regarding
the completion of this Letter of Transmittal printed below.
7
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X ________________________________________________ Date: _______________
X ________________________________________________ Date: _______________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR
AUTHORIZED SIGNATORY
Area Code and Telephone Number: ________________________________________________
The above lines must be signed by the registered Holder(s) as their name(s)
appear(s) on the Old Notes or, if the Old Notes are tendered by a participant
in DTC, as such participant's name appears on a security position listing as
the owner of the Old Notes, or as such participants by person(s) authorized to
become registered Holder(s) by a properly completed bond power from the
registered Holder(s), a copy of which must be transmitted with this Letter of
Transmittal. If the Old Notes to which this Letter of Transmittal relates are
held of record by two or more joint Holders, then all such Holders must sign
this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the
Company, submit evidence satisfactory to the Company of such person's authority
so to act. See Instruction 4 regarding the completion of this Letter of
Transmittal printed below.
Name(s): _______________________________________________________________________
(PLEASE PRINT)
- --------------------------------------------------------------------------------
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 4)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF FIRM)
Dated: , 1998
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The tendered Old
Notes (or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of all Old Notes delivered electronically), as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile hereof and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of the tendered Old Notes, this Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. Instead of
delivery by mail, it is recommended that the Holder use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. No Letter of Transmittal or Old Notes should be sent to the
Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, (iii) who are
ATOP members but elect not to use ATOP, or (iv) who are not ATOP members, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in the Prospectus. Pursuant to
such procedure: (a) such tender must be made by or through an Eligible
Institution (as defined in Instruction 4); (b) prior to the Expiration Date,
the Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder, the certificate number or numbers of such Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, this Letter of Transmittal (or facsimile hereof) together
with the certificate(s) representing the Old Notes (or a confirmation of
electronic delivery of book-entry delivery into the Exchange Agent's account
at DTC) and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (c) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of electronic delivery of book-entry delivery into the Exchange
Agent's account at DTC), must be received by the Exchange Agent within five
(5) New York Stock Exchange trading days after the Expiration Date, all as
provided in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures" or Holder must properly complete and duly execute an ATOP
ticket in accordance with DTC procedures. Any Holder who wishes to tender his
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request
to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders
who wish to tender their Old Notes according to the guaranteed delivery
procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give
9
<PAGE>
notification of defects or irregularities with respect to tenders of Old
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering Holders, unless otherwise provided in
this Letter of Transmittal, as soon as practicable following the Expiration
Date.
2. TENDER BY HOLDER. Only a Holder of Old Notes may tender such Old Notes in
the Exchange Offer. Any beneficial owner of Old Notes who is not the
registered Holder and who wishes to tender should arrange with such Holder to
execute and deliver this Letter of Transmittal on such owner's behalf or must,
prior to completing and executing this Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder.
3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Notes
is tendered, the tendering Holder should fill in the principal amount tendered
in the fourth column of the box entitled "Description of Old Senior Notes" or
the box entitled "Description of Old Senior Subordinated Notes" above. The
entire principal amount of any Old Notes delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Old Notes is not tendered, then Old Notes for the
principal amount of Old Notes not tendered and a certificate or certificates
representing New Notes issued in exchange for any Old Notes accepted will be
sent to the Holder at his or her registered address, unless a different
address is provided in the appropriate box on this Letter of Transmittal,
promptly after the Old Notes are accepted for exchange.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof)
is signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes or, if the Old Notes are tendered by a participant in DTC, as such
participant's name appears on a security position listing as the owner of the
Old Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes tendered and the certificate or
certificates for New Notes issued in exchange therefor is to be issued (or any
untendered principal amount of Old Notes is to be reissued) to the registered
holder, then such Holder need not and should not endorse any tendered Old
Notes, nor provide a separate bond power. In any other case, such Holder must
either properly endorse the Old Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers in each case
signed as the name of the registered Holder or Holders appears on the Old
Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National
10
<PAGE>
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (an "Eligible Institution"). Signatures on
this Letter of Transmittal need not be guaranteed if (a) this Letter of
Transmittal is signed by the registered Holder(s) of the Old Notes tendered
herewith and such Holder(s) have not completed the box set forth herein
entitled "Special Registration Instructions" or the box entitled "Special
Delivery Instructions" or (b) such Old Notes are tendered for the account of
an Eligible Institution.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Old Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal (or in the case of
tender of Old Notes through DTC, if different from DTC). In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are
to be registered in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in
the name of any person other than the person signing this Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or on any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the right, in its sole
discretion, to amend, waive or modify specified conditions in the Exchange
Offer in the case of any Old Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified
in the Prospectus. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
10. BROKER-DEALER REQUESTS FOR PROSPECTUSES. Brokers and dealers that are
required under Federal securities laws to deliver a Prospectus in connection
with resales of New Notes should complete the applicable box to obtain copies
of the Prospectus and any amendments and supplements to the Prospectus to
enable them to comply with such prospectus delivery requirements. If you
require additional copies of the Prospectus or any amendments or supplements
thereto, please call Bruce Steinke (314-854-1424) of the Company.
