UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ____________
Commission File Number 1-1059
CROWN CENTRAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-0550682
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
ONE NORTH CHARLES STREET
BALTIMORE, MARYLAND 21201
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 539-7400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Class A Common Stock - $5 Par Value American Stock Exchange
Class B Common Stock - $5 Par Value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
The aggregate market value of the voting stock held by nonaffiliates as of
December 31, 1998 was $48,195,847.
The number of shares outstanding at January 31, 1999 of the registrant's $5 par
value Class A and Class B Common Stock was 4,817,394 shares and 5,236,217
shares, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders on April
22, 1999 are incorporated by reference into Items 10 through 13, Part III.
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CROWN CENTRAL PETROLEUM CORPORATION
AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I
Item 1 Business.................................................................... l
Item 2 Properties.................................................................. 3
Item 3 Legal Proceedings........................................................... 7
Item 4 Submission of Matters to a Vote of
Security Holders............................................................ 8
PART II
Item 5 Market for the Registrant's Common
Equity and Related Stockholder Matters...................................... 9
Item 6 Selected Financial Data..................................................... 10
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations............................ 11
Item 7a Qualitative and Quantitative Disclosures About Market Risk.................. 19
Item 8 Financial Statements and Supplementary Data................................. 20
Item 9 Changes in and Disagreements with Auditors on
Accounting and Financial Disclosure......................................... 41
PART III
Item 10 Directors and Executive Officers of the Registrant.......................... 42
Item 11 Executive Compensation...................................................... 43
Item 12 Security Ownership of Certain
Beneficial Owners and Management............................................ 43
Item 13 Certain Relationships and Related Transactions.............................. 43
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K..................................................... 43
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PART I
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Annual Report contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts included in this Annual Report on Form 10-K,
including without limitation those under "Liquidity and Capital Resources",
"Additional Factors that May Affect Future Results" and "Impact of Year 2000"
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" regarding the Company's financial position and results of
operations, are forward-looking statements. Such statements are subject to
certain risks and uncertainties, such as changes in prices or demand for the
Company's products as a result of competitive actions or economic factors,
changes in the cost of crude oil, changes in operating costs resulting from new
refining technologies, increased regulatory burdens or inflation, and the
Company's ability to continue to have access to capital markets and commercial
bank financing on favorable terms. Should one or more of these risks or
uncertainties, among others as set forth in this Annual Report on Form 10-K for
the year ended December 31, 1998, materialize, actual results may vary
materially from those estimated, anticipated or projected. Although the Company
believes that the expectations reflected by such forward-looking statements are
reasonable based on information currently available to the Company, no
assurances can be given that such expectations will prove to have been correct.
Cautionary statements identifying important factors that could cause actual
results to differ materially from the Company's expectations are set forth in
this Annual Report on Form 10-K for the year ended December 31, 1998, including
without limitation in conjunction with the forward-looking statements included
in this Annual Report on Form 10-K that are referred to above. All
forward-looking statements included in this Annual Report on Form 10-K and all
subsequent oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
ITEM 1. BUSINESS
GENERAL
Crown Central Petroleum Corporation and subsidiaries (the Company), which traces
its origins to 1917, is a large independent refiner and marketer of petroleum
products in the United States. The Company owns and operates two high-conversion
refineries with a combined capacity of 152,000 barrels per day of crude oil - a
100,000 barrel per day facility located in Pasadena, Texas, near Houston (the
Pasadena refinery) and a 52,000 barrel per day facility located in Tyler, Texas
(the Tyler refinery, and together with the Pasadena refinery, the Refineries).
The Company is also a leading independent marketer of refined petroleum products
and merchandise through a network of 343 gasoline stations and convenience
stores located in the Mid-Atlantic and Southeastern United States. In support of
these businesses, the Company operates 13 product terminals located on three
major product pipelines along the Gulf Coast and the Eastern Seaboard and in the
Central United States.
The Refineries are strategically located and have direct access to crude oil
supplies from major and independent producers and trading companies, thus
enabling the Company to select a crude oil mix to optimize refining margins and
minimize transportation costs. The Pasadena refinery's Gulf Coast location
provides access to tankers, barges and pipelines for the delivery of foreign and
domestic crude oil and other feedstocks. The Tyler refinery benefits from its
location in East Texas due to its ability to purchase high quality crude oil
directly from nearby suppliers at a favorable cost and its status as the only
supplier of a full range of refined petroleum products in its local market area.
The Refineries are operated to generate a product mix of over 88% higher margin
fuels, primarily transportation fuels such as gasoline, highway diesel and jet
fuel as well as home heating oil. During the past five years, the Company has
invested over $39 million for environmental compliance, upgrading, expansion and
process improvements at its two refineries. As a result of these expenditures,
the Refineries have a high rate of conversion to higher margin fuels.
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The Company is one of the largest independent retail marketers in its core
retail market areas within Maryland, Virginia and North Carolina. The Company
has a geographic concentration of retail locations in high growth areas such as
the metropolitan Baltimore, Maryland and Washington, DC area, Tidewater and
Richmond, Virginia, Charlotte and Raleigh, North Carolina and Atlanta, Georgia.
Over the past several years, the Company has rationalized and refocused its
retail operations, resulting in significant improvements in average unit
performance and positioning these operations for growth from a profitable base.
For the year ended December 31, 1998, average merchandise sales per unit
increased 6.6% on a same store basis when compared with 1997. The Company has
made substantial investments of approximately $24 million at its retail
locations pursuant to environmental requirements since 1989. All of the
Company's retail units are currently in full compliance with the 1998
underground storage tank environmental standards.
Sales values of the principal classes of products sold by the Company during the
last three years are included in Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 11 of this report.
At December 31, 1998, the Company employed 3,028 employees. The total number of
employees increased approximately 7.4% from year-end 1997.
REGULATION
Like other companies in the petroleum refining and marketing industries, the
Company's operations are subject to extensive regulation and the Company has
responsibility for the investigation and clean-up of contamination resulting
from past operations. Current compliance activities relate to air emissions
limitations, waste water and storm water discharges and solid and hazardous
waste management activities. In connection with certain of these compliance
activities and for other reasons, the Company is engaged in various
investigations and, where necessary, remediation of soils and ground water
relating to past spills, discharges and other releases of petroleum, petroleum
products and wastes. The Company's environmental activities are different with
respect to each of its principal business activities: refining, terminal
operations and retail marketing. The Company is not currently aware of any
information that would suggest that the costs related to the air, water or solid
waste compliance and clean-up matters discussed herein will have a material
adverse effect on the Company. The Company anticipates that substantial capital
investments will be required in order to comply with federal, state and local
provisions. A more detailed discussion of environmental matters is included in
Note A and Note I of Notes to Consolidated Financial Statements on pages 25 and
35, respectively, of this report, and in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 11 through 18 of this
report.
COMPETITIVE CONDITIONS
Oil industry refining and marketing 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, 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 operations
are crude oil and other feedstock costs, refinery product margins, refinery
efficiency, refinery product mix and product distribution and transportation
costs. Certain of the Company's larger competitors have refineries which are
larger and more complex and, as a result, could have lower per barrel costs or
higher margins per barrel of throughput. The Company has no crude oil reserves
and is not engaged in exploration. The majority of the Company's total crude oil
purchases are transacted on the spot market. The Company believes that it will
be able to obtain adequate crude oil and other feedstocks at generally
competitive prices for the foreseeable future.
The principal competitive factors affecting the Company's retail marketing
operations are locations of stores, product price and quality, appearance and
cleanliness of stores and brand identification. Competition from large
integrated oil companies, as well as from 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 Company maintains business interruption insurance to protect itself against
losses resulting from shutdowns to refinery operations from fire, explosions and
certain other insured casualties. Business interruption coverage begins for such
losses in excess of $1 million.
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ITEM 2. PROPERTIES
REFINING OPERATIONS
OVERVIEW
The Company owns and operates two strategically located, high conversion
refineries with a combined capacity of 152,000 barrels of crude oil per day--a
100,000 barrel per day facility located in Pasadena, Texas, near Houston, and a
52,000 barrel per day facility located in Tyler, Texas. Both refineries are
operated to generate a product mix of over 88% higher margin fuels, primarily
transportation fuels such as gasoline, highway diesel and jet fuel, as well as
home heating oil. When operating to maximize the production of light products,
the product mix at both of the Refineries is approximately 55% gasoline, 33%
distillates (such as diesel, home heating oil, jet fuel, and kerosene), 6%
petrochemical feedstocks and 6% slurry oil and petroleum coke.
The Pasadena refinery and Tyler refinery averaged production output of 102,810
barrels per day and 52,146 barrels per day, respectively, during 1998. While
both refineries primarily run sweet (low sulphur content) crude oil, they can
process up to 20% of certain sour (high sulphur content) crude oil in their mix.
The Company's access to extensive pipeline networks provides it with the ability
to acquire crude oil directly from major integrated and independent domestic
producers, foreign producers, or trading companies, and to transport this crude
to the refineries at a competitive cost. The Pasadena refinery has docking
facilities which provide direct access to tankers and barges for the delivery of
crude oil and other feedstocks. The Company also has agreements with terminal
operators for the storage and handling of the crude oil it receives from large
ocean-going vessels and which the Company transports to the refineries by
pipeline. The Tyler refinery benefits from its location in East Texas since the
Company can purchase high quality crude oil at favorable prices directly from
nearby producers. In addition, the Tyler refinery is the only supplier of a full
range of petroleum products in its local market area. See "-- Supply,
Transportation and Wholesale Marketing."
PASADENA REFINERY
The Pasadena refinery is located on approximately 174 acres in Pasadena, Texas
and was the first refinery built on the Houston Ship Channel. The refinery has
been substantially modernized since 1969 and today has a rated crude capacity of
100,000 barrels per day. During the past five years, the Company has invested
approximately $25 million in major upgrades and maintenance projects.
The Company's refining strategy includes several initiatives to enhance
productivity. For example, the Pasadena refinery has an extensive plant-wide
distributed control system which is designed to improve product yields, make
more efficient use of personnel and optimize process operations. The distributed
control system uses technology that is fast, accurate and provides increased
information to both operators and supervisors. This equipment also allows the
use of modern advanced control techniques for optimizing unit operations.
The Pasadena refinery has a crude unit with a 100,000 barrels per day
atmospheric column and a 38,000 barrels per day vacuum tower. Major downstream
units consist of a 52,000 barrels per day fluid catalytic cracking unit, a
12,000 barrels per day delayed coking unit, two alkylation units with a combined
capacity of 10,000 barrels per day of alkylate production, and a continuous
regeneration reformer with a capacity of 24,000 barrels per day. Other units
include two depropanizers that can produce 5,500 barrels per day of refinery
grade propylene, a liquified petroleum gas recovery unit that removes
approximately 1,000 barrels per day of liquids from the refinery fuel system and
a methyl tertiary butyl ether ("MTBE") process which can produce approximately
1,500 barrels per day of MTBE for gasoline blending, a reformate splitter, and a
compression facility capable of transporting up to 14 million standard cubic
feet per day of process gas to a neighboring petrochemical plant.
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The Clean Air Act mandates that after January 1, 1995 only reformulated gasoline
("RFG") may be sold in certain ozone non-attainment areas, including some
metropolitan areas where the Company sells gasoline. Using production from its
MTBE unit, the Pasadena refinery can currently produce 12,000 barrels per day of
winter grade RFG. With additional purchases of MTBE, ethanol or other
oxygenates, all of the Pasadena refinery's current gasoline production could
meet winter grade RFG standards. In 1996, the Company completed the construction
of a reformate splitter at its Pasadena refinery. This process unit enables the
refinery to make 12,000 barrels per day of summer grade RFG using its own MTBE,
and up to 100% of its Pasadena refinery gasoline production as summer grade RFG
with the purchase of additional oxygenates. This project enables the Company to
satisfy all of its retail RFG requirements.
In 1998, the Pasadena refinery operated at only 87% of rated crude unit capacity
with production yielding approximately 58% gasoline and 29% distillates. Of the
total gasoline production, approximately 33% was premium octane grades. In
addition, the Pasadena refinery produced and sold by-products including
propylene, propane, slurry oil, petroleum coke and sulphur.
The Company owns and operates storage facilities located on approximately 130
acres near its Pasadena refinery which, together with tanks on the refinery
site, provide the Company with a storage capacity of approximately 6.2 million
barrels (2.8 million barrels for crude oil and 3.4 million barrels for refined
petroleum products and intermediate stocks).
The Pasadena refinery's refined petroleum products are delivered to both
wholesale and retail customers. Approximately one-half of the gasoline and
distillate production is sold wholesale into the Gulf Coast spot market and
one-half is shipped by the Company on the Colonial and Plantation pipelines for
sale in East Coast wholesale and retail markets. The Company's retail gasoline
requirements represent approximately 56% of the Pasadena refinery's total
gasoline production capability.
TYLER REFINERY
The Tyler refinery is located on approximately 100 of the 529 acres owned by the
Company in Tyler, Texas and has a rated crude capacity of 52,000 barrels per
day. The Tyler refinery's location provides access to nearby high quality East
Texas crude oil which accounts for approximately 70% of its crude supply. This
crude oil is transported to the refinery on the McMurrey and Scurlock pipeline
systems. The Company owns the McMurrey system and has a long-term contract for
use of the Scurlock system with Scurlock Permian Pipe Line Corporation. The
Company also has the ability to ship crude oil to the Tyler refinery by pipeline
from the Gulf Coast and does so when market conditions are favorable. Storage
capacity at the Tyler refinery exceeds 2.7 millions barrels (1.2 million barrels
for crude oil and 1.5 million barrels for refined petroleum products and
intermediate stocks), including tankage along the Company's pipeline system.
The Tyler refinery has a crude unit with a 52,000 barrels per day atmospheric
column and a 16,000 barrels per day vacuum tower. The other major process units
at the Tyler refinery include an 18,000 barrels per day fluid catalytic cracking
unit, a 6,000 barrels per day delayed coking unit, a 20,000 barrels per day
naphtha hydrotreating unit, a 12,000 barrels per day distillate hydrotreating
unit, two reforming units with a combined capacity of 16,000 barrels per day, a
5,000 barrels per day isomerization unit, and an alkylation unit with a capacity
of 4,700 barrels per day.
In 1998, the Tyler refinery operated at approximately 96% of rated crude unit
capacity, with production yielding approximately 54% gasoline and approximately
36% distillates. Of the total gasoline production, approximately 27% was premium
octane grades. In addition, the refinery produced and sold by-products including
propylene, propane, slurry oil, petroleum coke and sulphur. The Tyler refinery
is the principal supplier of refined petroleum products in the East Texas market
with approximately 60% of production distributed at the refinery's truck
terminal. The remaining production is shipped via the Texas Eastern Products
Pipeline for sale either from the Company's terminals or from other terminals
along the pipeline. Deliveries under term exchange agreements account for the
majority of the truck terminal sales.
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RETAIL OPERATIONS
Overview
The Company traces its retail marketing history to the early 1930's when it
operated a retail network of 30 service stations in the Houston, Texas area. It
began retail operations on the East Coast in 1943. The Company has been
recognized as an innovative industry leader and, in the early 1960's, pioneered
the multi-pump retailing concept which has since become an industry standard in
the marketing of gasoline.
As of December 31, 1998, the Company had 343 retail locations. Of these 343
units (228 owned and 115 leased), the Company directly operated 241 and the
remainder were operated by independent dealers. The Company conducts its
operations in Maryland through an independent dealer network as a result of
legislation which prohibits refiners from operating gasoline stations in
Maryland. The Company believes that the high proportion of Company-operated
units enables it to respond quickly and uniformly to changing market conditions.
While most of the Company's units are located in or around major metropolitan
areas, its sites are generally not situated on major interstate highways or
inter-city thoroughfares. These off-highway locations primarily serve local
customers and, as a result, the Company's retail marketing unit volumes are not
as highly seasonal or dependent on seasonal vacation traffic as locations
operating on major traffic arteries. The Company is one of the largest
independent retail marketers of gasoline in its core retail market areas within
Maryland, Virginia and North Carolina. The Company has a geographic
concentration of retail locations in high growth areas such as the metropolitan
Baltimore, Maryland and Washington DC area, Tidewater and Richmond, Virginia,
Raleigh and Charlotte, North Carolina and Atlanta, Georgia. The Company's three
highest volume core markets are Baltimore, the suburban areas of Maryland and
Virginia surrounding Washington, D.C., and the greater Norfolk, Virginia area.
RETAIL UNIT OPERATIONS
The Company conducts its retail marketing operations through three basic store
formats: convenience stores, mini-marts and gasoline stations. At December 31,
1998, the Company had 76 convenience stores, 121 mini-marts and 146 gasoline
stations.
The Company's convenience stores operate primarily under the names Fast Fare and
Zippy Mart. These units generally contain 1,500 to 2,800 square feet of retail
space and typically provide gasoline and a variety of convenience store
merchandise such as tobacco products, beer, wine, soft drinks, snacks, dairy
products and baked goods and more recently food service items.
The Company's mini-marts generally contain up to 800 square feet of retail space
and typically sell gasoline and much of the same merchandise as at the Company's
convenience stores. The Company has installed lighted canopies which extend over
the multi-pump fuel islands at most of its locations. This provides added
security and protection from the elements for customers and employees.
The Company's gasoline stations generally contain up to 100 square feet of
retail space in an island kiosk and typically offer gasoline and a limited
amount of merchandise such as tobacco products, candies, snacks and soft drinks.
The Company's units are brightly decorated with its trademark signage to create
a consistent appearance and encourage customer recognition and patronage. The
Company believes that consistency of brand image is important to the successful
operation and expansion of its retail marketing system. In all aspects of its
retail marketing operations the Company emphasizes quality, value, cleanliness
and friendly and efficient customer service.
While the Company derives approximately 71% of its retail revenue from the sale
of gasoline, it also provides a variety of merchandise and other services
designed to meet the non-fuel needs of its customers. Sales of these additional
products are an important source of revenue, contribute to increased
profitability and serve to increase customer traffic. The Company believes that
its existing retail sites present significant additional profit opportunities
based upon their strategic locations in high traffic areas. The Company also
offers ancillary services such as compressed air service, car washes, vacuums,
and automated teller machines, and management continues to evaluate the addition
of new ancillary services such as the marketing of fast food from major branded
chains.
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DEALER OPERATIONS
The Company maintains 102 dealer-operated units, all of which are located in
Maryland. Under the Maryland Divorcement Law, refiners are prohibited from
operating gasoline stations. The Maryland units are operated under a Branded
Service Station Lease and Dealer Agreement (the "Dealer Agreement"), generally
with a term of three years. Pursuant to the Dealer Agreement, a dealer leases
the facility from the Company and purchases and resells Crown-branded motor fuel
and related products. Dealers purchase and resell merchandise from independent
third parties. The Dealer Agreement sets forth certain operating standards;
however, the Company does not control the independent dealer's personnel,
pricing policies or other aspects of the independent dealer's business. The
Company believes that its relationship with its dealers has been very favorable
as evidenced by a low rate of dealer turnover.
The Company realizes little direct benefit from the sale of merchandise or
ancillary services at the dealer operated units, and the revenue from these
sales is not reflected in the Company's Consolidated Financial Statements.
However, to the extent that the availability of merchandise and ancillary
services increases customer traffic and gasoline sales at its units, the Company
benefits from higher gasoline sales volumes.
SUPPLY, TRANSPORTATION AND WHOLESALE MARKETING
SUPPLY
The Company's refineries, terminals and retail outlets are strategically located
in close proximity to a variety of supply and distribution channels. As a
result, the Company has the flexibility to acquire available domestic and
foreign crude oil economically, and also the ability to cost effectively
distribute its products to its own system and to other domestic wholesale
markets. Purchases of crude oil and feedstocks are determined by quality, price
and general market conditions.
TRANSPORTATION
Most of the domestic crude oil processed by the Company at its Pasadena refinery
is transported by pipeline. The Company's purchases of foreign crude oil are
transported primarily by tankers under spot charters which are arranged by
either the seller or the Company. The Company is not currently obligated under
any time-charter contracts. The Company has an approximate 5% interest in the
Rancho Pipeline and generally receives between 20,000 and 25,000 barrels per day
of crude through this system. Foreign crudes (principally from the North
Sea,West Africa and South America) account for approximately 64% of total
Pasadena crude supply and are delivered by tanker. Most of the crude for the
Tyler refinery is gathered from local East Texas fields and delivered by two
pipeline systems, one of which is owned by the Company. Foreign crude also can
be delivered to the Tyler refinery by pipeline from the Gulf Coast.
TERMINALS
The Company operates eight product terminals located along the Colonial and
Plantation pipeline systems and, in addition to the terminal at the Tyler
refinery, operates four product terminals located along the Texas Eastern
Products Pipeline system. These terminals have a combined storage capacity of
1.7 million barrels. The Company's distribution network is augmented by
agreements with other terminal operators also located along these pipelines. In
addition to serving the Company's retail requirements, these terminals supply
products to other refiner/marketers, jobbers and independent distributors.
WHOLESALE MARKETING
Approximately 16% of the gasoline produced by the Company's Pasadena refinery is
transported by pipeline for sale at wholesale through Company and other
terminals in the Mid-Atlantic and Southeastern United States. Heating oil is
also regularly sold at wholesale through these same terminals. Gasoline, heating
oil, diesel fuel and other refined products are also sold at wholesale in the
Gulf Coast market.
The Company has entered into product exchange agreements for approximately
one-quarter of its Tyler refinery production with two major oil companies
headquartered in the United States. These agreements provide for the delivery of
refined products at the Company's terminals, in exchange for delivery by these
companies of a similar amount of refined products to the Company. These exchange
agreements provide the Company with the ability to broaden its geographic
distribution, supply markets not connected to the refined products pipeline
systems and reduce transportation costs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various matters of litigation, the ultimate
determination of which, in the opinion of management, will not have a material
adverse effect on the Company. The Company's legal proceedings are further
discussed in Note I of Notes to Consolidated Financial Statements on page 35 of
this report.
The Pasadena and Tyler refineries and many of the Company's other facilities are
involved in a number of environmental enforcement actions or are subject to
agreements, orders or permits that require remedial activities. Environmental
expenditures, including these matters, are discussed in the Liquidity and
Capital Resources section of Management's Discussion and Analysis of Financial
Conditions and Results of Operations on pages 13 through 17 of this report, and
in Note I of Notes to Consolidated Financial Statements on page 35 of this
report. These enforcement actions and remedial activities, in the opinion of
management, are not expected to have a material adverse effect on the Company.
On July 21, 1997, Texans United for a Safe Economy Education Fund, the Sierra
Club, the Natural Resources Defense Council, Inc. and several individuals filed
a Clean Air Act citizens' suit in the United States District Court for the
Southern District of Texas against the Company, alleging violations by the
Company's Pasadena refinery of certain state and federal environmental air
regulations. Texans United for a Safe Economy Education Fund, et al. vs. Crown
Central Petroleum Corporation, H-97-2427 (S.D. Tex.). On July 31, 1998, United
States District Judge Vanessa Gilmore granted the Company's Motion for Summary
Judgment as to all of the plaintiff's claims. She subsequently rejected the
plaintiff's motion to reconsider her decision. Some of the plaintiffs have now
noted an appeal to the United States Court of Appeals for the Fifth Circuit. The
appeal is pending.
On June 25, 1997, a purported class action lawsuit was filed in the state
district court of Harris County, Texas by individuals who claim to have suffered
personal injuries and property damage from the operation of the Company's
Pasadena refinery. Allman, et al. vs. Crown Central Petroleum Corporation, et
al., C.A. No. 97-39455 (District Court of Harris County, Texas). This suit seeks
unspecified compensatory damages and $50 million in punitive damages. The
plaintiffs have now dropped all class action claims. The matter is in discovery.
In October 1998, the Company was served in a lawsuit naming it as an additional
defendant in an existing lawsuit filed by approximately 5,500 Houston Ship
Channel area residents against 11 other refineries and petrochemical plant
operators. Crye et al. vs. Reichhold Chemicals, Inc., et al., 97-24399 (334th
Judicial District, Harris Co., Tex.). The plaintiffs claim they are adversely
affected by the noise, light, emissions and discharges from defendants'
operations and seek unspecified damages and injunctive relief for alleged
nuisance, trespass, negligence, and gross negligence.
Seven employees at the Pasadena refinery and one at the Tyler refinery have
filed a purported class action suit in the United States District Court for the
Eastern District of Texas alleging race and sex discrimination in violation of
Title VII of the Civil Rights Act of 1964, as amended, and in violation of the
Civil Rights Act of 1871, as amended. Lorretta Burrell, et al. vs. Crown Central
Petroleum Corporation, C.A. No. 97-CVO-357 (E.D. Tex.). The plaintiffs have now
dropped their efforts to certify company-wide classes and have limited their
proposed class to certain women and African-Americans who have been employed at
the Company's two Texas refineries. The Company plans to vigorously oppose
certification of even this limited class. The Company has filed Motions for
Partial Summary Judgment against all of the individual claims of five of the
eight named plaintiffs and plans to file similar motions with respect to the
remaining three.
On December 15, 1998, five shareholders filed a derivative lawsuit in District
Court for Harris County, Texas against each of the Company's then-current
directors and three of its non-director officers. Knox, et al. v. Rosenberg, et
al., C.A. No. 1998-58870. Three of the plaintiff shareholders are locked-out
union employees and the remaining two are retired union employees. The
defendants have removed the case to the United States District Court for the
Southern District of Texas, H-99-0123. The suit alleges that the defendants
breached their fiduciary duties, committed "constructive fraud", "abuse of
control", and were unjustly enriched. The Company expects to defend and
indemnify the defendants to the extent permitted by law and the Company's
charter and by-laws. Discovery has not yet begun.
A review of the Allman, Burrell, Crye, and Knox cases suggests that the Company,
and in the Knox case the individual defendants, have meritorious defenses. The
Company intends to vigorously defend these cases and in the opinion of
management, there is no reasonable basis to believe that the eventual outcome of
any of these cases will have a material adverse effect on the Company.
7
<PAGE>
In February 1998, the Company and thirteen other companies, including several
major oil companies, were sued on behalf of the EPA and the TNRCC under the
Comprehensive Environmental Response Compensation, and Liability Act of 1980
(the "Superfund Statute") to recover the costs of removal and remediation at the
Sikes Disposal Pits Site (the "Sikes Site") in Harris County, Texas. The Company
does not believe that it sent any waste material to the Sikes Site or that there
is any credible evidence to support the government's claim that it did so. In
fact, the Company has developed considerable evidence to support its position
that it should not have been named as a Potentially Responsible Party ("PRP").
The EPA and TNRCC allege that they incurred costs in excess of $125 million in
completing the remediation at the Sikes Site. Since the Superfund Statute
permits joint and several liability and any PRP is theoretically at risk for the
entire judgment, the Company intends to vigorously defend this action. Based
upon the information currently available, the Company expects that it will
eventually prevail in this matter. In addition, the Company has been named by
the EPA and by several state environmental agencies as a PRP at various other
federal and state Superfund sites. The Company's exposure in these matters has
either been resolved, is properly reserved or is de minimis and is not expected
to have a material adverse effect on the Company.
The foregoing environmental proceedings are not of material importance to
Crown's accounts and are described in compliance with SEC rules requiring
disclosure of such proceedings although not material.
The Company's collective bargaining agreement with the Oil Chemical & Atomic
Workers Union ("OCAW") covering employees at the Pasadena refinery expired on
February 1, 1996. Following a number of incidents apparently intended to disrupt
normal operations at the refinery and also as a result of the unsatisfactory
status of the negotiations, on February 5, 1996 the Company implemented a lock
out of employees in the collective bargaining unit at the Pasadena facility.
OCAW subsequently filed a number of unfair labor practice charges with the
National Labor Relations Board ("NLRB") and all of these charges have been
dismissed by the NLRB. The lock out and negotiations on a new contract continue.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last three
months of the fiscal year covered by this report.
[This space intentionally left blank]
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the American Stock Exchange under the
ticker symbols CNP A and CNP B.
COMMON STOCK MARKET PRICES AND CASH DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
--------------------- ------------------------
Sales Price Sales Price
High Low High Low
-------- ---- ----- ----
<S> <C> <C> <C> <C>
CLASS A COMMON STOCK
First Quarter............. $ 22 $ 18 1/4 $ 14 1/4 $ 11 1/8
Second Quarter............ 19 12 1/2 15 7/16 12 1/8
Third Quarter............. 13 1/16 9 22 1/2 14 3/4
Fourth Quarter............ 10 1/4 7 1/16 21 7/8 17 1/2
Yearly............. 22 7 1/16 22 1/2 11 1/8
CLASS B COMMON STOCK
First Quarter............. $ 20 3/4 $ 18 $ 13 3/4 $ 11
Second Quarter............ 18 3/4 11 3/4 15 7/16 11 5/8
Third Quarter............. 13 1/16 9 22 1/4 14 3/4
Fourth Quarter............ 10 7/16 6 3/4 20 3/8 16 5/8
Yearly............. 20 3/4 6 3/4 22 1/4 11
</TABLE>
The payment of cash dividends is dependent upon future earnings, capital
requirements, overall financial condition and restrictions as described in Note
C of Notes to Consolidated Financial Statements on page 27 of this report. There
were no cash dividends declared on common stock in 1998 or 1997.
The number of shareholders of the Company's common stock based on the number of
record holders on December 31, 1998 was:
Class A Common Stock.................. 534
Class B Common Stock.................. 608
TRANSFER AGENT & REGISTRAR
Boston EquiServe
Boston, Massachusetts
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company set forth below for the
five years ended December 31, 1998 should be read in conjunction with the
Consolidated Financial Statements.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----- ----- ---- ------- -------
(Thousands of dollars except per share amounts)
<S> <C> <C> <C> <C> <C>
Sales and operating revenues...... $1,264,317 $1,609,083 $1,641,875 $1,456,990 $1,323,407
(Loss) income before extraordinary
item............................ (29,380) 19,235 (2,767) (67,367) (35,406)
Extraordinary item................ (3,257)
Net (loss) income................. (29,380) 19,235 (2,767) (70,624) (35,406)
Total assets...................... 521,583 600,967 570,528 583,494 704,076
Long-term debt.................... 129,899 127,506 127,196 128,506 96,632
PER SHARE DATA:
(Loss) income before extraordinary
item............................. (2.99) 1.97 (.28) (6.95) (3.63)
Net (loss) income................. (2.99) 1.97 (.28) (7.28) (3.63)
PER SHARE DATA - ASSUMING DILUTION:
(Loss) income before extraordinary (2.99) 1.94 (.28) (6.95) (3.63)
item..............................
Net (loss) income................. (2.99) 1.94 (.28) (7.28) (3.63)
</TABLE>
To conform to the 1998 presentation, Sales and operating revenues for the years
ended December 31, 1997, 1996, 1995, and 1994, respectively, have been restated.
These restatements had no effect on the Net income (loss) and the Net income
(loss) per share amounts previously reported. See Note A to the accompanying
financial statements.
To conform to the 1998 presentation, Total assets at December 31, 1997, 1996,
1995, and 1994, respectively, have been restated. See Note A to the accompanying
financial statements.
The net loss in 1998 was unfavorably impacted by a $7.1 million reserve to
reflect the decline in inventory values of crude oil and petroleum products when
valuing inventories at the lower of cost of market.
The extraordinary loss in 1995, which was recorded in the first quarter,
resulted from the early retirement of the remaining principal balance of the
Company's 10.42% Senior Notes with the proceeds from the sale of $125 million of
Unsecured Senior Notes due February 1, 2005.
The net loss in 1995 was unfavorably impacted by a pre-tax write-down of certain
refinery assets of $80.5 million in the fourth quarter relating to the adoption
of Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
The net loss in 1994 was unfavorably impacted by a pre-tax write-down of $16.8
million in the third quarter relating to the abandonment of plans to construct a
hydrodesulphurization unit at the Pasadena refinery.
There were no cash dividends declared in 1998, 1997, 1996, 1995 or 1994.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's Sales and operating revenues decreased 21.4% in 1998 compared to a
2% decrease in 1997. The 1998 decrease in Sales and operating revenues was
primarily due to a 25.2% decrease in the average unit selling price of petroleum
products. These decreases were partially offset by a 2.5% increase in petroleum
product sales volumes and an $8.7 million or 8.4% increase in merchandise sales.
The 1997 decrease in Sales and operating revenues was primarily due to a 3.6%
decrease in the average unit selling price of petroleum products. These
decreases were partially offset by a 1% increase in petroleum product sales
volumes and a $1.6 million or 1.6% increase in merchandise sales.
As previously mentioned, merchandise sales increased $8.7 million or 8.4% to
$112.4 million for the year ended December 31, 1998 compared to the same period
in 1997, while merchandise gross profit increased $4 million or 12.7% for the
year ended December 31, 1998 compared to the same period in 1997. Merchandise
gross margin (merchandise gross profit as a percent of merchandise sales) was
31.6% and 30.4% for the years ended December 31, 1998 and 1997, respectively.
These aggregate increases are attributable to a slight increase in the number of
operating units during the period and to the Company's merchandise pricing
program which has selectively increased margins on targeted merchandise yet
still maintains an everyday low pricing policy which is competitive with major
retail providers in the applicable market area. As a result of the strategy,
aggregate merchandise gross profit, on a same store basis, increased 4.7% in
1998 as compared to 1997. Same store average monthly merchandise sales increased
approximately 6.6% in 1998 as compared to 1997.
Gasoline sales accounted for 56.2% of total 1998 revenues, while distillates and
merchandise sales represented 27% and 8.9%, respectively. This compares to a
dollar mix from sales of 55.4% gasoline, 28.9% distillates and 6.4% merchandise
in 1997; and 54.1% gasoline, 31% distillates and 6.2% merchandise in 1996.
The following table depicts the sales values of the principal classes of
products sold by the Company, which individually contributed more than ten
percent of consolidated Sales and operating revenues during the last three
years:
SALES OF PRINCIPAL PRODUCTS
MILLIONS OF DOLLARS 1998 1997 1996
-------- ------- ------
Gasoline $711.1 $892.2 $881.1
No. 2 Fuel & Diesel 315.9 419.4 436.4
Costs and operating expenses decreased 19.5% in 1998 compared to a 4.2% decrease
in 1997. The 1998 decrease was primarily attributable to the decrease in the
price of crude oil. The Company utilizes the last-in, first-out (LIFO) method to
value inventory resulting in a better matching of current revenues and costs.
The impact of LIFO was to decrease the Company's Costs and operating expenses by
approximately $24.8 million in 1998 while decreasing Costs and operating
expenses by $27.3 million in 1997. Additionally, there was a decrease in the
average consumed cost per barrel of crude oil and feedstocks of 29.9%. These
decreases were partially offset by slight increases in petroleum products sales
volumes as mentioned above and a $7.1 million cost increase resulting from
valuing inventories at the lower of cost or market. This $7.1 million inventory
reserve was precipitated by industry-wide declines in the market prices of crude
oil and refined products. The 1997 decrease was attributable to a decrease in
the average consumed cost per barrel of crude oil and feedstocks of 6.6%. This
decrease was partially offset by slight increases in petroleum products sales
volumes. The average consumed cost per barrel includes only those costs directly
associated with the purchase and processing of crude oil and feedstocks.
Accordingly, refinery operating expenses are not included in the average
consumed cost per barrel of crude oil and feedstocks.
11
<PAGE>
On October 15, 1998, the Company executed a Crude Oil Processing Agreement
(Processing Agreement) with Statoil Marketing and Trading (US) Inc., (Statoil)
whereby the Company processes a monthly average of 35,000 barrels per day of
crude oil owned and supplied by Statoil at the Company's Pasadena, Texas
refinery. The Company receives a specified fee per barrel processed and returns
to Statoil a specified mix of finished petroleum products. This Processing
Agreement is scheduled to expire on October 14, 2000. As a result of this
Processing Agreement, the Company has decreased the level of crude oil and
finished product inventories maintained and owned by the Company, as well as,
the level of accounts receivable owed to the Company. These decreases in working
capital needs generate positive cash flows approximating $15-$18 million based
upon the prices prevailing during the Processing Agreement.
The Company utilizes the last-in, first-out (LIFO) method to value its
inventory. The LIFO method attempts to achieve a better matching of costs to
revenues by including the most recent costs of products in Costs and operating
expenses. The impact of the Company's use of the LIFO method was to increase the
Company's gross margin over what it would have been had the first-in, first-out
(FIFO) method of inventory valuation been utilized in 1998 and 1997 by $.44 per
barrel ($24.8 million) and $.51 per barrel ($27.3 million), respectively, while
decreasing the Company's 1996 gross margin by $.02 per barrel ($.9 million). The
1998 LIFO impact is net of a $.5 million decrease in gross margin attributable
to lower inventory levels and the resulting liquidation of LIFO layers, which
were carried at higher costs prevailing in prior years. The 1996 LIFO impact is
net of a $5.9 million increase in gross margin attributable to changes in the
base year costs for a portion of the Company's LIFO inventories and reductions
in inventory levels resulting in liquidations of LIFO layers which were carried
at lower costs from prior years. There were no LIFO layer liquidations in 1997.
Total yields of distillates decreased slightly to 48,700 barrels per day (bpd)
(31.4%) in 1998 from 52,800 bpd (33.2%) in 1997 while total production of
finished gasoline decreased slightly to 87,500 bpd (56.5%) in 1998 from 89,000
bpd (56.5%) in 1997. Total yields of finished gasoline were increased slightly
to 89,000 barrels per day (bpd) (56.5%) in 1997 from 85,500 bpd (56%) in 1996
while distillate production was increased slightly to 52,800 bpd (33.2%) in
1997, from 51,700 bpd (33.9%) in 1996. Total refinery production was 155,000 bpd
in 1998, 159,000 bpd in 1997 and 152,600 bpd in 1996.
Selling expenses increased 11.9% in 1998 after decreasing 4.7% in 1997. The 1998
increase was primarily due to increases in store level operating expenses and
marketing support costs attributable to the 2.1% increase in the number of
retail operating units and increases in labor rates, advertising and maintenance
costs. The 1997 decrease was primarily due to decreases in store level operating
expenses which include decreases related to environmental expenses and decreases
in advertising and insurance related accruals. At December 31, 1998, the Company
operated 267 retail gasoline facilities and 76 convenience stores compared to
266 retail gasoline facilities and 70 convenience stores at December 31, 1997
and 264 retail gasoline facilities and 79 convenience stores at December 31,
1996.
Administrative expenses increased 9% in 1998 compared to 1997. Administrative
expenses in 1997 were comparable to 1996. The 1998 increase was primarily due to
increases in expenses associated with the company-wide business process
reengineering project which includes a company-wide computer system upgrade
which will add year 2000 capability to the Company's computer systems.
Operating costs and expenses in 1998, 1997, and 1996 include $2.6 million, $.8
million and $.5 million, respectively, of accrued litigation costs.
Additionally, 1998 expenses include reductions of $2.9 million related to
favorable resolution of certain litigation and insurance claims. Also included
in the 1997 expenses is $1.7 million relating to the closure or sale of several
marketing terminal locations and certain other corporate strategic initiatives.
Included in Operating costs and expenses in 1996 was $1.9 million related to
environmental matters. Operating costs and expenses in 1998, 1997 and 1996 have
been reduced by $2.2 million, $1.8 million and $4.8 million, respectively,
relating to adjustments in certain liability reserves.
Depreciation and amortization increased 7.6% in 1998 compared to 1997.
Depreciation and amortization in 1997 was comparable to 1996. The 1998 increases
were primarily attributable to the amortization of refinery deferred turnaround
expenses related to the turnarounds performed in the second and fourth quarters
of 1997 and in the first quarter of 1998. Additionally, there were increases in
amortization of costs related to the systems development costs and the
associated company-wide computer upgrade projects.
12
<PAGE>
Interest and other income in 1998 was comparable to 1997. Interest and other
income increased $.6 million in 1997. The 1997 increase is due primarily to an
increase in interest income of $1 million due to an increase in the average
daily cash invested of $23.2 million which was partially offset by a loss of $.5
million from the equity in losses in affiliates.
Interest expense in 1998 was comparable to 1997 which was comparable to 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $29.1 million lower at year-end
1998 than at year-end 1997. The decrease was attributable to the net impact of
cash provided by operating activities of $1.5 million, cash inflows from
financing activities of $13.2 million, offset by $43.8 million of net cash
outflows from investment activities.
Net cash inflows from operating activities in 1998 is due primarily to $10.8
million in net inflows relating to other assets and liabilities. These inflows
were primarily the result of decreases in accounts receivable and in crude oil
and finished product inventories. The decreases in crude oil and refined
products inventories were due primarily to a decline in the market value of
crude oil and refined petroleum products and to decreases in inventory levels as
a result of the crude oil processing agreement with Statoil Marketing and
Trading (US) Inc. which decreases proprietary production levels thereby
decreasing the need to maintain higher volumes of inventory. Additionally, there
were increases in other accounts payable and in accrued excise tax liabilities.
Partially offsetting these cash inflows were cash outflows relating to decreases
in crude oil and refined products payables. Cash outflows also include
collateral deposits and deferred placement costs associated with the execution
of a new financing arrangement. The timing of collection of the Company's
receivables is impacted by the specific type of sale and associated terms. Bulk
sales of finished products are typically sold in 25,000 barrel increments with
three day payment terms. Rack sales at the Company's product terminals are sold
by truckload (approximately 8,000 gallons) with seven to ten day payment terms.
While the Company's overall sales are aligned to its refining capability,
receivables can vary between periods depending upon the specific type of sale
and associated payment terms for sales near the end of a reporting period.
Net cash inflows from financing activities in 1998 relates primarily to net cash
borrowings from debt and credit agreements of $12.2 million. Additionally, cash
inflows include $.6 million from issuances of the Company's Class B Common Stock
due to exercises of stock options and to net proceeds of $.4 million from the
reduction of long-term notes receivable.
Net cash outflows from investment activities in 1998 consisted principally of
capital expenditures of $36.2 million (which includes $22.2 million related to
the marketing area, $11.7 million for refinery operations and $2.2 million
related to corporate strategic projects) and $3.5 million of refinery deferred
turnaround costs. Additionally, cash outflows from investing activities include
$3.9 million in capitalized costs of software developed for the Company's own
use and $2 million in charges to deferred assets. The total outflows from
investment activities were partially offset by $1 million in dividends received
from the Company's unconsolidated subsidiaries and net proceeds from the sale of
property, plant and equipment of $.8 million.
The ratio of current assets to current liabilities was 1.12:1 and 1.45:1,
respectively, at December 31, 1998 and 1997. If FIFO values had been used for
all inventories, the ratio of current assets to current liabilities would have
been 1.14:1 at December 31, 1998 and 1.60:1 at December 31, 1997.
Like other petroleum refiners and marketers, the Company's operations are
subject to extensive and rapidly changing federal and state environmental
regulations governing air emissions, waste water discharges, and solid and
hazardous waste management activities. The Company's policy is to accrue
environmental and clean-up related costs of a non-capital nature when it is both
probable that a liability has been incurred and that the amount can be
reasonably estimated. While it is often extremely difficult to reasonably
quantify future environmental related expenditures, the Company anticipates that
a significant capital investments will continue to be required over the next
several years to comply with existing regulations. The Company believes that
cash provided from its operating activities, together with other available
sources of liquidity will be sufficient to fund these costs. The Company had
recorded a liability of approximately $7.1 million as of December 31, 1998 to
cover the estimated costs of compliance with environmental regulations which are
not anticipated to be of a capital nature. The liability of $7.1 million
includes accruals for issues extending past 1999.
Environmental liabilities are subject to considerable uncertainties which affect
the Company's ability to estimate its ultimate cost of remediation efforts.
These uncertainties include the exact nature and extent of the contamination at
each site, the extent of required clean-up efforts, varying costs of alternative
remediation strategies, changes in environmental remediation requirements, the
number and financial strength of other potentially responsible parties at
multi-party sites, and the identification of new environmental sites. As a
result, charges to income for environmental liabilities could have a material
effect on results of operations in a particular quarter or year as assessments
and remediation efforts proceed or as new claims
13
<PAGE>
arise. However, management is not aware of any matters which would be expected
to have a material adverse effect on the Company.
During 1999, the Company estimates environmental expenditures at the Pasadena
and Tyler refineries, of at least $4.4 million and $1.4 million, respectively.
Of these expenditures, it is anticipated that $2.1 million for Pasadena and $1
million for Tyler will be of a capital nature, while $2.3 million and $.4
million, respectively, will be related to previously accrued non-capital
remediation efforts. At the Company's marketing facilities, environmental
expenditures relating to previously accrued non-capital compliance efforts are
planned totaling approximately $1.7 million during 1999.
As a result of overall favorable credit relationships, the Company has been able
to maintain open lines of credit with its major suppliers. Effective as of
December 10, 1998, the Company entered into an $80 million Loan and Security
Agreement (Secured Credit Facility) for cash borrowing and letter of credit
needs. The Secured Credit Facility, which has a three-year term and is secured
by certain current assets of the Company, is intended for general corporate and
working capital requirements. It includes limitations on additional indebtedness
and cash dividends and requires compliance with financial covenants dealing with
minimum levels of working capital and net worth. Availability under the Secured
Credit Facility is limited to the lesser of $80 million or eligible collateral.
At December 31, 1998, the borrowing capacity totaled $48.9 million due to
abnormally low inventory levels and prices. The Company expects that with
average inventory operating levels and crude oil in the $14 - $15 per barrel
range, the availability under the Secured Credit Facility will range from $60
million to $75 million.
As of December 31, 1998, under the terms of the Secured Credit Facility, the
Company had cash borrowings of $10 million and outstanding irrevocable letters
of credit in the principal amount of $13.2 million, which was collateralized by
cash. This collateral is included on the balance sheet as Restricted Cash and
was returned to the Company in early January 1999. The cash borrowings were
repaid in January 1999. The unused availability under the terms of the Secured
Credit Facility was $38.9 million at year end. The Company pays an annual
commitment fee on the unused portion of the credit line.
In March 1999, the Company amended the Secured Credit Facility to provide up to
$125 million availability for cash borrowing and letter of credit needs. Up to
$75 million of the secured credit facility continues to be subject to
availability of eligible collateral as discussed above. The increased
availability is not subject to the limitation of eligible collateral as that
term is defined in the Secured Credit Facility.
At the Company's option, the Unsecured 10.875% Senior Notes (Notes) may be
redeemed at 105.438% of the principal amount at any time after January 31, 2000
and thereafter at an annually declining premium over par until February 1, 2003
when they are redeemable at par. The Notes were issued under an Indenture which
includes certain restrictions and limitations customary with senior indebtedness
of this type including, but not limited to, the payment of dividends and the
repurchase of capital stock. There are no sinking fund requirements on the
Notes.
The purchase money liens outstanding as of December 31, 1998, primarily include
the financing of land, buildings and equipment at certain service station and
convenience store locations. These borrowings are generally repayable over 60 to
72 months with an effective interest rate based upon a fixed spread over the
then current applicable U.S. Treasury Note rate. Purchase money liens are
secured by assets having a cost basis of $14.4 million and $8.8 million at
December 31, 1998 and 1997, respectively. The cost basis of assets securing
purchase money liens was reduced by $6.5 million in January 1999 due to the
repayment of one of the instruments. The remaining principal balance is payable
monthly through May 2004.
The Company's management is involved in a continual process of evaluating growth
opportunities in its core business as well as its capital resource alternatives.
Total capital expenditures and deferred turnaround costs in 1999 are projected
to approximate $42 million. The capital expenditures relate primarily to planned
enhancements at the Company's refineries, retail unit improvements and to
company-wide environmental requirements. The Company believes, but there can be
no assurance, that cash provided from its operating activities, together with
other available sources of liquidity, including the Secured Credit Facility,
will be sufficient over the next several years to make required payments of
principal and interest on its debt, permit anticipated capital expenditures and
fund the Company's working capital requirements. The Secured Credit Facility
expires on December 10, 2001 but may be extended for additional one year periods
upon agreement between the Company and the Agent. Any major acquisition would
likely require a combination of additional debt and equity.
14
<PAGE>
The Company places its temporary cash investments in high credit quality
financial instruments which are in accordance with the covenants of the
Company's financing agreements. These securities mature within ninety days and,
therefore, bear minimal risk. The Company has not experienced any losses on
these investments.
The Company faces intense competition in all of the business areas in which it
operates. Many of the Company's competitors are substantially larger and,
therefore, the Company's earnings can be affected by the marketing and pricing
policies of its competitors, as well as changes in raw material costs.
Merchandise sales and operating revenues from the Company's convenience stores
are seasonal in nature, generally producing higher sales and net income in the
summer months than at other times of the year. Gasoline sales, both at the Crown
multi-pumps and convenience stores, are also somewhat seasonal in nature and,
therefore, related revenues may vary during the year. The seasonality does not,
however, negatively impact the Company's overall ability to sell its refined
products.
The Company maintains business interruption insurance to protect itself against
losses resulting from shutdowns to refinery operations from fire, explosions and
certain other insured casualties. Business interruption coverage begins for such
losses in excess of $1 million.
The Company has disclosed in Note I of Notes to Consolidated Financial
Statements on page 35 of this report, various contingencies which involve
litigation and environmental liabilities. Depending on the occurrence, amount
and timing of an unfavorable resolution of these contingencies, the outcome of
which cannot reasonably be determined at this time, it is possible that the
Company's future results of operations and cash flows could be materially
affected in a particular quarter or year. However, the Company has concluded,
after consultation with counsel, that there is no reasonable basis to believe
that the ultimate resolution of any of these contingencies will have a material
adverse effect on the Company. Additionally, as discussed in Item 3. Legal
Proceedings on page 7 of this report, the Company's collective bargaining
agreement at its Pasadena refinery expired on February 1, 1996. On February 5,
1996, the Company invoked a lock out of employees in the collective bargaining
unit. The Company has been operating the Pasadena refinery without interruption
since the lock out and intends to continue full operations in this manner, until
an agreement is reached with the collective bargaining unit.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's Consolidated Financial Statements are prepared on the historical
cost method of accounting and, as a result, do not reflect changes in the
dollar's purchasing power. In the capital intensive industry in which the
Company operates, the replacement costs for its properties would generally far
exceed their historical costs. As a result, depreciation would be greater if it
were based on current replacement costs. However, since the replacement
facilities would reflect technological improvements and changes in business
strategies, such facilities would be expected to be more productive and
versatile than existing facilities, thereby increasing profits and mitigating
increased depreciation and operating costs.
In recent years, crude oil and refined petroleum product prices have been
volatile which has impacted working capital requirements. If the prices increase
in the future, the Company would expect a related increase in working capital
needs.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results have been, and will continue to be, affected by
a wide variety of factors that could have an adverse effect on profitability
during any particular period, many of which are beyond the Company's control.
Among these are the supply and demand for crude oil and refined products, which
is largely driven by the condition of local and worldwide economies and
politics, although seasonality and weather patterns also play a significant
part. Governmental regulations and policies, particularly in the areas of energy
and the environment, also have a significant impact on the Company's activities.
Operating results can be affected by these industry factors, by competition in
the particular geographic markets that the Company serves and by
Company-specific factors, such as the success of particular marketing programs
and refinery operations.
15
<PAGE>
In addition, the Company's profitability depends largely on the difference
between market prices for refined petroleum products and crude oil prices. This
margin is continually changing and may significantly fluctuate from time to
time. Crude oil and refined products are commodities whose price levels are
largely determined by market forces beyond the control of the Company.
Additionally, due to the seasonality of refined products and refinery
maintenance schedules, results of operations for any particular quarter of a
fiscal year are not necessarily indicative of results for the full year. In
general, prices for refined products are significantly influenced by the price
of crude oil. Although an increase or decrease in the price of crude oil
generally results in a corresponding increase or decrease in prices for refined
products, often there is a lag time in the realization of the corresponding
increase or decrease in prices for refined products. The effect of changes in
crude oil prices on operating results therefore depends in part on how quickly
refined product prices adjust to reflect these changes. A substantial or
prolonged increase in crude oil prices without a corresponding increase in
refined product prices, a substantial or prolonged decrease in refined product
prices without a corresponding decrease in crude oil prices, or a substantial or
prolonged decrease in demand for refined products could have a significant
negative effect on the Company's earnings and cash flows.
The Company is dependent on refining and selling quantities of refined products
at margins sufficient to cover operating costs, including any future
inflationary pressures. The refining business is characterized by high fixed
costs resulting from the significant capital outlays associated with refineries,
terminals and related facilities. Furthermore, future regulatory requirements or
competitive pressures could result in additional capital expenditures, which may
or may not produce desired results. Such capital expenditures may require
significant financial resources that may be contingent on the Company's
continued access to capital markets and commercial bank financing on favorable
terms.
Purchases of crude oil supply are typically made pursuant to relatively
short-term, renewable contracts with numerous foreign and domestic major and
independent oil producers, generally containing market-responsive pricing
provisions. Futures, forwards and exchange traded options are used to minimize
the exposure of the Company's refining margins to crude oil and refined product
fluctuations. The Company also selectively uses the futures market to help
manage the price risk inherent in purchasing crude oil in advance of the
delivery date, and in maintaining the value of inventories contained within its
refinery and pipeline system. Hedging strategies used to minimize this exposure
include fixing a future margin between crude and certain finished products and
also hedging fixed price purchase and sales commitments of crude oil and refined
products. While the Company's hedging activities are intended to reduce
volatility while providing an acceptable profit margin on a portion of
production, the use of such a program can effect the Company's ability to
participate in an improvement in related product profit margins. Although the
Company's net sales and operating revenues fluctuate significantly with
movements in industry crude oil prices, such prices do not have a direct
relationship to net earnings, which are subject to the impact of the Company's
LIFO method of accounting discussed below. 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 following table estimates the sensitivity of the Company's income before
taxes to price changes which impact its refining and retail margins based on a
representative production rate for the Refineries (net of the Statoil contract
which provides a fixed margin) and a representative amount of total gasoline
sold at the Company's retail units:
EARNINGS SENSITIVITY CHANGE ANNUAL IMPACT
-------------------- ------ --------------
Refining margin............. $0.10/bbl $ 4.4 million
Retail margin............... $0.01/gal $ 5.3 million
Based on December 31, 1998 crude oil and refined products market prices (market
prices), the Company's outstanding derivative commodity instruments held at
December 31, 1998 are anticipated to result in an increase in future earnings of
approximately $1.0 million. If market prices were to increase by 10%, the
anticipated increase in future earnings would approximate $2.3 million.
Similarly, if market prices were to decrease by 10%, the anticipated decrease in
futures earnings would approximate $(.2) million.
The Company conducts environmental assessments and remediation efforts at
multiple locations, including operating facilities and previously owned or
operated facilities. The Company accrues environmental and clean-up related
costs of a non-capital nature when it is both probable that a liability has been
incurred and the amount can be reasonably estimated. Accruals for losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study. Estimated costs, which are based
upon experience and assessments, are recorded at undiscounted amounts without
considering the impact of inflation, and are adjusted periodically as additional
or new information is available. Expenditures for equipment necessary for
environmental issues relating to ongoing operations are capitalized.
16
<PAGE>
The Company's crude oil, refined products and convenience store merchandise and
gasoline inventories are valued at the lower of cost (based on the last-in,
first-out or LIFO method of accounting) or market, with the exception of crude
oil inventory held for resale which is valued at the lower of cost (based on the
first-in first-out or FIFO method of accounting) or market. Under the LIFO
method, the effects of price increases and decreases in crude oil and other
feedstocks are charged directly to the cost of refined products sold in the
period that such price changes occur. In periods of rising prices, the LIFO
method may cause reported operating income to be lower than would otherwise
result from the use of the FIFO method. Conversely, in periods of falling prices
the LIFO method may cause reported operating income to be higher than would
otherwise result from the use of the FIFO method.
IMPACT OF YEAR 2000
The Company uses software and related information technologies and other
equipment throughout its businesses that may be affected by the year 2000 issue.
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define a particular year. These computer programs
include both information technology (IT) systems such as software programs and
non-information technology (non-IT) systems such as embedded microcontrollers in
electronic equipment. Any of the Company's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, manufacture products, send invoices, or
engage in similar normal business activities. The Company initially commenced
its year 2000 readiness program in early 1995.
The Company began a long-term project which encompassed an in-depth evaluation
of all current business processes and the redesign of any of these processes
where significant opportunity for improvement was identified. One of the results
of this project was the decision to purchase and implement an enterprise-wide
state-of-the-art fully integrated software package (SAP R/3(TM)) which was
selected in connection with re-designing business practices to further enhance
operating and record keeping efficiencies. This software is year 2000 compliant.
Due to the enterprise-wide scale of the project, the majority of the Company's
year 2000 issues should be resolved as an added benefit of this software
implementation. The following paragraphs address those computer systems that are
not encompassed within the SAP R/3(TM) system.
The evaluation of the Company's state of readiness relating to its year 2000
issues is a continual process emphasizing a constant awareness of computer
systems and business relationships that may be sensitive to year 2000 issues.
Management has categorized the activities necessary to solve the year 2000
issues into the identification and assessment phase, the remediation phase, and
the testing and contingency planning phase. The identification and assessment
phase includes conducting a comprehensive inventory and evaluation of all of the
Company's information technology (IT) systems and non-IT electronic equipment
(collectively referred to as computer programs) to identify those computer
programs that contain date sensitive features. Those computer programs that
contain such features are then further evaluated and categorized as either
mission critical or non-mission critical based upon their relative importance to
the uninterrupted continuation of the Company's daily operations. Mission
critical computer programs gain top priority when allocating the available
resources to solve year 2000 issues.
As of January 31, 1999, with the exception of the non-IT electronic equipment at
the Company's two refineries, the Company had completed the identification and
assessment of all of its information technology (IT) systems and non-IT
electronic equipment, both mission critical and non-mission critical. A
consulting group was engaged to assist with the identification and assessment of
the non-IT electronic equipment at the Pasadena refinery, and similar efforts
were undertaken by Company employees at the Tyler refinery. As of March 15,
1999, substantially all of the assessment work at the Pasadena refinery has been
completed, while the Tyler refinery assessment is 60% complete. The Company
expects to complete the remaining assessment activities at the Tyler refinery
early in the second quarter of 1999.
The assessment phase also includes the identification of and communication with
hardware and software vendors with whom the Company transacts business, third
parties with whom the Company exchanges information electronically, major or
sole source suppliers, government agencies, and major customers. The focus of
these communications is to determine the state of readiness of each of these
third parties with respect to their own year 2000 issues and how their progress
may impact the Company. The majority of responses received to third party
inquiries indicate that they are working on their year 2000 issues, but the
responses do not provide specific details. Follow-up action related to material
third party inquiries and responses is expected to continue in 1999 as these
material third parties progress in their own year 2000 readiness projects. The
Company has no means of ensuring that third parties with whom it deals will be
year 2000 compliant or that the information obtained from such third parties
regarding year 2000 compliance will prove to be accurate.
17
<PAGE>
The remediation phase includes the repair, upgrade or replacement of all
computer programs identified as non-compliant in the assessment phase. These
activities will include all computer programs that have not been scheduled to be
repaired, upgraded or replaced as well as those that had been scheduled but
whose timing of repair, upgrading or replacement was accelerated to resolve the
Company's year 2000 issues. The Company's primary strategy for correcting year
2000 issues is to replace all non-compliant technology with newly purchased
technology that, in addition to being year 2000 compliant, provides enhanced
business functionality and capabilities. This phase has been on-going since 1995
and is expected to be substantially completed by September 30, 1999.
The total cost associated with required modifications and replacement of the
Company's systems in response to the year 2000 issue is not expected to
materially affect the Company's financial condition or results of operations.
The estimated total cost of the year 2000 effort is approximately $1.7 million.
This estimate does not include costs to replace or upgrade systems that were
previously planned and not accelerated due to the year 2000 issue. The total
amount expended through March, 1999 was approximately $.7 million. The future
cost is estimated to be approximately $1.0 million. The Company's year 2000
efforts are funded primarily from existing IT and business unit budgets.
The testing and contingency planning phase includes testing the computer
programs worked on in the remediation phase for accuracy as well as concurrently
developing contingency plans that may be put into effect in the event that
significant deficiencies are identified. Contingency planning also encompasses
developing alternative sources of supply in the event of failure by material
third parties to remedy their own year 2000 issues. Testing of computer programs
is expected to be completed as remediation or replacement of individual programs
is completed. Due to the number of computer programs utilized by the Company and
the need to begin remediation, replacement, and testing of mission critical
programs in a timely manner, any or all of the phases identified may be
performed concurrently. Testing of implemented technologies will be a continual
process with the expectation that all of the Company's mission critical systems
will be tested by the end of the third quarter of 1999.
Contingency plans will be formulated as the need arises.
While the Company's management anticipates that all mission critical computer
programs will be assessed, remedied and tested by the dates set forth in the
preceding paragraphs, there can be no assurance that all will be completely
error free and that such programs will be compliant by such dates. We rely on
third party software, equipment and services to conduct our business. While the
Company believes it has made reasonable efforts to address this issue, it has no
means of ensuring that third parties with whom it deals will be year 2000
compliant or that the information obtained from such third parties regarding
year 2000 compliance will prove to be accurate.
The Company believes the most reasonably likely worst case year 2000 scenarios
would be failure of the control systems at the Company's refineries, or the
failure of key customers or suppliers (e.g. utility providers) to achieve year
2000 compliance. Either of these scenarios could result in lost sales or lost
production due to the forced shutdown for an indefinite period at one or both
refineries. In order to mitigate the affect of any such disruption, the Company
may increase inventory levels prior to year-end 1999 based on assessments made
closer to the end of 1999. In the event that only one refinery is affected by
year 2000 failures, the Company has the flexibility of shifting feedstocks
between facilities, or procuring petroleum products via sale, trade or exchange
agreements in order to meet any contractual requirements.
The failure to correct a material year 2000 problem or the inability of any key
customer, key supplier or a governmental agency to make the necessary computer
system changes on a timely basis, the inaccuracy of responses received from
these third parties, and the potential shortage of skilled human resources to
install and test upgraded software and equipment could result in interruptions
to Company operations or business activities. Such interruptions could have a
material adverse impact on the Company's results of operations, liquidity or
financial condition. Due to the general uncertainty inherent in the year 2000
issue, particularly as it relates to the readiness of the Company's key
customers and suppliers, and of governmental agencies, the Company cannot
ascertain at this time whether the consequences of the year 2000 failures will
have a material impact on the Company's results of operations, liquidity or
financial condition. Insurance coverage available at this time is limited to
business interruption resulting from fire, explosion, or related perils which
are caused by a year 2000 system failure.
The foregoing year 2000 discussion constitutes a "forward-looking" statement
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. It is based on management's current expectations, estimates and
projections, which could ultimately prove to be inaccurate.
18
<PAGE>
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures relating to outstanding derivative
commodity instruments are discussed in Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 14 through 16
of this report.
[This space intentionally left blank]
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars)
<TABLE>
<CAPTION>
December 31
1998 1997
----- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................... $ 14,470 $ 43,586
Restricted cash................................... 12,000
Accounts receivable, less allowance for
doubtful accounts (1998--$739; 1997--$738)...... 60,227 102,529
Recoverable income taxes.......................... 616 3,819
Inventories....................................... 80,104 109,279
Other current assets.............................. 1,411 2,097
-------- --------
TOTAL CURRENT ASSETS............................ 168,828 261,310
INVESTMENTS AND DEFERRED CHARGES.................... 47,044 44,448
PROPERTY, PLANT AND EQUIPMENT
Land.............................................. 48,651 45,148
Petroleum refineries.............................. 375,114 364,081
Marketing facilities.............................. 217,208 200,011
Pipelines and other equipment..................... 27,422 25,823
-------- --------
668,395 635,063
Less allowance for depreciation................. 362,684 339,854
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT............. 305,711 295,209
-------- --------
$521,583 $600,967
======== ========
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
CONSOLIDATED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars)
<TABLE>
<CAPTION>
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----- -----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable:
Crude oil and refined products................. $ 48,466 $ 104,391
Other.......................................... 36,750 27,330
Accrued liabilities.............................. 53,730 46,766
Borrowings Under Secured Credit Facility.........
10,000
Current portion of long-term debt................ 1,307 1,498
---------- ----------
TOTAL CURRENT LIABILITIES........................ 150,253 179,985
LONG-TERM DEBT...................................... 129,899 127,506
DEFERRED INCOME TAXES............................... 23,947 43,854
OTHER DEFERRED LIABILITIES.......................... 38,711 42,267
COMMON STOCKHOLDERS' EQUITY
Class A Common Stock--par value $5 per share:
Authorized--7,500,000 shares;
issued and outstanding shares--
4,817,394 in 1998 and in 1997.................... 24,087 24,087
Class B Common Stock--par value $5 per share:
Authorized--7,500,000 shares;
issued and outstanding shares--
5,236,217 in 1998 and 5,240,774 in 1997.......... 26,181 26,204
Additional paid-in capital....................... 91,466 94,655
Unearned restricted stock........................ (1,500) (5,291)
Retained Earnings................................ 38,539 67,700
---------- ----------
TOTAL COMMON STOCKHOLDERS' EQUITY................ 178,773 207,355
---------- ----------
$ 521,583 $ 600,967
========== ==========
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
REVENUES
Sales and operating revenues.......................... $1,264,317 $1,609,083 $1,641,875
OPERATING COSTS AND EXPENSES
Costs and operating expenses.......................... 1,155,194 1,435,707 1,499,063
Selling expenses...................................... 87,121 77,864 81,682
Administrative expenses............................... 22,427 20,578 20,599
Depreciation and amortization......................... 34,017 31,623 31,756
Sales, abandonments and write-down of property, plant
and equipment..................................... (408) 402 217
---------- ---------- ----------
1,298,351 1,566,174 1,633,317
---------- ---------- ----------
OPERATING (LOSS) INCOME.................................. (34,034) 42,909 8,558
Interest and other income............................. 3,029 2,617 2,001
Interest expense...................................... (14,740) (14,168) (13,982)
---------- ---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES........................ (45,745) 31,358 (3,423)
INCOME TAX (BENEFIT) EXPENSE............................. (16,365) 12,123 (656)
---------- ---------- ----------
NET (LOSS) INCOME........................................ $ (29,380) $ 19,235 $ (2,767)
========== ========== ==========
EARNINGS PER COMMON SHARE:
Net (Loss) Income..................................... $ (2.99) $ 1.97 $ (.28)
========== ========== ==========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Net (Loss) Income..................................... $ (2.99) $ 1.94 $ (.28)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Class A Class B Additional Unearned
Common Stock Common Stock Paid-In Restricted Retained
Shares Amount Shares Amount Capital Stock Earnings Total
-------- ------- ------ ------ ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1996 4,817,392 $ 24,087 5,135,558 $ 25,678 $ 92,249 $ (3,733) $ 51,214 $189,495
Net (loss) for 1996 (2,767) (2,767)
Adjustment to minimum
Pension liability, net of
Deferred income taxes
of $79 146 146
Stock registered to
Participants of stock
Incentive plans 45,450 227 466 (693)
Cancellation of
non-vested stock
Registered to
participants of
stock incentive plans (51,050) (255) (591) 846
Stock option exercises 35,828 179 337 516
Market value adjustments to
Unearned Restricted
Stock (629) 629
Other 2 (15) (15)
--------- -------- --------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 4,817,394 24,087 5,165,786 25,829 91,817 (2,951) 48,593 187,375
1996
Net income for 1997 19,235 19,235
Adjustment to minimum
Pension liability, net of
Deferred income tax
benefit of $69 (128) (128)
Stock registered to
Participants of stock
Incentive plans 92,700 464 736 (1,200)
Cancellation of
non-vested stock
Registered to
participants of
stock incentive plans (81,700) (409) (571) 980
Stock option exercises 63,988 320 557 877
Market value adjustments to
Unearned Restricted
Stock 2,120 (2,120)
Other (4) (4)
--------- -------- --------- -------- --------- -------- -------- ---------
BALANCE AT DECEMBER 31, 4,817,394 24,087 5,240,774 26,204 94,655 (5,291) 67,700 207,355
1997
Net (loss) for 1998 (29,380) (29,380)
Adjustment to minimum
Pension liability, net of
Deferred income tax
benefit of $117 219 219
Stock registered to
Participants of stock
Incentive plans 85,415 427 645 (1,072)
Cancellation of
non-vested stock
Registered to
participants of
stock incentive plans (114,140) (571) (1,649) 2,220
Stock option exercises 41,814 209 387 596
Market value adjustments to
Unearned Restricted
Stock (2,530) 2,530
Other (17,646) (88) (42) 113 (17)
--------- -------- --------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31,
1998 4,817,394 $ 24,087 5,236,217 $ 26,181 $ 91,466 $ (1,500) $ 38,539 $178,773
========= ========= ========= ======== ========= ======== ========= ========
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
----- ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income.................................... $(29,380) $ 19,235 $ (2,767)
Reconciling items from net (loss) income to net
Cash provided by operating activities:
Depreciation and amortization...................... 34,017 31,623 31,756
(Gain) loss on sales of property, plant
And equipment.................................... (408) 402 217
Equity loss in unconsolidated subsidiaries......... 1,042 500
Deferred income taxes.............................. (16,874) 10,310 (1,406)
Other deferred items............................... 2,219 (1,446) 1,837
Changes in assets and liabilities
Accounts receivable................................ 42,302 10,918 (7,648)
Inventories........................................ 29,175 (43,275) 30,021
Other current assets............................... 686 11,110 (10,612)
Crude oil and refined products payable............. (55,925) (8,141) 496
Other accounts payable............................. 9,420 4,905 (1,862)
Accrued liabilities and other deferred liabilities. 3,447 2,443 (10,250)
Recoverable and deferred income taxes.............. 170 4,010 3,263
Restricted Cash.................................... (12,000)
Deferred financing costs........................... (6,430)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 1,461 42,594 33,045
-------- -------- --------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Capital expenditures............................... (36,161) (31,924) (24,101)
Proceeds from sales of property, plant and equipment 786 7,337 2,494
Investment in affiliates........................... 959 136
Capitalization of software costs.................. (3,898) (3,946) (6,077)
Deferred turnaround maintenance.................... (3,461) (14,054) (4,846)
Other (charges) credits to deferred assets......... (2,030) 466
-------- -------- --------
NET CASH (USED IN) INVESTMENT ACTIVITIES......... (43,805) (41,985) (32,530)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt and credit agreement borrowings. 79,770 27,776 108,000
Repayments of debt and credit agreement borrowings. (67,600) (27,378) (109,522)
Net repayments (issuances) of long-term notes 461 376 (228)
receivable.........................................
Issuances of common stock.......................... 597 877 516
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 13,228 1,651 (1,234)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. (29,116) 2,260 (719)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....... 43,586 41,326 42,045
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,470 $ 43,586 $ 41,326
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized)............. $ 21,442 $ 13,232 $ 13,007
Income taxes..................................... 1,328 2,746 904
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
NOTE A--DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Description of Business: Crown Central Petroleum Corporation and subsidiaries
(the Company) operates primarily in two business segments as an independent
refiner and marketer of petroleum products, including petrochemical feedstocks.
The Company operates two refineries, one located near Houston, Texas with a
rated capacity of 100,000 barrels per day of crude oil and another in Tyler,
Texas with a rated capacity of 52,000 barrels per day of crude oil. Its
principal business is the wholesale and retail sale of its products through 13
product terminals located on three major product pipelines along the Gulf Coast
and the Eastern Seaboard and in the Central United States and through a network
of 343 gasoline stations, convenience stores and mini-marts located in the
Mid-Atlantic and Southeastern United States.
Employment at the Company's Pasadena and Tyler refineries represent
approximately 10% and 7%, respectively, of the Company's total employment at
December 31, 1998. Additionally, approximately 70% of the Pasadena refinery
employees and approximately 61% of the Tyler refinery employees are subject to
collective bargaining agreements. The Company's collective bargaining agreement
with the Paper, Allied-Industrial, Chemical and Energy Workers International
Union (PACE), formerly the Oil Chemical & Atomic Workers Union (OCAW), covering
employees at the Pasadena refinery expired on February 1, 1996. The Pasadena
refinery employees subject to the PACE agreement were locked out by the Company
on February 5, 1996. The Company has been operating the Pasadena refinery
without interruption since the lock out and intends to continue full operations
in this manner, until an agreement is reached with the collective bargaining
unit. Negotiations for a new agreement are ongoing.
The Company has a contract to process 35,000 barrels per day of crude oil into
refined product for one customer at its Pasadena refinery. The customer retains
ownership of the crude oil and the refined products. The Company receives a
fixed processing fee per barrel. This contract runs through October 14, 2000.
Locot Corporation, a wholly-owned subsidiary of the Company, is the parent
company of La Gloria Oil and Gas Company (La Gloria) which operates the Tyler
refinery, product terminals located along the Texas Eastern Products Pipeline
system and through a subsidiary, a pipeline gathering system in Texas.
FZ Corporation, a wholly owned subsidiary of the Company, is the parent company
of Fast Fare, Inc. which operates two convenience store chains in six states,
retailing both merchandise and gasoline.
The following summarizes the significant accounting policies and practices
followed by the Company:
Principles of Consolidation: The consolidated financial statements include the
accounts of Crown Central Petroleum Corporation and all majority-owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated. The Company's investments in unconsolidated subsidiaries are
accounted for under the equity method.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash in excess of daily requirements is invested in
marketable securities with maturities of three months or less. Such investments
are deemed to be cash equivalents for purposes of the Statements of Cash Flows.
Cash with restrictions on usage are not deemed to be cash equivalents for
purposes of the Balance Sheets and the Statements of Cash Flows. Temporary cash
overdrafts are included in accounts payable.
Accounts Receivable: The majority of the Company's accounts receivable relate to
sales of petroleum products to third parties operating in the petroleum
industry.
Inventories: The Company's crude oil, refined products, and convenience store
merchandise and gasoline inventories are valued at the lower of cost (last-in,
first-out) or market with the exception of crude oil inventory held for resale
which is valued at the lower of cost (first-in, first-out) or market. Materials
and supplies inventories are valued at cost. Incomplete exchanges of crude oil
and refined products due the Company or owing to other companies are reflected
in the inventory accounts.
25
<PAGE>
Property, Plant and Equipment: Property, plant and equipment is carried at cost.
Depreciation and amortization of plant and equipment are primarily provided
using the straight-line method over estimated useful lives. Construction in
progress is recorded in property, plant and equipment.
Expenditures which materially increase values, change capacities or extend
useful lives are capitalized in property, plant and equipment. Routine
maintenance, repairs and replacement costs are charged against current
operations. At intervals of two or more years, the Company conducts a complete
shutdown and inspection of significant units (turnaround) at its refineries to
perform necessary repairs and replacements. Costs associated with these
turnarounds are deferred and amortized over the period until the next planned
turnaround.
Upon sale or retirement, the costs and related accumulated depreciation or
amortization are eliminated from the respective accounts and any resulting gain
or loss is included in operating results.
Depreciation of property, plant and equipment was approximately $24,288,000,
$24,307,000 and $25,410,000 in the years ended December 31, 1998, 1997 and 1996,
respectively.
Software Capitalization: Costs of developing and implementing software designed
for the Company's own use are capitalized as incurred. Amortization is provided
using the straight-line method over the estimated remaining useful lives of the
related software.
Environmental Costs: The Company conducts environmental assessments and
remediation efforts at multiple locations, including operating facilities, and
previously owned or operated facilities. Estimated closure and post-closure
costs for active, refinery and finished product terminal facilities are not
recognized until a decision for closure is made. Estimated closure and
post-closure costs for active and operated retail marketing facilities and costs
of environmental matters related to ongoing refinery, terminal and retail
marketing operations are recognized as follows. Expenditures for equipment
necessary for environmental issues relating to ongoing operations are
capitalized. The Company accrues environmental and clean-up related costs of a
non-capital nature when it is both probable that a liability has been incurred
and that the amount can be reasonably estimated. Accruals for losses from
environmental remediation obligations generally are recognized no later than
completion of the remediation feasibility study. Estimated costs, which are
based upon experience and assessments, are recorded at undiscounted amounts
without considering the impact of inflation, and are adjusted periodically as
additional or new information is available.
Sales and Operating Revenues: Resales of crude oil are recorded net of the
related crude oil cost (first-in, first-out) in sales and operating revenues.
Interest Capitalization: Interest costs incurred during the construction and
preoperating stages of significant construction or development projects is
capitalized and subsequently amortized by charges to earnings over the useful
lives of the related assets.
Amortization of Goodwill: The excess purchase price over the estimated fair
value of assets of businesses acquired is being amortized on a straight-line
basis over 20 years.
Derivative Financial Instruments: The Company uses the futures, forwards, and
exchange traded options to manage the price risk inherent in purchasing crude
oil in advance of the delivery date, and in maintaining the value of inventories
contained within its refinery and pipeline system. Hedging strategies used to
minimize this exposure include fixing a future margin between crude oil and
certain finished products and also hedging fixed price purchase and sales
commitments of crude oil and refined products. These instruments generally allow
for settlement at the end of their term in either cash or product.
Net realized gains and losses from these hedging strategies are recognized in
costs and operating expenses when the associated refined products are sold.
Unrealized gains and losses are deferred in other current assets and liabilities
to the extent that the associated refined products have not been sold. While the
Company's hedging activities are intended to reduce volatility and provide an
acceptable profit margin on a portion of production, the use of such a program
can effect the Company's ability to participate in an improvement in related
refined product profit margins.
Credit Risk - Because the Company has a large and diverse customer base with no
single customer accounting for a significant percentage of accounts receivable,
there was no material concentration of credit risk in these accounts at December
31, 1998. The Company evaluates the credit worthiness of counterparties to
futures, forwards and exchange traded options and considers non-performance
credit risk to be remote. The amount of exposure with such counterparties is
generally limited to unrealized gains on outstanding contracts.
Stock Based Compensation - The Company has adopted the disclosure provisions
prescribed by SFAS 123 which permit companies to continue to value their
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 while providing pro-forma disclosures
of net income and earnings per share calculated using the fair value based
method.
26
<PAGE>
Reclassifications - To conform to the 1998 presentation, the Consolidated
Statements of Operations for the years ended December 31, 1997 and 1996,
respectively, have been restated. Service station rental income and certain
other retail marketing recoveries, which had previously been reported as a
reduction of Selling and administrative expenses, have been reclassified and are
now reported as components of Sales and operating revenues, and Costs and
operating expenses, respectively. Additionally, beginning with the three months
ended March 31, 1998, the Company began reporting Selling expenses and
Administrative expenses as separate amounts in the Consolidated Condensed
Statements of Operations. Selling and administrative expenses as originally
reported in the Company's Form 10-K for the years ending December 31, 1997 and
1996, have been restated to reflect these changes. These reclassifications had
no effect on the net income or net income per share amounts as originally
reported.
To conform to the 1998 presentation, certain Consolidated Balance Sheet amounts
at December 31, 1997 have been restated.
Recently Issued Pronouncements - In June 1998, The FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), which requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and that those instruments shall be measured at fair value. SFAS No.
133 also prescribes the accounting treatment for changes in the fair value of
derivatives which depends on the intended use of the derivative and the
resulting designation. Designations include hedges of the exposure to changes in
the fair value of a recognized asset or liability, hedges of the exposure to
variable cash flows of a forecasted transaction, hedges of the exposure to
foreign currency translations, and derivatives not designated as hedging
instruments. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company expects to adopt SFAS No. 133 in the first quarter of the year
2000. The financial statement impact of adopting SFAS No. 133 has not yet been
determined.
NOTE B--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
------ -----
(thousands of dollars)
<S> <C> <C>
Crude oil............................................. $ 26,489 $ 42,164
Refined products...................................... 39,776 79,905
-------- --------
Total inventories at FIFO (approximates current cost) 66,265 122,069
LIFO allowance net of lower of cost or market reserve. (184) (25,586)
-------- --------
Total crude oil and refined products............... 66,081 96,483
-------- --------
Merchandise inventory at FIFO (approximates current cost) 7,950 6,806
LIFO allowance........................................ (2,515) (1,929)
-------- --------
Total merchandise.................................. 5,435 4,877
-------- --------
Materials and supplies inventory at FIFO.............. 8,588 7,919
-------- --------
TOTAL INVENTORY.................................... $ 80,104 $109,279
======== ========
</TABLE>
As a result of a reduction in LIFO inventory quantities, the net loss for 1998
increased by approximately $.5 million ($.05 per share). Due to the decline in
crude oil purchase prices, refined products inventories have been reduced by a
reserve of approximately $7.1 million to reflect valuing inventories at the
lower of cost or market.
NOTE C--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
------ -----
(thousands of dollars)
<S> <C> <C>
Unsecured 10.875% Senior Notes......................... $124,810 $124,779
Loan and Security Agreement............................ 10,000
Purchase Money Liens................................... 6,159 3,859
Other obligations...................................... 237 366
-------- --------
141,206 129,004
Less current portion - Loan and Security Agreement..... 10,000
Less current portion................................... 1,307 1,498
-------- --------
LONG-TERM DEBT...................................... $129,899 $127,506
======== ========
</TABLE>
27
<PAGE>
The aggregate maturities of long-term debt through 2003 are as follows (in
thousands): 1999 - $11,307; 2000 - $612; 2001 - $608; 2002 - $588; 2003 - $715.
The 10 7/8% Senior Notes due 2005 (Notes) were issued under an Indenture, which
includes certain restrictions and limitations, including the payment of
dividends, repurchase of capital stock and the incurrence of additional debt.
The Indenture also includes a provision limiting liens unless the Notes are
directly secured equally and ratably with any liability secured by a lien.
During 1998, the Company decided to replace its existing, unsecured credit
facility with a new facility to be secured by certain current assets. As of
December 2, 1998, the Indenture was amended, following a consent by the required
number of Note holders, to allow for a lien on certain current assets securing
the payment of indebtedness under a secured credit facility.
Effective as of December 10, 1998, the Company entered into an $80 million Loan
and Security Agreement (Secured Credit Facility) for cash borrowing and letter
of credit needs. The Secured Credit Facility, which has a three-year term and is
secured by certain current assets of the Company, is intended for general
corporate and working capital requirements. It includes limitations on
additional indebtedness and cash dividends and requires compliance with
financial covenants dealing with minimum levels of working capital and net
worth. Availability under the Secured Credit Facility is limited to the lesser
of $80 million or eligible collateral. At December 31, 1998, eligible collateral
totaled $48.9 million due to abnormally low inventory levels and prices.
Borrowings under the Secured Credit Facility bear interest based on the prime
rate or LIBOR based rates.
The costs associated with obtaining the Secured Credit Facility and with
amending the Senior Note Indenture of $5.9 million have been capitalized and are
being amortized over the life of the Secured Credit Facility or the remaining
term of the Indenture as applicable. Amortization of these charges is included
as a component of interest costs. The unamortized balance of deferred loan fees
associated with the unsecured credit facility amounted to $.8 million at the
time of replacement and have been written off as interest expense.
In March 1999, the Company amended the Secured Credit Facility to provide up to
$125 million availability for cash borrowing and letter of credit needs. Up to
$75 million of the Secured Credit Facility continues to be subject to
availability of eligible collateral as discussed above. The increased
availability is not subject to the limitation of eligible collateral as that
term is defined in the Secured Credit Facility. The increased availability is
being provided through a related party of the Company.
As of December 31, 1998, under the terms of the Secured Credit Facility, the
Company had cash borrowings bearing interest at 8% per annum of $10 million and
outstanding irrevocable letters of credit in the principal amount of $13.2
million, which was collateralized by cash (classified as "Restricted Cash" on
the Balance Sheet). The unused commitments under the terms of the Secured Credit
Facility were $38.9 million at year end. The Company pays an annual commitment
fee on the unused portion of the credit line.
The purchase money liens outstanding as of December 31, 1998, primarily include
the financing of land, buildings and equipment at certain service station and
convenience store locations. These borrowings are generally repayable over 60 to
72 months with an effective interest rate based upon a fixed spread over the
then current applicable U.S. Treasury Note rate. Purchase money liens are
secured by assets having a cost basis of $14.4 million and $8.8 million at
December 31, 1998 and 1997, respectively. The cost basis of assets securing
purchase money liens was reduced by $6.5 million in January 1999 due to the
repayment of one of the instruments. The remaining principle balance is payable
monthly through May 2004.
The following interest costs were charged to pre-tax income:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
----- ----- ----
(thousands of dollars)
<S> <C> <C> <C>
Total interest costs incurred................... $17,344 $16,330 $15,822
Less: Capitalized interest...................... 2,604 2,162 1,840
------- ------- -------
INTEREST EXPENSE $14,740 $14,168 $13,982
======= ======= =======
</TABLE>
NOTE D--CRUDE OIL AND REFINED PRODUCT HEDGING ACTIVITIES
The net deferred gain from futures contracts (excluding forward contracts)
included in crude oil and refined product hedging strategies was approximately
$187,000 at December 31, 1998. Included in these hedging strategies are futures
contracts maturing in January 1999. The Company is using these contracts to
defer the pricing of approximately 9.7% of its crude oil commitments for the
aforementioned period.
28
<PAGE>
NOTE E--INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
1998 1997
---- -----
(thousands of dollars)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization.................... $(65,240) $(66,958)
Other............................................ (35,778) (26,260)
-------- --------
Total deferred tax liabilities................. (101,018) (93,218)
Deferred tax assets:
Post-retirement and pension obligations.......... 10,747 9,067
Environmental, litigation and other accruals..... 7,901 8,240
Construction and inventory cost not currently 2,457 9,758
deductible....................................
Benefit of future tax NOL carry forwards......... 31,863 5,630
Other............................................ 24,103 16,669
-------- --------
Total deferred tax assets...................... 77,071 49,364
-------- --------
Net deferred tax liabilities................... $(23,947) $(43,854)
======== ========
</TABLE>
No valuation allowance is considered necessary for the above deferred tax
assets. The Company has tax credit carry-forwards of approximately $252,000
which expire in the years 2009 through 2018, an alternative minimum tax credit
carry-forward of $833,000 and net operating loss carry-forwards of approximately
$91,500,000 which expire in the years 2009 through 2018.
Significant components of the income tax (benefit) provision for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(thousands of dollars)
<S> <C> <C> <C>
Current:
Federal.................................. $ 0 $ 1,062 $ 0
State.................................... 509 750 750
--------- --------- ---------
Total Current.......................... 509 1,812 750
Deferred:
Federal.................................. (15,723) 10,062 (911)
State.................................... (1,151) 249 (495)
--------- --------- ---------
Total Deferred......................... (16,874) 10,311 (1,406)
--------- --------- ---------
INCOME TAX (BENEFIT) EXPENSE............. $ (16,365) $ 12,123 $ (656)
========= ========= =========
</TABLE>
Current state tax provision includes $750,000 of franchise taxes for each of the
years ended December 31, 1998, 1997 and 1996. In addition, the year ended
December 31, 1998 includes a franchise tax refund of $241,000 related to fiscal
years up to 1996.
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(thousands of dollars)
<S> <C> <C> <C>
Income tax (benefit) expense calculated at the
statutory federal income tax rate........... $(16,011) $ 10,975 $(1,198)
Amortization of goodwill and purchase 145 145 145
adjustment.....................................
State taxes (net of federal benefit)........... (252) 650 166
Other.......................................... (247) 353 231
-------- -------- --------
INCOME TAX (BENEFIT) EXPENSE................ $(16,365) $ 12,123 $ (656)
======== ======== ========
</TABLE>
29
<PAGE>
NOTE F--CAPITAL STOCK AND NET INCOME PER COMMON SHARE
Class A Common stockholders are entitled to one vote per share and have the
right to elect all directors other than those to be elected by other classes of
stock. Class B Common stockholders are entitled to one-tenth vote per share and
have the right to elect two directors. The average outstanding and equivalent
shares excludes 214,325, 260,700 and 249,700 shares of Performance Vested
Restricted Stock (PVRS) shares registered to participants in the 1994 Long-Term
Incentive Plan (Plan) at December 31, 1998, 1997 and 1996, respectively. The
PVRS shares are not considered outstanding for earnings per share calculations
until the shares are released to the Plan participants.
The following table provides a reconciliation of the basic and diluted earnings
per share calculations:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1998 1997 1996
------ ------ -------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
(LOSS) INCOME APPLICABLE TO COMMON SHARES
Net (loss) income................................ $ (29,380) $ 19,235 $ (2,767)
========= ========= =========
Common shares outstanding at January 1, 1998
1997 and 1996, respectively.................. 10,058,168 9,983,180 9,952,950
Restricted shares held by the Company at January 1,
1998, 1997 and 1996, respectively............ (260,700) (249,700) (255,300)
Weighted average effect of shares of common stock
issued for stock option exercises............ 35,237 18,531 24,043
--------- --------- ---------
Weighted average number of common shares
outstanding, as adjusted at December 31,
1998, 1997 and 1996, respectively............. 9,832,705 9,752,011 9,721,693
Effect of Dilutive Securities:
Employee stock options 113,060
Restricted stock awards 33,833
--------- --------- ---------
Weighted average number of common shares
outstanding, as adjusted at December 31, 1998,
1997 and 1996, respectively -
assuming dilution..... ...................... 9,832,705 9,898,904 9,721,693
========= ========= =========
EARNINGS PER SHARE:
Net (loss) income................................ $ (2.99) $ 1.97 $ (.28)
========= ========= =========
EARNINGS PER SHARE - ASSUMING DILUTION:
Net (loss) income................................ $ (2.99) $ 1.94 $ (.28)
========= ========= =========
</TABLE>
At December 31, 1998, the Company had non-qualified stock options outstanding
representing 1,065,027 potential common shares. Due to the net loss from
operations for the years ended December 31, 1998 and 1996, the effect of
dilutive securities under stock options and awards were excluded from the
diluted earnings per share calculations.
30
<PAGE>
NOTE G--LONG-TERM INCENTIVE PLAN
Under the terms of the 1994 Long-term Incentive Plan (Plan), the Company may
distribute to employees restricted shares of the Company's Class B Common Stock
and options to purchase Class B Common Stock. Up to 1.1 million shares of Class
B Common Stock may be distributed under the Plan. The balance sheet caption
"Unearned restricted stock" is charged for the market value of restricted shares
at their grant date and changes in the market value of shares outstanding until
the vesting date, and is shown as a reduction of stockholders' equity. The
impact is further reflected within Class B Common Stock and Additional
Paid-in-Capital.
PVRS awards are subject to minimum years of service requirements from the date
of grant with earlier vesting possible subject to the attainment of performance
goals. Additionally, PVRS awards are subject to certain other restrictions
including the receipt of dividends and transfers of ownership. As of December
31, 1998, 214,325 shares of PVRS have been registered in participants names and
are being held by the Company subject to the attainment of the related
performance goals or years of service. PVRS awards to employees who have left
the Company are canceled. PVRS awards granted prior to 1996 whose related
performance goals have not been achieved are forfeited.
Under the 1994 Long-Term Incentive Plan, non-qualified stock options are granted
to participants at a price not less than 100% of the fair market value of the
stock on the date of grant. The exercise period is ten years with the options
vesting one-third per year over three years after a one-year waiting period.
Under the terms of the 1995 Management Stock Option Plan, the Company may award
to participants non-qualified stock options to purchase shares of the Company's
Class B Common Stock at a price equal to 100% of the fair market value of the
stock at the date of grant. Up to 500,000 shares of Class B Common Stock may be
distributed under the Plan. The exercise period is ten years with the options
vesting one-third per year over three years after a one-year waiting period.
Shares of Class B Common Stock available for issuance under options or awards
amounted to 213,189 and 372,176 at December 31, 1998 and 1997, respectively.
Detail of the Company's stock options are as follows:
<TABLE>
<CAPTION>
Common Price Range Weighted Average
Shares Per Share Price Per Share
------- ----------- ---------------
<S> <C> <C> <C>
1994 Long-Term Incentive Plan
Outstanding - January 1, 1996................. 505,000 $12.81 - $16.88 $14.11
--------
Granted - 1996................................ 106,500 $13.75 - $19.50 $17.01
Exercised - 1996.............................. (29,072) $12.81 - $16.88 $14.60
Canceled - 1996............................... (97,872) $12.81 - $17.69 $14.26
--------
Outstanding - December 31, 1996............... 484,556 $12.81 - $19.50 $14.69
========
Shares exercisable at December 31, 1996.... 156,756 $12.81 - $16.88 $14.59
========
Granted - 1997................................ 166,600 $11.69 $11.69
Exercised - 1997.............................. (4,963) $12.81 - $16.13 $13.24
Canceled - 1997............................... (4,536) $12.81 - $17.06 $15.37
--------
Outstanding - December 31, 1997............... 641,657 $11.69 - $19.50 $13.92
========
Shares exercisable at December 31, 1997 ... 310,142 $12.81 - $19.50 $14.66
========
Granted - 1998................................ 165,915 $ 9.38 - $15.00 $14.92
Exercised - 1998.............................. (29,942) $12.81 - $17.69 $14.27
Canceled - 1998............................... (37,982) $11.69 - $17.69 $13.20
--------
Outstanding - December 31, 1998............... 739,648 $ 9.38 - $19.50 $14.17
========
Shares exercisable at December 31, 1998.... 509,559 $ 9.38 - $19.50 $14.20
========
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Common Price Range Weighted Average
Shares Per Share Price Per Share
------- ----------- ---------------
<S> <C> <C> <C>
1995 Management Stock Option Plan
Outstanding - January 1, 1996................. 461,760 $13.75 - $16.06 $13.77
Exercised - 1996.............................. (6,756) $13.75 $13.75
Canceled - 1996............................... (24,524) $13.75 $13.75
--------
Outstanding - December 31, 1996............... 430,480 $13.75 - $16.06 $13.77
========
Shares exercisable at December 31, 1996 143,493 $13.75 - $16.06 $13.77
========
Exercised - 1997.............................. (59,025) $13.75 $13.75
Canceled - 1997............................... (32,704) $13.75 $13.75
--------
Outstanding - December 31, 1997............... 338,751 $13.75 - $16.06 $13.78
========
Shares exercisable at December 31, 1997 207,388 $13.75 - $16.06 $13.78
========
Exercised - 1998.............................. (11,872) $13.75 - $16.06 $14.27
Canceled - 1998............................... (1,500) $13.75 $13.75
--------
Outstanding - December 31, 1998............... 325,379 $13.75 - $16.06 $13.76
========
Shares exercisable at December 31, 1998 325,379 $13.75 - $16.06 $13.76
========
Total outstanding - December 31, 1998........... 1,065,027 $ 9.38 - $19.50 $14.04
=========
Total exercisable - December 31, 1998........... 834,938 $ 9.38 - $19.50 $14.03
========
</TABLE>
The weighted average remaining life for options outstanding at December 31, 1998
was approximately seven years for the Long-Term Incentive Plan and also
approximately seven years for the Management Stock Option Plan.
All options were granted at an exercise price equal to the fair market value of
the common stock at the date of grant. The weighted average fair value at the
date of grant for options granted under the Long-Term Incentive Plan was $3.57,
$2.31 and $3.36 for 1998, 1997 and 1996, respectively. There were no grants
under the Management Stock Option Plan in 1998, 1997, or 1996. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following assumptions:
LONG-TERM INCENTIVE PLAN 1998 1997 1996
- ------------------------ --------- --------- -------
Expected life (years) 3 3 3
Risk Free Interest Rate 5.63% 5.67% 6.04%
Volatility 27.5% 27.0% 26.0%
Dividend Yield 0.0% 0.0% 0.0%
The Company granted 85,415, 92,700 and 45,450 of shares of PVRS Awards during
1998, 1997 and 1996, respectively. The weighted average fair value at date of
grant for PVRS Awards granted in 1998, 1997 and 1996 was $14.94, $11.69 and
$17.05, respectively, which in each case represents the market value of the
Company's Class B Common Stock at the date of grant. The amount of compensation
expense recognized for PVRS Awards was not significant for 1998, 1997, or 1996.
Stock-based compensation costs would have increased the pretax loss by
approximately $864,000 ($540,000 after tax or $.05 per basic and diluted share)
for the year ended December 31, 1998, decreased the pretax income by
approximately $1,610,000 ($1,007,000 after tax or $.10 per basic and diluted
share), and increased pretax loss by approximately $1,320,000 ($805,000 after
tax or $.08 per basic and diluted share) for the years ended December 31, 1997
and 1996, respectively, had the fair values of options and the PVRS granted
since 1995 been recognized as compensation expense on a straight line basis over
the vesting period of the grant giving consideration to achievement of
performance objectives where applicable. The pro-forma effect on net income for
1998, 1997 and 1996 is not representative of the pro-forma effect on net income
in future years as it does not consider the pro-forma compensation expense
related to grants made prior to 1995.
32
<PAGE>
NOTE H--EMPLOYEE BENEFIT OBLIGATIONS
The Company has a defined benefit pension plan covering the majority of
full-time employees. The Company also has several defined benefit plans covering
only certain senior executives. Plan benefits are generally based on years of
service and employees' average compensation. The Company's policy is to fund the
pension plans in amounts which comply with contribution limits imposed by law.
Plan assets consist principally of fixed income securities and stocks.
The following table sets forth the changes in the benefit obligation and plan
assets of the Company's pension plans for the years ended December 31, 1998 and
1997, respectively:
December 31
1998 1997
----- -----
(thousands of dollars)
CHANGE IN PENSION PLANS' BENEFIT OBLIGATION
Pension plans' benefit obligation - beginning of $132,652 $120,367
year.......................................
Service cost.................................. 4,913 4,500
Interest cost................................. 8,882 8,787
Benefits paid................................. (5,984) (5,729)
Administrative expenses....................... (843) (874)
Actuarial loss................................ 4,448 5,601
Other......................................... (2,367) 0
-------- --------
Pension plans' benefit obligation - end of year 141,701 132,652
-------- --------
CHANGE IN PENSION PLAN ASSETS
Fair value of plan assets - beginning of year. 115,402 104,651
Actual return on plan assets.................. 15,701 16,705
Benefits paid................................. (5,627) (5,358)
Administrative expenses....................... (843) (874)
Other......................................... 862 278
-------- --------
Fair value of plan assets - end of year....... 125,495 115,402
-------- --------
RECONCILIATION OF FUNDED STATUS
Funded status................................. (16,206) (17,250)
Unrecognized actuarial (loss)................. 4,665 8,272
Unrecognized net (asset) at transition........ (471) (509)
Unrecognized prior service cost............... (794) (845)
-------- --------
Net amount recognized at end of year.......... $(12,806) $(10,332)
======== ========
Amounts recognized in the Balance Sheet consist of:
Year Ended December 31
1998 1997
------ -----
(thousands of dollars)
Accrued pension liability..................... $ (14,516) $(12,653)
Intangible asset.............................. 1,001 1,276
Accumulated other comprehensive income........ 709 1,045
-------- --------
Net amount recognized at end of year.......... $ (12,806) $(10,332)
========= ========
Other comprehensive income attributable to change
in additional minimum liability recognition... $ (336) $ 197
========== ========
33
<PAGE>
Net periodic pension costs consisted of the following components:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
------- ----- ------
(thousands of dollars)
<S> <C> <C> <C>
Service cost - benefit earned during the year... $ 4,913 $ 4,500 $ 4,737
Interest cost on projected benefit obligations.. 8,882 8,787 8,175
Expected (return) on plan assets................ (10,951) (9,864) (8,953)
Amortization of prior service cost.............. (51) 66 31
Recognized actuarial loss....................... 76 53 406
Amortization of transition (asset) obligation... (38) (38) (38)
-------- -------- --------
Net periodic pension cost................... $ 2,831 $ 3,504 $ 4,358
======== ======== ========
</TABLE>
Assumptions used in the accounting for the defined benefit plans as of December
31 were:
1998 1997 1996
------ ------ -----
Weighted average discount rates................. 6.75% 7.00% 7.50%
Rates of increase in compensation levels........ 4.00% 4.00% 4.00%
Expected long-term rate of return on assets..... 9.75% 9.75% 9.75%
The Company's defined benefit pension plans which cover only certain senior
executives are unfunded plans. The projected benefit obligation and accumulated
benefit obligation were $6,374,000 and $5,715,000, respectively, as of December
31, 1998, and $6,352,000 and $5,790,000, respectively, as of December 31, 1997.
In addition to the defined benefit pension plan, the Company provides certain
health care and life insurance benefits for eligible employees who retire from
active service. The post-retirement health care plan is contributory, with
retiree contributions consisting of co-payment of premiums and other cost
sharing features such as deductibles and coinsurance. Beginning in 1998, the
Company "capped" the amount of premiums that it will contribute to the medical
plans. Should costs exceed this cap, retiree premiums would increase to cover
the additional cost.
The following table sets forth changes in the accrued cost of the Company's
post-retirement benefit plans recognized in the Company's Balance Sheet:
Year Ended December 31
1998 1997
---- ----
(thousands of dollars)
Accumulated post-retirement benefit obligation (APBO):
Benefit obligation - beginning of year........... $ 12,624 $12,302
Service cost..................................... 390 326
Interest cost.................................... 1,058 859
Benefits and estimated administrative expenses (1,112) (1,053)
paid..........................................
Actuarial loss................................... 353 523
Other............................................ 3,046 (333)
-------- -------
Benefit obligation - end of year............... $ 16,359 $12,624
======== =======
RECONCILIATION OF FUNDED STATUS
Funded status.................................... $(16,359) $(12,624)
Unrecognized actuarial loss...................... 6,775 3,708
Unrecognized prior service cost.................. (921) (1,039)
-------- --------
Net amount recognized at end of year............. $(10,505) $ (9,955)
======== ========
Amounts recognized in the Balance Sheet consist of:
Accrued benefit liability....................... $(10,505) $ (9,955)
======== =========
34
<PAGE>
The weighted average discount rate used in determining the APBO was 6.75% and
7.00% in 1998 and 1997, respectively.
The Company's policy is to fund postretirement costs other than pensions on a
pay-as-you-go basis.
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
---- ---- ----
(thousands of dollars)
<S> <C> <C> <C>
Service cost.......................................... $ 390 $ 326 $ 354
Interest cost on accumulated postretirement benefit 1,058 859 856
obligation............................................
Amortization of prior service cost.................... (118) (118) (118)
Recognized actuarial loss............................. 332 212 173
------ ------ ------
Net periodic postretirement benefit cost.......... $1,662 $1,279 $1,265
====== ====== ======
</TABLE>
As a result of the expense cap implemented in 1998, no further increase in the
cost of medical care has been assumed for years subsequent to 1998. The medical
trend rate assumption affects the amounts reported. For example, a
one-percentage-point change in the medical trend rate would have the following
effects:
1-Percentage- 1-Percentage-
Point Point
Increase Decrease
-------- -----------
(thousands of dollars)
Effect on total of service and interest cost
components...................................... $ 77 $ (62)
Effect on accumulated postretirement benefit
obligation...................................... 764 (638)
NOTE I--LITIGATION AND CONTINGENCIES
The Company has been named as a defendant in various matters of litigation, some
of which are for substantial amounts, and involve alleged personal injury and
property damage from prolonged exposure to petroleum, petroleum related products
and substances used at its refinery or in the petroleum refining process. The
Company is a co-defendant with numerous other defendants in a number of these
suits. The Company is vigorously defending these actions, however, the process
of resolving these matters could take several years. The liability, if any,
associated with these cases was either accrued in accordance with generally
accepted accounting principles or was not determinable at December 31, 1998. The
Company has consulted with counsel with respect to each such proceeding or large
claim which is pending or threatened. While litigation can contain a high degree
of uncertainty and the risk of an unfavorable outcome, in the opinion of
management, there is no reasonable basis to believe that the eventual outcome of
any such matter or group of related matters will have a material adverse effect
on the Company.
Like other petroleum refiners and marketers, the Company's operations are
subject to extensive and rapidly changing federal and state environmental
regulations governing air emissions, waste water discharges, and solid and
hazardous waste management activities. The Company's policy is to accrue
environmental and clean-up related costs of a non-capital nature when it is both
probable that a liability has been incurred and that the amount can be
reasonably estimated. While it is often extremely difficult to reasonably
quantify future environmental related expenditures, the Company anticipates that
continuing capital investments will be required over the next several years to
comply with existing regulations. The Company has recorded a liability of $7.1
million as of December 31, 1998 and $11.1 million as of December 31, 1997
relative to the estimated costs of environmental issues of a non-capital nature.
The liability is not discounted, it is expected to be expended over the next
five years and is included in the balance sheet as a noncurrent liability. No
amounts have been accrued as receivables for potential reimbursement or as
recoveries to offset this liability.
Environmental liabilities are subject to considerable uncertainties which affect
the Company's ability to estimate its ultimate cost of remediation efforts.
These uncertainties include the exact nature and extent of the contamination at
each site, the extent of required clean-up efforts, varying costs of alternative
remediation strategies, changes in environmental remediation requirements, the
number and strength of other potentially responsible parties at multi-party
sites, and the identification of new environmental sites. It is possible that
the ultimate cost, which cannot be determined at this time, could exceed the
Company's recorded liability. As a result, charges to income for environmental
liabilities could have a material effect on the results of operations in a
particular quarter or year as assessments and remediation efforts proceed or as
new claims arise. In addition, the Company has been named by the Environmental
Protection Agency and by several state environmental agencies as a potentially
responsible party at various federal and state Super fund sites. Management is
not aware of any environmental matters which would reasonably be expected to
have a material adverse effect on the Company.
35
<PAGE>
NOTE J--NONCANCELLABLE LEASE COMMITMENTS
The Company has noncancellable operating lease commitments for refinery,
computer, office and other equipment, transportation equipment, an airplane,
service station and convenience store properties, and office space. Lease terms
range from three to ten years for refinery, computer, office and other equipment
and four to eight years for transportation equipment. The airplane lease which
commenced in 1992 and has a term of seven years was cancelled in March 1999. The
majority of service station properties have lease terms of 20 years. The average
lease term for convenience stores is approximately 13 years. The Corporate
Headquarters office lease commenced in 1993 and has a ten year term beginning in
1993. Certain of these leases have renewal provisions.
Future minimum rental payments under noncancellable operating lease agreements
as of December 31, 1998 are as follows (in thousands):
1999.................................. $ 13,102
2000.................................. 11,796
2001.................................. 10,168
2002.................................. 9,003
2003.................................. 7,968
After 2003........................... 16,832
-------------
Total Minimum Rental Payments.... $ 68,869
=============
Rental expense for the years ended December 31, 1998, 1997 and 1996 was
$13,426,000, $12,927,000 and $12,935,000, respectively.
NOTE K--INVESTMENTS AND DEFERRED CHARGES
Investments and deferred charges consist of the following:
December 31
1998 1997
---- ----
(thousands of dollars)
System development costs.......................... $18,410 $ 16,065
Deferred turnarounds.............................. 12,570 16,874
Loan expense...................................... 7,886 2,168
Long-term notes receivable........................ 1,955 1,715
Goodwill.......................................... 953 1,367
Investments....................................... 929 2,930
Intangible pension asset.......................... 688 917
Other............................................. 3,653 2,412
------- --------
INVESTMENTS AND DEFERRED CHARGES.............. $47,044 $ 44,448
======= ========
Accumulated amortization of goodwill was $5,638,000 and $5,224,000 at December
31, 1998 and 1997, respectively. Accumulated amortization of system development
costs was $1,397,000 and $489,000 at December 31, 1998 and 1997, respectively.
NOTE L--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers cash and cash equivalents, accounts receivable,
investments in subsidiaries, long-term notes receivable, accounts payable and
long-term debt to be its financial instruments. The carrying amount reported in
the balance sheet for cash and cash equivalents, accounts receivable and
accounts payable, represent their fair values. The fair value of the Company's
long-term notes receivable at December 31, 1998 was estimated using a discounted
cash flow analysis, based on the assumed interest rates for similar types of
arrangements. The approximate fair value of the Company's Long-Term Debt at
December 31, 1998 was estimated using a discounted cash flow analysis, based on
the Company's assumed incremental borrowing rates for similar types of borrowing
arrangements. The fair value of its investments in subsidiaries is not
determinable since these investments do not have quoted market prices.
36
<PAGE>
The following summarizes the carrying amounts and related approximate fair
values as of December 31, 1998 and 1997, respectively, of the Company's
financial instruments whose carrying amounts do not equal its fair value:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Carrying Approximate Carrying Approximate
Amount Fair Value Amount Fair Value
-------- ----------- -------- -----------
(thousands of dollars) (thousands of dollars)
<S> <C> <C> <C> <C>
Assets
Long-Term Notes Receivable... $ 1,955 $ 1,325 $ 1,715 $ 1,825
Liabilities
Long-Term Debt............... $ 129,899 $ 128,544 $ 127,506 $ 127,675
</TABLE>
NOTE M--SEGMENT INFORMATION
The Company has two reportable segments: refinery operations and retail
marketing. The Company's refinery operations segment consists of two
high-conversion petroleum refineries, one located in Pasadena, Texas and the
other located in Tyler, Texas. The Pasadena and Tyler refineries sell petroleum
products directly to other oil companies, jobbers, and independent marketers. In
addition, the Pasadena refinery sells directly into the Gulf Coast spot market
as well as to an independent network of dealer-operated retail units that sell
Crown-branded petroleum products and to the Company's own retail segment. The
Company's retail segment sells petroleum products and convenience store
merchandise directly to retail customers.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, interest income or expense, and
corporate expenses. The accounting policies of the reportable segments are the
same as those described in the summary of accounting policies described in Note
A of Notes to Consolidated Financial Statements on page 25 of this Annual Report
on Form 10-K.
Intersegment sales and transfers are recorded at market prices. Income or loss
on intersegment sales is eliminated in consolidation.
The Company's reportable segments are business divisions that offer different
operating and gross margin characteristics and different distribution methods.
The reportable segments are each managed separately due to their distinct
operating characteristics.
Year ended December 31, 1998:
<TABLE>
<CAPTION>
Refinery Retail
Operations Marketing Totals
---------- --------- ------
(thousands of dollars)
<S> <C> <C> <C>
Revenues from external customers............. $ 829,465 $434,059 $1,263,524
Intersegment revenues........................ 228,420 228.420
Depreciation and amortization expense........ 22,303 9,419 31,722
(Loss) income................................ (20,087) 12,820 (7,267)
Total assets................................. 302,829 150,152 452,981
</TABLE>
37
<PAGE>
Year ended December 31, 1997:
<TABLE>
<CAPTION>
Refinery Retail
Operations Marketing Totals
---------- --------- ------
(thousands of dollars)
<S> <C> <C> <C>
Revenues from external customers............. $1,090,478 $511,312 $1,601,790
Intersegment revenues........................ 424,369 424,369
Depreciation and amortization expense........ 21,074 9,104 30,178
Income....................................... 49,480 17,319 66,799
Total assets................................. 363,272 140,749 504,021
</TABLE>
Year ended December 31, 1996:
<TABLE>
<CAPTION>
Refinery Retail
Operations Marketing Totals
---------- --------- ------
(thousands of dollars)
<S> <C> <C> <C>
Revenues from external customers............. $1,114,146 $515,040 $1,629,186
Intersegment revenues........................ 388,464 388,464
Depreciation and amortization expense........ 20,604 9,825 30,429
(Loss) income................................ 17,497 11,051 28,548
</TABLE>
Sales and operating revenues reconciliation:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---- ---- ----
(thousands of dollars)
<S> <C> <C> <C>
Total external revenues for reportable segments $1,263,524 $1,601,790 $1,629,186
Intersegment revenues for reportable segments 228,420 424,369 388,464
Other revenues............................... 5,106 12,709 10,150
Other adjustments............................ (4,313) (5,416) 2,539
Elimination of intersegment revenues......... (228,420) (424,369) (388,464)
---------- ---------- ----------
Sales and operating revenues............. $1,264,317 $1,609,083 $1,641,875
========== ========== ==========
</TABLE>
Other adjustments includes items that are reported as a component of Sales and
operating revenues for management reporting purposes but are reported as a
component of operating expenses in accordance with generally accepted accounting
principles.
Depreciation and amortization expense reconciliation:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---- ---- ----
(thousands of dollars)
<S> <C> <C> <C>
Depreciation and amortization expense for
reportable Segments......................... $ 31,722 $ 30,178 $ 30,429
Other Depreciation and amortization expense.. 2,295 1,445 1,327
---------- ---------- ----------
Depreciation and amortization expense.... $ 34,017 $ 31,623 $ 31,756
========== ========== ==========
</TABLE>
38
<PAGE>
Profit (loss) reconciliation:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---- ----- -----
(thousands of dollars)
<S> <C> <C> <C>
Total (loss) income for reportable segments.. $ (7,267) $ 66,799 $ 28,548
Other income (loss).......................... 1,018 511 (263)
Unallocated amounts:
Corporate (expenses)....................... (27,094) (24,470) (19,424)
Net interest (expense)..................... (12,402) (11,482) (12,284)
---------- ---------- ----------
(Loss) income before income taxes........ $ (45,745) $ 31,358 $ (3,423)
========== ========== ==========
</TABLE>
Total assets reconciliation:
December 31
1998 1997
---- ----
(thousands of dollars)
Total assets for reportable segments......... $ 452,981 $ 504,021
Other assets................................. 1,068,875 927,689
Elimination of intercompany receivables...... (806,072) (636,542)
Elimination of investment in consolidated
subsidiaries................................. (194,201) (194,201)
---------- ----------
Total assets............................... $ 521,583 $ 600,967
========== ==========
Assets dedicated to a particular segments operations' are included in that
segment's total assets. Assets which benefit both segments or are considered
corporate assets are not allocated.
Sales and operating revenues by major product:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---- ---- ----
(thousands of dollars)
<S> <C> <C> <C>
Petroleum products........................... $1,140,153 $1,487,067 $ 1,522,439
Convenience store merchandise................ 112,441 103,679 102,029
</TABLE>
The Company sells all of its products in the United States.
[This space intentionally left blank]
39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Crown Central Petroleum Corporation
We have audited the accompanying consolidated balance sheets of Crown Central
Petroleum Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in common stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Crown
Central Petroleum Corporation and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/---Ernst & Young LLP
Baltimore, Maryland
February 25, 1999
Except for Note C, as to which the date is March 29, 1999.
40
<PAGE>
UNAUDITED
QUARTERLY RESULTS OF OPERATIONS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Yearly
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
1998
Sales and operating revenues... $ 327,639 $ 339,154 $ 312,461 $ 285,063 $1,264,317
Gross profit................... 13,144 36,908 44,250 14,821 109,123
Net (loss) income.............. (13,743) (2,151) 3,083 (16,569) (29,380)
Net (loss) income per share.... (1.40) (.22) .31 (1.68) (2.99)
Net (loss) income per share -
assuming dilution............ (1.40) (.22) .31 (1.68) (2.99)
1997
Sales and operating revenues... $ 396,102 $ 393,079 $ 414,473 $ 405,429 $1,609,083
Gross profit................... 35,044 48,119 51,570 38,643 173,376
Net income (loss).............. 724 7,907 11,265 (661) 19,235
Net income (loss) per share.... .07 .82 1.16 (.07) 1.97
Net income (loss) per share -
assuming dilution............ .07 .81 1.12 (.07) 1.94
</TABLE>
To conform to the presentation for the year ended December 31, 1998, Sales and
operating revenues and Gross profit amounts for the first quarter of 1998 and
for each of the periods presented in 1997 have been restated from those amounts
originally reported. These restatements had no effect on the Net (loss) income
or the Net (loss) income per share amounts previously reported.
Gross profit is defined as Sales and operating revenues less Costs and operating
expenses (including applicable property and other operating taxes).
Per share amounts are based upon the weighted average number of common shares
outstanding at the end of each quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has not filed a Form 8-K within the last twenty-four (24) months
reporting a change of independent auditors or any disagreement with the
independent auditors.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a list of Crown Central Petroleum Corporation's executive officers,
their ages and their positions and offices as of March 1, 1999:
HENRY A. ROSENBERG, JR. (69)
Director since 1955, Chairman of the Board and Chief Executive Officer since May
1975 and also President since March 1, 1996.
RANDALL M. TREMBLY (52)
Executive Vice President since April 1996; Senior Vice President - Refining from
July 1995 to March 1996; Vice President - Refining from December 1991 to June
1995.
JOHN E. WHEELER, JR. (46)
Executive Vice President - Chief Financial Officer since April 1998; Executive
Vice President - Chief Financial Officer and Treasurer from February 1998 to
April 1998; Senior Vice President - Finance and Treasurer from October 1996 to
January 1998; Senior Vice President - Finance from April 1996 to September 1996;
Senior Vice President - Treasurer and Controller from June 1994 to March 1996;
Vice President - Treasurer and Controller from December 1991 to June 1994.
THOMAS L. OWSLEY (58)
Senior Vice President - Legal since May 1998; Vice President - Legal from April
1983 to May 1998.
J. MICHAEL MIMS (49)
Senior Vice President - Human Resources since May 1998; Vice President - Human
Resources from June 1992 to May 1998.
FRANK B. ROSENBERG (40)
Senior Vice President - Marketing since April 1996; Vice President - Marketing
from January 1993 to March 1996. Frank B. Rosenberg is the son of Henry A.
Rosenberg, Jr.
WILLIAM A. WOLTERS (52)
Senior Vice President - Supply and Transportation since December 1998; Vice
President Supply and Logistics and Assistant Secretary from February 1998 to
December 1998; General Manager - Raw Material Supply and Assistant Secretary
from September 1985 to January 1998.
PAUL J. EBNER (41)
Vice President - Shared Services since April 1996; Vice President - Marketing
Support Services from December 1991 to March 1996.
JAMES R. EVANS (52)
Vice President - Retail Marketing since June 1996; General Manager of Retail
Operations from February 1995 to May 1996; General Manager of Direct Operations
from November 1993 to January 1995.
DENNIS W. MARPLE (50)
Vice President - Wholesale Sales and Terminals since January 1996; General
Manager Wholesale Sales from February 1995 to December 1995; Vice President -
LaGloria Supply, Trading and Transportation from October 1989 to January 1995.
PHILIP A. MILLINGTON (45)
Vice President - Treasurer since April 1998; Chief Financial Officer U. S.
Corrections Corporation from May 1997 to November 1997; Chief Financial Officer
Builders' Supply and Lumber Company, Inc., from June 1995 to May 1997;
Treasurer-LaFarge Corporation November 1987 to May 1995.
DOLORES B. RAWLINGS (61)
Vice President - Secretary since April 1996; Secretary from November 1990 to
March 1996.
JAN L. RIES (50)
Corporate Controller since November 1996; Marketing Division Controller from
January 1992 to October 1996.
There have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any Director or Executive Officer during the past five years. The
information required in this Item 10 regarding Directors of the Company and all
persons nominated or chosen to become directors is hereby incorporated by
reference to the definitive Proxy Statement which will be filed with the
Commission pursuant to Regulation 14A on or about March 29, 1999.
42
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required in this Item 11 regarding executive compensation is
hereby incorporated by reference to the definitive Proxy Statement which will be
filed with the Commission pursuant to Regulation 14A on or about March 29, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required in this Item 12 regarding security ownership of certain
beneficial owners and management is hereby incorporated by reference to the
definitive Proxy Statement which will be filed with the Commission pursuant to
Regulation 14A on or about March 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this Item 13 regarding certain relationships and
related transactions is hereby incorporated by reference to the definitive Proxy
Statement which will be filed with the Commission pursuant to Regulation 14A on
or about March 29, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) LIST OF FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Crown Central Petroleum
Corporation and Subsidiaries, are included in Item 8 on pages 20 through 39 of
this report:
o Consolidated Statements of Operations -- Years ended December 31, 1998,
1997 and 1996
o Consolidated Balance Sheets -- December 31, 1998 and 1997
o Consolidated Statements of Changes in Common Stockholders' Equity --
Years ended December 31, 1998, 1997 and 1996
o Consolidated Statements of Cash Flows -- Years ended December 31, 1998,
1997 and 1996
o Notes to Consolidated Financial Statements -- December 31, 1998
(a) (2) LIST OF FINANCIAL STATEMENT SCHEDULES
The schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(a) (3) and (c) LIST OF EXHIBITS
EXHIBIT
NUMBER
3 ARTICLES OF INCORPORATION AND BYLAWS
(a) Amended and Restated Charter of Crown Central Petroleum Corporation was
previously filed with the Registrants' Proxy Statement dated March 15,
1996 for the Annual Meeting of Shareholders held on April 25, 1996 as
Exhibit A of Appendix A, herein incorporated by reference.
(b) Bylaws of Crown Central Petroleum Corporation as amended and restated at
July 30, 1998 was previously filed with the Registrant's Form 10-Q for
the quarter ended June 30, 1998 as Exhibit 3, herein incorporated by
reference.
43
<PAGE>
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Loan and Security Agreement effective as of December 10, 1998 between
the Registrant and Congress Financial Corporation.
(b) First Restated Credit Agreement effective as of August 1, 1997 between
the Registrant and various banks was previously filed with the
Registrant's Form 10-Q for the quarter ended June 30, 1997 as Exhibit 4,
herein incorporated by reference.
(c) Amendment, effective as of March 31, 1998, to the First Restated Credit
Agreement effective as of August 1, 1997 was previously filed with the
Registrant's From 10-Q for the quarter ended March 31, 1998 as Exhibit
4, herein incorporated by reference.
(d) Amendment, effective as of June 30, 1998, to the First Restated Credit
Agreement effective as of August 1, 1997 was previously filed with the
Registrant's From 10-Q for the quarter ended June 30, 1998 as Exhibit 4,
herein incorporated by reference.
(e) Form of Indenture for the Registrant's 10 7/8% Senior Notes due 2005
filed on January 17, 1995 as Exhibit 4.1 of Amendment No. 3 to
Registration Statement on Form S-3, Registration No. 33-56429, herein
incorporated by reference.
(f) First Supplemental Indenture, effective as of December 2, 1998, to the
Indenture for the Registrant's 10 7/8% Senior Notes due 2005.
10 MATERIAL CONTRACTS
(a) Crown Central Petroleum Corporation Retirement Plan effective as of July
1, 1993, was previously filed with the Registrant's Form 10-K for the
year ended December 31, 1993 as Exhibit 10(a), herein incorporated by
reference.
(b) First Amendment effective as of January 1, 1994 to the Crown Central
Petroleum Corporation Retirement Plan was previously filed with the
Registrant's Form 10-K for the year ended December 31, 1997 as Exhibit
10(b), herein incorporated by reference.
(c) Second Amendment effective as of June 29 1995 to the Crown Central
Petroleum Corporation Retirement Plan was previously filed with the
Registrant's Form 10-K for the year ended December 31, 1997 as Exhibit
10(c), herein incorporated by reference.
(d) Third Amendment effective as of December 18, 1997 to the Crown Central
Petroleum Corporation Retirement Plan was previously filed with the
Registrant's Form 10-K for the year ended December 31, 1997 as Exhibit
10(d), herein incorporated by reference.
(e) Supplemental Retirement Income Plan for Senior Executives as Restated
effective September 26, 1996 was previously filed with the Registrant's
Form 10-Q for the quarter ended September 30, 1996 as Exhibit 10(b),
herein incorporated by reference.
(f) Employee Savings Plan as amended and restated effective January 1, 1987
was previously filed with the Registrant's Form 10-K for the year ended
December 31, 1995 as Exhibit 10(c), herein incorporated by reference.
(g) Amendment effective as of September 26, 1996 to the Crown Central
Petroleum Employees Savings Plan was previously filed with the
Registrant's Form 10-Q for the quarter ended September 30, 1996 as
Exhibit 10(c), herein incorporated by reference.
(h) Amendment effective as of June 26, 1997 to the Crown Central Employees
Savings Plan was previously filed with the Registrant's Form 10-K for
the year ended December 31, 1997 as Exhibit 10(h), herein incorporated
by reference.
(i) Fourth Amendment, effective as of June 25, 1998, to the Crown Central
Petroleum Corporation Employees Savings Plan was previously filed with
the Registrant's Form 10-Q for the quarter ended June 30, 1998 as
Exhibit 10, herein incorporated by reference.
(j) Crude oil processing agreement between the Registrant and Statoil
Marketing and Trading (US) Inc. was previously filed with the
Registrant's Form 10-Q for the quarter ended September 30, 1998 as
Exhibit 10, herein incorporated by reference. Certain portions of the
Agreement have been omitted because of their confidential nature, and
have been filed separately with the Securities and Exchange Commission
marked "Confidential Treatment".
(k) Directors' Deferred Compensation Plan adopted on August 25, 1983 was
previously filed with the Registrant's Form 10-Q for the quarter ended
September 30, 1983 as Exhibit 19(b), herein incorporated by reference.
44
<PAGE>
(l) The 1994 Long-Term Incentive Plan, as amended and restated effective as
of December 17, 1998.
(m) Amendment, effective as of March 25, 1999 to the Crown Central Petroleum
Corporation 1994 Long-Term Incentive Plan, as amended and restated.
(n) Executive Severance Plan, as amended and restated effective as of
December 17, 1998.
(o) The 1995 Management Stock Option Plan filed on April 28, 1995 as Exhibit
4 of Registration Statement on Form S-8, Registration No. 33-58927,
herein incorporated by reference.
(p) Advisory and Consultancy Agreement dated October 28, 1993 between Jack
Africk, Director and Crown Central Petroleum Corporation was previously
filed with the Registrant's Form 10-Q for the quarter ended September
30, 1994 as Exhibit 99, herein incorporated by reference.
(q) Employees Supplementary Savings Plan filed on February 27, 1995 as
Exhibit 4 of Registration Statement on Form S-8, Registration No.
33-57847, herein incorporated by reference.
13 ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR QUARTERLY REPORT TO
SECURITY HOLDERS Annual Report Exhibits:
(a) Shareholders' Letter dated March 1, 1999
(b) Operating Results and Key Financial Statistics
(c) Directors and Officers of the Company
(d) Corporate Information
(e) Supplement to the Annual Report - Operating Statistics
21 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 is included on page 46 of this
report.
23 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 is included on page 47 of
this report.
24 POWER OF ATTORNEY
Exhibit 24 is included on page 48 of this report.
27 FINANCIAL DATA SCHEDULE
(a) December 31, 1998
(b) December 31, 1997 - as revised
99 FORM 11-K WILL BE FILED UNDER COVER OF FORM 10-K/A BY JUNE 30, 1999.
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the three months ended
December 31, 1998.
NOTE: Certain exhibits listed on pages 43 through 45 of this report and filed
with the Securities and Exchange Commission, have been omitted. Copies
of such exhibits may be obtained from the Company upon written request,
for a prepaid fee of 25 cents per page.
45
EXHIBIT 21
SUBSIDIARIES
1. SUBSIDIARIES AS OF DECEMBER 31, 1998, WHICH ARE CONSOLIDATED IN THE
FINANCIAL STATEMENTS OF THE REGISTRANT; EACH SUBSIDIARY IS 100% OWNED AND
DOING BUSINESS UNDER ITS OWN NAME.
NATION OR STATE
SUBSIDIARY OF INCORPORATION
Continental American Corporation Delaware
Crown Central Holding Corporation Maryland
Crown Central International (U.K.), Limited United Kingdom
Crown Central Pipe Line Company Texas
Crown Gold, Inc. Maryland
The Crown Oil and Gas Company Maryland
Crown-Rancho Pipe Line Corporation Texas
Crown Stations, Inc. Maryland
Crowncen International N.V. Netherlands Antilles
Fast Fare, Inc. Delaware
F Z Corporation Maryland
Health Plan Administrators, Inc. Maryland
La Gloria Oil and Gas Company Delaware
Locot, Inc. Maryland
McMurrey Pipe Line Company Texas
Mollies Properties, Inc. Maryland
Tiara Insurance Company Vermont
T. B. & Company, Inc. Maryland
46
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-53457) pertaining to the 1994 Long Term Incentive Plan and
Employees Savings Plan and the Registration Statement (Form S-8 No. 33-57847)
pertaining to the Employees Supplemental Savings Plan of Crown Central Petroleum
Corporation and Subsidiaries of our report dated February 25, 1999, except for
Note C, as to which the date is March 29, 1999, with respect to the consolidated
financial statements of Crown Central Petroleum Corporation and Subsidiaries
included in the Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ - - ERNST & YOUNG LLP
Baltimore, Maryland
March 29, 1999
47
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Crown Central Petroleum
Corporation hereby severally constitute Henry A. Rosenberg, Jr., John E.
Wheeler, Jr., Jan L. Ries and Thomas L. Owsley, and each of them singly, our
true and lawful attorneys with full power to them and each of them to sign for
us in our names and in the capacities indicated below this Report on Form 10-K
for the fiscal year ended December 31, 1998 pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934 and all amendments
thereto.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/---Henry A, Rosenberg, Jr. Chairman of the Board, President 3/25/99
Henry A. Rosenberg, Jr. and Chief Executive Officer
(Principal Executive Officer)
/s/---Jack Africk Director 3/25/99
Jack Africk
/s/---George L. Bunting, Jr. Director 3/2599
George L. Bunting, Jr.
/s/---Michael F. Dacey Director 3/25/99
Michael F. Dacey
/s/---Thomas M. Gibbons Director 3/25/99
Thomas M. Gibbons
/s/---Patricia A. Goldman Director 3/25/99
Patricia A. Goldman
/s/---William L. Jews Director 3/25/99
William L. Jews
/s/---Harold E. Ridley, Jr. Director 3/25/99
Reverend Harold E. Ridley, Jr., S.J.
/s/---John E. Wheeler, Jr. Executive Vice President - Chief Financial Officer 3/25/99
John E. Wheeler, Jr. (Principal Financial Officer)
/s/---Jan L. Ries Controller 3/25/99
Jan L. Ries (Chief Accounting Officer)
</TABLE>
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CROWN CENTRAL PETROLEUM CORPORATION
By /s/---Henry A. Rosenberg, Jr.
---------------------------------------
Henry A. Rosenberg, Jr.
Chairman of the Board, President
and Chief Executive Officer
By /s/---Jan L. Ries
---------------------------------------
Jan L. Ries
Controller and Chief Accounting Officer
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 30, 1999 by the following persons on behalf of
the registrant and in the capacities indicated:
<TABLE>
<S> <C>
* *
- --------------------------------- ------------------------------------------
Jack Africk, Director Patricia A. Goldman, Director
* *
- --------------------------------- ------------------------------------------
George L. Bunting, Jr., Director William L. Jews, Director
* *
- --------------------------------- ------------------------------------------
Michael F. Dacey, Director Rev. Harold E. Ridley, Jr., S.J., Director
* *
- --------------------------------- ------------------------------------------
Thomas M. Gibbons, Director Henry A. Rosenberg, Jr., Director
Chairman of the Board, President
and Chief Executive Officer
*By Power of Attorney (Jan L. Ries)
</TABLE>
49
EXHIBIT 4.A
LOAN AND SECURITY AGREEMENT
by and among
CONGRESS FINANCIAL CORPORATION
as Administrative Agent
for
FIRST UNION NATIONAL BANK
and
CONGRESS FINANCIAL CORPORATION
as Lenders
and
CROWN CENTRAL PETROLEUM CORPORATION
AND THE SUBSIDIARIES IDENTIFIED IN THIS AGREEMENT
as Borrowers
December 10, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS -1-
SECTION 2. CREDIT FACILITIES -15-
2.1 Revolving Loans -15-
2.2 Letter of Credit Accommodations -16-
2.3 Availability Reserves -18-
2.4 Maximum Credit Reduction -18-
2.5 Joint and Several Liability -18-
SECTION 3. INTEREST AND FEES -19-
3.1 Interest -19-
3.2 Closing Fee -23-
3.3 Unused Line Fee -23-
3.4 Structuring Fee -23-
SECTION 4 CONDITIONS PRECEDENT -23-
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations -23-
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations -24-
SECTION 5. GRANT OF SECURITY INTEREST -25-
SECTION 6. COLLECTION AND ADMINISTRATION -26-
6.1 Borrower's Loan Account -26-
6.2 Statements -26-
6.3 Payments -26-
6.4 Authorization to Make Loans -27-
6.5 Use of Proceeds -27-
6.6 Blocked Account -28-
<PAGE>
SECTION 7. COLLATERAL REPORTING AND COVENANTS -28-
7.1 Collateral Reporting -28-
7.2 Accounts Covenants -29-
7.3 Inventory Covenants -30-
7.4 Power of Attorney -31-
7.5 Right to Cure -32-
7.6 Access to Premises -32-
SECTION 8. REPRESENTATIONS AND WARRANTIES -33-
8.1 Corporate Existence, Power and Authority; Subsidiaries -33-
8.2 Financial Statements; No Material Adverse Change. -33-
8.3 Chief Executive Office; Collateral Locations. -33-
8.4 Priority of Liens; Title to Properties -34-
8.5 Tax Returns -34-
8.6 Litigation -34-
8.7 Compliance with Other Agreements and Applicable Laws -34-
8.8 Accuracy and Completeness of Information -35-
8.9 Survival of Warranties; Cumulative -35-
8.10 Year 2000 Compliance -35-
8.11 Environmental Matters -35-
8.12 Corporate Structure -36-
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS -36-
9.1 Maintenance of Existence -36-
9.2 New Collateral Locations -36-
9.3 Compliance with Laws, Regulations, Etc. -37-
9.4 Payment of Taxes and Claims -37-
9.5 Insurance -37-
9.6 Financial Statements and Other Information -38-
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. -39-
9.8 Encumbrances -40-
9.9 Indebtedness -40-
9.10 Loans, Investments, Guarantees, Etc. -42-
9.11 Transactions with Affiliates -42-
9.12 Minimum Net Adjusted Working Capital -43-
9.13 Minimum FIFO Tangible Net Worth -43-
9.14 Costs and Expenses -43-
9.15 Further Assurances -43-
<PAGE>
9.16 Year 2000 Compliance -44-
9.17 Conduct of Business -44-
SECTION 10. EVENTS OF DEFAULT AND REMEDIES -44-
10.1 Events of Default -44-
10.2 Remedies -45-
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS
GOVERNING LAW -47-
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver -47-
11.2 Waiver of Notices -48-
11.3 Amendments and Waivers -48-
11.4 Waiver of Counterclaims -49-
11.5 Indemnification -49-
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS -49-
12.1 Term -49-
12.2 Notices -51-
12.3 Partial Invalidity -52-
12.4 Successors -52-
12.5 Entire Agreement -52-
SECTION 13. AGENT -52-
13.1 Appointment and Authorization -53-
13.2 General Immunity -53-
13.3 Consultation with Counsel -53-
13.4 Documents -53-
13.5 Rights as a Lender -53-
13.6 Responsibility of Agent -53-
13.7 Collections and Disbursements -54-
13.8 Indemnification -54-
13.9 Expenses -55-
13.10 No Reliance -55-
13.11 Reporting -55-
13.12 Removal of Agent -55-
13.13 Action on Instruction of Lenders -56-
13.14 Consent of Lenders -56-
</TABLE>
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Schedule 1 Pricing Grid
Schedule 6.4 Authorized Agents
Schedule 8.1 Jurisdictions/Subsidiaries
Schedule 8.3 Addresses/Locations of Collateral
Schedule 8.4 Encumbrances
Schedule 8.5 Outstanding Tax Returns
Schedule 9.9 Indebtedness
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated December 10, 1998 is entered into
by and among Congress Financial Corporation, a Delaware corporation, as
Administrative Agent (in such capacity, "Agent") for First Union National Bank,
as Lender, and Congress Financial Corporation, as Lender (each is individually
referred to herein as "Lender", and are collectively referred to herein as
"Lender" or "Lenders"); Crown Central Petroleum Corporation, a Maryland
corporation ("Crown"); Continental American Corporation, a Delaware corporation;
Crown Central Holding Corporation, a Maryland corporation; Crown Central Pipe
Line Company, a Texas corporation; Crown-Rancho Pipe Line Corporation, a Texas
corporation; Crown Stations, Inc., a Maryland corporation; F Z Corporation, a
Maryland corporation; Fast Fare, Inc., a Delaware corporation ("Fast Fare"); La
Gloria Oil and Gas Company, a Delaware corporation ("La Gloria"); Locot, Inc., a
Maryland corporation; McMurrey Pipe Line Company, a Texas corporation; Mollie's
Properties, Inc. (f/k/a Tiara Properties, Inc.), a Maryland corporation; and
Crowncen International N.V., a corporation of the Netherlands Antilles
("Crowncen") (each of said parties and Crown is individually referred to herein
as a "Borrower", and are collectively referred to herein as "Borrower" or
"Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that Lenders enter into certain
financing arrangements with Borrowers pursuant to which Lenders may make loans
and provide other financial accommodations to Borrowers; and
WHEREAS, Lenders are willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
SECTION 1.
DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrowers, Agent and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Agent, if such Event of Default is capable of being cured
as determined by Agent. Any accounting term used herein unless otherwise defined
in this Agreement shall have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
"Accounts" shall mean all present and future rights of a Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
"Adjusted Current Assets" shall mean, on any determination date thereof,
the sum (without duplication) of (a) Crown's consolidated current assets at such
date, plus (b) an amount equal to Crown's consolidated LIFO reserve at such
date.
"Adjusted LIBOR Rate" - For any LIBOR Interest Period, as applied to a
LIBOR Rate Loan, the rate per annum (rounded upwards, if necessary to the next
1/16 of 1%) determined pursuant to the following formula:
Adjusted LIBOR Rate = LIBOR Rate
----------
(1 - Reserve Percentage)
<PAGE>
For purposes hereof, "LIBOR Rate" shall mean the rates of interest per
annum for U. S. Dollar deposits for a LIBOR Interest Period as reported on
Telerate page 3750 as of eleven o'clock (11:00) a.m. London time on the second
London Business Day before the relevant LIBOR Interest Period begins (or if not
so reported, then as determined by Lender from another recognized source or
interbank quotation). The LIBOR Rate shall be rounded to the next higher 1/100
of 1%, or if Borrowers have hedged the LIBOR Rate Loan with an interest hedging
instrument, the LIBOR Rate shall be rounded five decimal places as set forth in
the 1991 ISDA Definitions published by the International Swaps and Derivatives
Association, Inc.
"Adjusted Net Income (Loss)" shall mean, for any period, Crown's
consolidated net income (loss) for such period as adjusted (to the extent
otherwise included in calculating such net income (loss)) by excluding all
extraordinary gains or losses (as defined by GAAP and less all fees and expenses
relating thereto).
"Adjusted Net Worth" shall mean, at any time, on a consolidated basis for
Crown and its Subsidiaries, the amount equal to: the difference between: the
aggregate net book value of all assets, after deducting from such book values
all appropriate reserves in accordance with GAAP (including all reserves for
doubtful receivables, obsolescence, depreciation and amortization) and the
aggregate amount of the indebtedness and other liabilities (including tax and
other proper accruals) plus indebtedness which is subordinated in right of
payment to the full and final payment of all of the Obligations on terms and
conditions acceptable to Lender.
"Applicable Margin" shall mean a marginal rate of interest which is added
to the Adjusted LIBOR Rate or Base Rate, as the case may be, to determine the
effective rate of interest on LIBOR Rate Loans or Base Rate Loans, as the case
may be. Until the financial reports and Form 10-Q for the period ended March 31,
1999, is delivered to Lender, the Applicable Margin (a) for LIBOR Rate Loans
shall be 2.75% and (b) for Base Rate Loans shall be .25%. Thereafter, the
Applicable Margin for LIBOR Rate Loans and Base Rate Loans, as the case may be,
shall be the percentage set forth below the applicable Fixed Charge Coverage
Ratio in the Pricing Grid.
The Applicable Margin shall be adjusted five (5) Business Days after
receipt of the quarterly financial reports. At any time that such quarterly
financial reports are required to be delivered under the terms of this Agreement
and are not so delivered, then the Applicable Margin shall be the highest rate
specified for the subject Type of Loan until the quarterly financial reports are
so delivered.
<PAGE>
"Availability Reserves" shall mean, as of any date of determination, such
amounts as Agent may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrowers under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Agent or Lender in good faith, do or may affect either the
Collateral or any other property which is security for the Obligations or its
value, the assets, business or prospects of Borrowers or any Obligor or the
security interests and other rights of Agent in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Agent's or
Lender's good faith belief that any collateral report or financial information
furnished by or on behalf of Borrowers or any Obligor to Agent or Lender is or
may have been incomplete, inaccurate or misleading in any material respect or to
reflect outstanding Letter of Credit Accommodations as provided in Section 2.2
hereof or in respect of any state of facts which Agent or Lender determines in
good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default.
"Base Rate" shall mean the rate announced by First Union National Bank,
or its successors from time to time, as its prime rate, whether or not such
announced rate is the best rate available at such bank.
"Base Rate Loans" shall mean loans under the Revolving Credit subject to
interest calculated under the terms hereof based on the Base Rate plus the
Applicable Margin.
"Business Day" shall mean any day other than a Saturday, Sunday, or other
day on which commercial banks are authorized or required to close under the laws
of the States of New York or Maryland, and a day on which the Reference Bank and
Lenders are open for the transaction of business, except that if a determination
of a Business Day shall relate to any LIBOR Rate Loans, the term Business Day
shall also exclude any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable LIBOR Rate market.
"Capital Stock" shall mean any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation, any
and all other ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"Collateral" shall have the meaning set forth in Section 5 hereof.
"Collateral Borrower" shall mean each of Crown, Fast Fare, La Gloria and
Crowncen, and such other Borrowers that, with the approval of Agent, become
Collateral Borrowers.
<PAGE>
"Congress" shall mean Congress Financial Corporation, a Delaware
corporation, in its capacity as a Lender.
"Consolidated Income Tax Expense (Benefit)" shall mean, for any period,
Crown's consolidated provision for Federal, state, local and foreign income and
franchise taxes for such period.
"Dealer Agreements" shall mean those certain "Branded Service Station
Lease and Dealer Agreements" extended between Crown and its independent dealers.
"Default Rate" shall mean with respect to any amounts payable hereunder
or under the Financing Agreements, a rate equal to (a) the sum of (i) 2% per
annum and (ii) the interest rate otherwise in effect with respect to such
amounts, or, (b) if no such rate is otherwise in effect with respect to such
amounts, a rate equal to the sum of (i) the Base Rate plus (ii) the highest
Applicable Margin thereon plus (iii) 2%.
"EBITDAAL" shall mean, for each rolling 12-month period ending the last
day of each month, Crown's consolidated FIFO Net Income (Loss) plus, without
duplication: (a) consolidated interest expense, plus (minus) (b) Consolidated
Income Tax Expense (Benefit) as determined on a FIFO basis, minus (c)
consolidated interest income, plus (d) consolidated depreciation and
amortization, plus (e) consolidated losses from the sale and abandonment of
property, plant and equipment.
"Eligible Accounts" shall mean Accounts created by a Collateral Borrower
which are and continue to be acceptable to Agent based on the criteria set forth
below. Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of Inventory by such Borrower, rendition of services by such Borrower
or sale of a Product Hedging Obligation, in each instance in the ordinary course
of such Borrower's business, which transactions are completed in accordance with
the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after
the date of the original invoice for them or sixty (60) days after their due
date, whichever shall first occur;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
<PAGE>
(e) such Accounts are not credit card accounts created, received,
assigned to or purchased by such Borrower, except for such Accounts as are
created through such Borrower's proprietary credit card program;
(f) such Accounts arising out of the Dealer Agreements are net of
any obligation of Crown to the dealer for the purchase of credit card accounts
or otherwise;
(g) the source of payment of such Accounts or the chief executive
office of the (i) account debtor with respect to such Accounts is located in the
United States of America, or, at Agent's option, if either: the account debtor
has delivered to such Borrower an irrevocable letter of credit issued or
confirmed by a bank satisfactory to Agent and payable only in the United States
of America and in U.S. dollars, sufficient to cover such Account, in form and
substance satisfactory to Agent and, if required by Agent, the original of such
letter of credit has been delivered to Agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Agent, or such
Account is subject to credit insurance payable to Agent issued by an insurer and
on terms and in an amount acceptable to Agent, or such Account is otherwise
acceptable in all respects to Agent (subject to such lending formula with
respect thereto as Agent may determine);
(h) such Accounts are net of any and all discounts, credits,
allowances and contra accounts of any nature, and all obligations of such
Borrower to the account debtor under any exchange, product swap or similar
agreement or arrangement;
(i) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if Agent
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Agent, confirming the unconditional obligation of the
account debtor to take the Inventory related thereto and pay such invoice;
(j) the account debtor or any third Person with respect to such
Accounts has not asserted a claim, counterclaim, defense or dispute and does not
have any right of setoff against such Accounts by reason of any counterclaim,
defense or dispute (but the portion of the Accounts of such account debtor in
excess of the amount claimed owed by such Borrower to such account debtor may,
at Agent's option, be deemed Eligible Accounts);
(k) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
<PAGE>
(l) such Accounts are subject to the first priority, valid and
perfected security interest of Agent and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(m) neither the account debtors nor any officer or employee of the
account debtors with respect to such Accounts is an officer, employee or lender
of or affiliated with such Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(n) the account debtors with respect to such Accounts are not any
foreign government unless such Accounts are secured by a letter of credit issued
to such Borrower by a financial institution acceptable to Agent in its sole
discretion;
(o) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(p) such Accounts of a single account debtor or its affiliates do
not constitute more than twenty percent (20%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
(q) such Accounts are not owed by an account debtor who has Accounts
overdue and unpaid (as described in clause (b) above) which constitute more than
fifty (50%) percent of the total Accounts of such account debtor; and
(r) such Accounts are owed by account debtors deemed creditworthy at
all times by Agent in its reasonable determination.
General criteria for Eligible Accounts may be estab-lished and revised from time
to time by Agent in good faith and upon giving thirty (30) days' advance notice
to such Borrower. Any Accounts which are not Eligible Accounts shall
nevertheless be part of the Collateral.
"Eligible Inventory" shall mean Inventory of a Collateral Borrower which
is and continues to be acceptable to Agent based on meeting all of the following
criteria with respect to each category of Inventory described below:
<PAGE>
(A) CRUDE OIL:
(I) ON BOARD VESSELS (INCLUDING TANKERS AND
BARGES): Such Borrower has entered into an
unconditional contract for the purchase of the specified quantity of crude oil;
said crude oil is physically on board said vessel; and said crude oil is
evidenced by clean onboard negotiable or transferrable bills of lading or
similar documents of title, duly endorsed and delivered to Agent within twenty
(20) days of issuance together with appropriate marine insurance endorsements
naming Agent as a loss payee as its interest may appear;
(II) IN PIPELINES:
(A) said crude oil has been metered by such Borrower or
the pipeline operator at the intake manifold to the pipeline, and has not been
received at such Borrower's discharge manifold at its refinery or at any storage
facility;
(B) shall be conclusively presumed to be of the quantity
and type by reference to the pipeline owner or operator's records relating
thereto; and
(C) shall not include any crude oil in which such Borrower
is the "first purchaser" within the meaning of Section 9-319 of the Uniform
Commercial Code, as enacted in the State of Texas.
(III) IN STORAGE TANKS: shall be limited to the volume of
such Borrower's stored crude oil inventory determined and verified by such
Borrower each day, net of any crude oil Inventory held for any third Person,
including Statoil; and shall not include crude oil Inventory in storage tanks of
third parties unless said third party, on request of Agent, provides Agent with
a Waiver.
(B) WORK IN PROCESS AND UNFINISHED OIL PRODUCT: an amount
equal to the actual amount of work in process and unfinished oil product as of
the last Business Day of the most recent calendar month, as determined by
physical count verification; and
(C) FINISHED PETROLEUM PRODUCT:
(I) Is not in the possession of or physically
located at any retail location of such Borrower or in any tank trucks or other
transfer vehicles;
<PAGE>
(II) IN PIPELINES:
(A) the quantity of said finished
product has been metered by such Borrower or the pipeline operator at the intake
manifold to the pipeline and has not been received at the discharge manifold at
such Borrower's terminal or at any other facility to which finished product is
delivered for storage; and
(B) shall be conclusively presumed
to be of the quantity and type by reference to the records relating thereto of
the pipeline owner or operator;
(III) IN STORAGE TANKS: shall be limited to the volume of such
Borrower's finished product Inventory, as determined and verified by or for such
Borrower each day:
(A) stored at such Borrower's
refineries and terminal, exclusive of finished product stored for other
producers, including without limitation Statoil; and
(B) stored at terminals and storage
facilities of third parties provided that
said third party, on request of Agent, has provided Agent with a Waiver.
(D) CONSUMER MERCHANDISE INVENTORY, exclusive of Crown
branded products, perishable products and any retail merchandise located at any
of such Borrower's retail locations that does not have a "point of sale"
inventory control system in place.
(E) Does not include any lead content or methanol;
(F) Is net of all product exchange, "netting out" or
contra inventory accounts, as reasonably determined by Agent; and
(G) Does not include raw materials, work-in-process or
finished (refined) product of Statoil in the custody or possession of such
Borrower pursuant to the Processing Agreement.
<PAGE>
In general, subject to the foregoing, Eligible Inventory shall not
include (a) spare parts for equipment; (b) packaging and shipping materials; (c)
supplies used or consumed in such Borrower's business; (d) Inventory at premises
other than those owned and controlled by such Borrower, unless Agent shall have
received a Waiver; (e) Inventory subject to a security interest or lien in favor
of any person other than Agent or Lender except those permitted in this
Agreement; (f) bill and hold goods; (g) unserviceable, obsolete or slow moving
Inventory; (h) Inventory which is not subject to the first priority, valid and
perfected security interest of Agent; (i) returned, damaged, and/or defective
Inventory; and (j) Inventory purchased or sold on consignment.
General and specific criteria for Eligible Inventory may be established
and revised from time to time by Agent in good faith and upon giving thirty (30)
days' advance notice to Borrowers. The Value of Eligible Inventory may be
subjected to Availability Reserves in Agent's sole discretion to allow for
through-put fees, storage charges, freight, transportation charges, and other
liabilities to third parties for the costs of movement, shipping, processing or
storing Inventory. Any Inventory that is not Eligible Inventory shall
nevertheless be included within the Collateral.
"Event of Default" shall mean the occurrence or existence of any event or
condition described in Section 10.1 hereof.
"Excess Availability" shall mean the amount, as determined by Agent,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans
available to Borrowers as of such time based on the applicable lending formula,
as determined by Agent, and subject to the sublimits and Availability Reserves
from time to time established by Agent hereunder and (ii) the Maximum Credit,
minus (b) the sum of: (i) the amount of all then outstanding and unpaid
Obligations and (ii) the aggregate amount of all trade payables of Borrowers
which are more than sixty (60) days past due as of such time.
"FIFO Net Income (Loss)" shall mean, for any period, the sum of (a)
Adjusted Net Income (Loss) for such period, plus (minus) (b) an amount equal to
(i) Crown's consolidated LIFO provision (recovery) for such period, times (ii)
the Tax Adjustment Factor in effect at the end of such period.
"FIFO Tangible Net Worth" shall mean, as at any date of determination
thereof, the sum of: (a) Adjusted Net Worth at such date, minus (b) all
Intangible Assets of Crown on a consolidated basis, plus (c) an amount equal to
the product of (i) Crown's consolidated LIFO reserve at such date, times (ii)
the Tax Adjustment Factor in effect at such date.
<PAGE>
"Financing Agreements" shall mean, collectively, this Agreement and all
notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrowers
in connection with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
"First Union" shall mean First Union National Bank, a national banking
association, in its capacities as a Lender and as a letter of credit issuer.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination. Where the classification, character or amount
of any asset, liability, capital account or reserve, or item of income or
expense, is required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement, it shall
be done in accordance with GAAP, consistently applied, to the extent applicable,
except as otherwise expressly provided in this Agreement; provided that if
because of a change in GAAP after the date of this Agreement, Crown would be
required to alter a previously utilized accounting principle, method or policy
in order to remain in compliance with GAAP, such determination shall continue to
be made in accordance with Crown's previous accounting principles, method and
policies.
"Hazardous Substance" shall mean any substance as defined or designated
as hazardous or toxic waste, hazardous material, hazardous or toxic substance by
the Resource Conservation and Recovery Act (RCRA), the Comprehensive
Environmental, Response, Compensation and Liability Act (CERCLA), the Federal
Clean Water Act, and the Federal Clean Air Act, as all are amended, from time to
time.
"Hedging Obligation" shall mean the obligation of any Person pursuant to
(a) any rate swap agreement, basis swap agreement, forward rate agreement,
commodity swap agreement, interest rate option, forward foreign exchange
agreement, cap agreement, floor agreement, collar agreement, cross-currency rate
swap agreement, or currency option, (b) any option, futures or forward contract
traded on an exchange, (c) any swap agreement as described in 11 U.S.C. ss.101
(53B) or (d) any other derivative agreement or other similar agreement or
arrangement.
<PAGE>
"Indenture" shall mean that certain Indenture dated as of January 24,
1995 between Crown, as Issuer, and the First National Bank of Boston, Trustee,
relating to Crown's 10 7/8% Senior Notes due 2005, as the same may be amended,
restated, supplemented or modified from time to time.
"Insolvent" or "Insolvency" means, as to any Person, the condition under
which, either: (a) the fair saleable value of such Person's assets are less than
the amount of such Person's liabilities (including the Obligations), whether
matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent,
or (b) such Person is unable to pay all of its liabilities as such liabilities
become absolute and matured.
"Intangible Assets" shall mean, on any determination date thereof, with
respect to any Person, the book value of all property held by such Person that
would be treated as intangibles under GAAP, including goodwill, patents and
trademarks.
"Inventory" shall mean all of Borrowers' now owned and hereafter existing
or acquired raw materials, crude oils, work in process, unfinished oil product,
finished goods, refined and finished product, merchandise and all other
inventory of whatsoever kind or nature, wherever located and all products of the
foregoing.
"Letter of Credit Accommodations" shall mean the letters of credit,
materials purchase or other guaranties which are from time to time either (a)
issued or opened by a Lender for the account of a Borrower or any Obligor or (b)
with respect to which a Lender has agreed to indemnify the issuer or guaranteed
to the issuer the performance by a Borrower of its obligations to such issuer.
"LIBOR Interest Period" shall mean with respect to any LIBOR Rate Loan,
(a) initially, the period commencing on the borrowing or conversion date, as the
case may be, and ending one, three or six months thereafter as selected by Crown
pursuant to Section 3.1 below, and (b) thereafter, each period commencing on the
day after the last day of the preceding LIBOR Interest Period and ending one,
three or six months thereafter, as selected by Crown pursuant to Section 3.1
below, provided, however, if any such LIBOR Interest Period would otherwise end
on a day which is not a London Business Day, such LIBOR Interest Period shall be
extended to the next succeeding London Business Day unless the result of such
extension would be to carry such LIBOR Interest Period into another calendar
month in which event such LIBOR Interest Period shall end on the immediately
preceding London Business Day and provided, further, if any such LIBOR Interest
Period begins on a day for which there is no numerically corresponding day in
the calendar month at the end of such LIBOR Interest Period (as may be the case
with a LIBOR Interest Period commencing at the end of a calendar month) the
LIBOR Interest Period shall end on the last London Business Day of the relevant
calendar month.
<PAGE>
"LIBOR Rate Loan" shall mean that portion of any Loan on which interest
accrues at the Adjusted LIBOR Rate plus the Applicable Margin.
"Loans" shall mean the Revolving Loans.
"London Business Day" shall mean any Business Day on which banks in
London, England are open for business.
"Maximum Credit" shall mean the amount of $80,000,000.00, as such amount
may be reduced permanently from time to time pursuant to Section 2.4 hereof.
"Net Amount of Eligible Accounts" shall mean the gross amount of Eligible
Accounts less sales, excise or similar taxes included in the amount thereof.
"Net Fixed Charges" shall mean, on a consolidated basis with respect to
Crown, the sum of consolidated interest expense and cash dividends paid minus
interest income.
"Net Fixed Charge Coverage" shall mean the ratio of EBITDAAL to Net Fixed
Charges.
"Obligations" shall mean any and all Revolving Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrowers to Agent, Lender and/or its or
their affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, arising under this Agreement or in connection therewith, whether
now existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to any Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which would
accrue and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Agent or Lender.
"Obligor" shall mean any guarantor, endorser, acceptor, surety or other
person liable on or with respect to the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrowers.
"Payment Account" shall have the meaning set forth in Section 6.3 hereof.
<PAGE>
"Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
"Pricing Grid" shall mean that certain Pricing Grid Table annexed hereto
as SCHEDULE 1.
"Processing Agreement" shall mean that certain Crude Oil Processing
Agreement dated as of October 14, 1998 between Crown and Statoil, as the same
may be amended, supplemented, renewed or restated from time to time.
"Product Hedging Obligation" shall mean any Hedging Obligation relating
to the prices applicable to the existing or reasonably anticipated requirements
(for the reasonable operations of Crown and its Subsidiaries) of any Borrower
for crude oil, other feedstocks, other petroleum products, or additives thereto
or components thereof or their reasonably anticipated requirements for energy
supplies.
"Records" shall mean all of Borrowers' present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral, Borrowers'
customers, vendors, payables, receivables, exchanges, swaps, contra accounts,
purchases, sales, forward exchange and Product Hedging Obligations, together
with all computer software (whether owned or licensed), tapes, disks, diskettes
and other data and software storage media and devices (including any rights of
Borrowers with respect to the foregoing maintained with or by any other person).
"Reference Bank" shall mean First Union, its successors and assigns.
"Reserve Percentage" shall mean for any Lender on any day, that
percentage (expressed as a decimal) which is in effect on such day, prescribed
by the Board of Governors of the Federal Reserve System (or any successor or any
other banking authority to which such Lender is subject, including any board or
governmental or administrative agency of the United States or any other
jurisdiction to which such Lender is subject, for determining the maximum
reserve requirement (including, without limitation, any basic, supplemental,
marginal or emergency reserves) for (a) deposits of United States Dollars or (b)
Eurocurrency liabilities as defined in Regulation D, in each case used to fund a
LIBOR Based Rate Loan subject to an Adjusted LIBOR Rate. The Adjusted LIBOR Rate
shall be adjusted automatically on and as of the effective day of any change in
the Reserve Percentage.
<PAGE>
"Revolving Credit" shall have the meaning set forth in Section 2.1 hereof.
"Revolving Loans" shall mean the loans now or hereafter made by Lender to
or for the benefit of Borrowers on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
"Revolving Loans Maturity Date" shall mean the Renewal Date or, if any
Renewal Term is in effect, then the last day of such Renewal Term.
"Statoil" shall mean Statoil Marketing and Trading (U.S.) Inc.
"Subsidiary" shall mean with respect to any Person at any time, (a) any
corporation more than fifty percent (50%) of whose Capital Stock normally
entitled to vote is legally and beneficially owned by such Person or owned by a
corporation more than fifty percent (50%) of whose Capital Stock normally
entitled to vote is legally and beneficially owned by such Person; (b) any trust
of which a majority of the beneficial interest is at such time owned directly or
indirectly, beneficially or of record, by such Person or one or more
Subsidiaries of such Person; and (c) any partnership, joint venture or other
entity of which ownership interests having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar functions
are at such time owned directly or indirectly, beneficially or of record, by, or
which is otherwise controlled directly, indirectly or through one or more
intermediaries by, such Person or one or more Subsidiaries of such Person.
"Tax Adjustment Factor" shall mean, during any calendar year, the
remainder, expressed as a percentage, of 1 minus the highest federal corporate
income tax rate for such year.
"Trading Policy" shall mean a written trading policy, designed by the
management of Crown and adopted by Crown's board of directors prior to the date
hereof, regarding purchases and sales of crude oil, refined products, and
refinery feedstocks and Product Hedging Obligations of Borrowers related to the
foregoing.
"Type" shall mean with respect to any Loan, each of which shall be deemed
to be a different "Type of Loan": Base Rate Loans, LIBOR Rate Loans with a LIBOR
Interest Period of one month commencing on a specified date, LIBOR Rate Loans
with a LIBOR Interest Period of three months commencing on a specified date or
LIBOR Rate Loans with a LIBOR Interest Period of six months commencing on a
specified date.
"Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial Code
as adopted by the State of New York, as amended or modified from time to time.
<PAGE>
"Value" shall mean, as determined by Agent in good faith, with respect to
Inventory, the lower of (a) cost computed on a first-in-first-out basis in
accordance with GAAP or (b) market value.
"Waiver" shall mean an agreement in writing from a Person in possession
of Inventory and/or the owner or operator of premises other than those owned and
controlled by a Borrower, on or in which Inventory is located, in form and
substance satisfactory to Agent acknowledging Agent's first priority security
interest in the Inventory, waiving security interests and claims by such Person
against the Inventory and permitting Agent access to, and the right to remain
on, the premises so as to exercise Agent's rights and remedies and otherwise
deal with the Collateral including removal of the Collateral from the premises.
"Working Capital" shall mean as to any Person, at any time, in accordance
with GAAP, on a consolidated basis for such Person and its subsidiaries (if
any), the amount equal to the difference between: (a) the aggregate net book
value of all current assets of such Person and its subsidiaries (as determined
in accordance with GAAP), calculating the book value of inventory for this
purpose on a first-in-first-out basis, and (b) all current liabilities of such
Person and its subsidiaries (as determined in accordance with GAAP), provided,
that, as to Crown and its consolidated Subsidiaries, for purposes of Section
9.12, the liabilities of Borrowers under this Agreement shall not be considered
current liabilities (whether or not classified as current liabilities in
accordance with GAAP).
"Year 2000" shall have the meaning set forth in Section 8.10 hereto.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein, Lender
agrees, so long as no Event of Default or an event which with the giving of
notice or passage of time, or both, constitutes an Event of Default has occurred
and is continuing, to make Revolving Loans to Borrowers ("Revolving Credit")
from time to time prior to the Revolving Loans Maturity Date, in amounts
requested by Crown up to the lesser of the Maximum Credit or the sum of:
<PAGE>
(i) eighty-five percent (85%) of the Net Amount of Eligible Accounts, plus
(ii) the lesser of : (A) the sum of seventy percent (70%) of the Value of
Eligible Inventory other than as described in clause (d) of the definition of
Eligible Inventory, plus fifty percent (50%) of the Value of Eligible Inventory
as described in clause (d) of the definition of Eligible Inventory or (B)
Fifty-Five Million Dollars ($55,000,000), less
(iii) any Availability Reserves.
(b) Agent may, in its discretion, from time to time, upon not less than five (5)
days prior notice to Borrowers, reduce the lending formula with respect to
Eligible Accounts to the extent that Agent determines in good faith that: the
dilution with respect to the Accounts for any period (based on the ratio of the
aggregate amount of reductions in Accounts other than as a result of payments in
cash to the aggregate amount of total sales) has increased in any material
respect or may be reasonably anticipated to increase in any material respect
above historical levels, or the general creditworthiness of account debtors has
declined or reduce the lending formula(s) with respect to Eligible Inventory to
the extent that Agent determines that: the number of days of the turnover of the
Inventory for any period has changed in any material respect or the liquidation
value of the Eligible Inventory, or any category thereof, has decreased, or the
nature and quality of the Inventory has deteriorated. In determining whether to
reduce the lending formula(s), Agent may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Accounts, Eligible Inventory or in establishing Availability Reserves.
(c) Except in Agent's discretion, the aggregate amount of the Loans and the
Letter of Credit Accommodations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommoda-tions set forth in Section 2.2(d) or
the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Agent or Lender in that circumstance or on any
future occasions and Borrowers shall, upon demand by Agent, which may be made at
any time or from time to time, immediately repay to Agent the entire amount of
any such excess(es) for which payment is demanded.
<PAGE>
(d) For purposes only of applying the sublimit on Revolving Loans based on
Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Agent may treat the then
undrawn amounts of outstanding Letter of Credit Accommodations for the purpose
of purchasing Eligible Inventory as Revolving Loans to the extent Agent is in
effect basing the issuance of the Letter of Credit Accommodations on the Value
of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be attributed first to any
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending formulas
subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein, at the
request of Crown, Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of a Borrower containing terms and conditions
acceptable to Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to Borrowers pursuant
to this Section 2. Unless Crown is notified otherwise by Agent, the letter of
credit issuer shall be First Union, its successors and assigns. Any additional
or replacement letter of credit issuer, including any assignee of First Union,
shall be a financial institution selected by Crown and reasonably acceptable to
Agent.
(b) In addition to any charges, fees or expenses charged by any bank or issuer
in connection with the