(DO NOT WRITE IN SPACE BELOW)
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Delivery Prepared by ____________________ Checked By ____________________ Date
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<PAGE>
CLARK REFINING & MARKETING, INC.
NOTICE OF GUARANTEED DELIVERY
OF
8 3/8% SENIOR NOTES DUE NOVEMBER 15, 2007
AND
8 7/8% SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2007
As set forth in the Prospectus, dated January , 1998 (as the same may be
amended from time to time, the "Prospectus") of Clark Refining & Marketing,
Inc. (the "Company") under the caption "The Exchange Offer--Guaranteed
Delivery Procedures," this form or one substantially equivalent hereto must be
used to accept the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount at maturity of its 8 3/8% New Senior Notes due November 15,
2007 and its 8 7/8% New Senior Subordinated Notes due November 15, 2007
(together, the "New Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), for each $1,000 principal
amount at maturity of its outstanding 8 3/8% Senior Notes due November 15,
2007 and 8 7/8% Senior Subordinated Notes due November 15, 2007 (together, the
"Old Notes") if (i) certificates representing the Old Notes to be exchanged
are not lost but are not immediately available or (ii) time will not permit
all required documents to reach the Exchange Agent prior to the Expiration
Date. This form may be delivered by an Eligible Institution by mail or hand
delivery or transmitted, via facsimile, to the Exchange Agent at its address
set forth below not later than 5:00 p.m., New York City time, on ,
1998. All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus.
The Exchange Agent for the 8 3/8% Senior Notes is:
BANKERS TRUST COMPANY
By Registered or Certified Mail: By Overnight Courier:
BT Services Tennessee, Inc. BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust & Agency Group
P.O. Box 292737 Nashville, Tennessee Reorganization Unit
37229-2737 648 Grassmere Park Road
Nashville, Tennessee 37211
By Hand: By Facsimile:
Attn: Reorganization Department (615) 835-3701
Bankers Trust Company
Corporate Trust & Agency Group
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
The Exchange Agent for the 8 7/8% Senior Subordinated Notes is:
MARINE MIDLAND BANK
By Registered or Certified Mail: By Overnight Courier:
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
Marine Midland Bank Marine Midland Bank
140 Broadway, Level A 140 Broadway, Level A
New York, New York 10005-1180 New York, New York 10005-1180
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
By Hand: By Facsimile:
Marine Midland Bank (212) 658-2292
140 Broadway, Level A
New York, New York 10005-1180
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tender(s) for exchange to the Company, upon the terms
and subject to the conditions set forth in the Prospectus and Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures."
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1998, unless extended
by the Company. With respect to the Exchange Offer, "Expiration Date" means
such time and date, or if the Exchange Offer is extended, the latest time and
date to which the Exchange Offer is so extended by the Company.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of Guaranteed
Delivery shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
Principal Amount of Old Notes
SIGNATURES Exchanged: $ ________________________
----------------------------------- Certificate Nos. of Old Notes (if
SIGNATURE OF OWNER available)
-------------------------------------
----------------------------------- -------------------------------------
SIGNATURE OF OWNER (IF MORE THAN
ONE)
Total $ _____________________________
Dated: _____________________ , 1998 IF OLD NOTES WILL BE DELIVERED BY
BOOK-ENTRY TRANSFER, PROVIDE THE
DEPOSITORY TRUST COMPANY ACCOUNT
NO.:
Name(s): __________________________
----------------------------
(PLEASE PRINT)
Account No.: ________________________
Address: __________________________
----------------------------
----------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone No.: ____________________
Capacity (full title), if signing
in a repre-
sentative capacity: _______________
Taxpayer Identification or
Social Security No.: ______________
2
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national security exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby guarantees that (a) that the above named person(s) "own(s)" the Old
Notes tendered hereby within the meaning of Rule 10b-4 under the Securities
Exchange Act of 1934, (b) that such tender of Old Notes complies with Rule
10b-4 and (c) within five New York Stock Exchange trading days from the date
of this Notice of Guaranteed Delivery, certificates representing the Old Notes
tendered hereby, in proper form for transfer, or, in the case of a book-entry
transfer, confirmation of a book-entry transfer into the Exchange Agent's
account at DTC, together, in each case, with a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), will be delivered by
the undersigned to the Exchange Agent.
Name of Firm: _______________________
-------------------------------------
Address: ____________________________ AUTHORIZED SIGNATURE
Name: _______________________________
- -------------------------------------
Title: ______________________________
Area Code and Telephone No.: ________
Date: _______________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, THE LETTER OF TRANSMITTAL.
3
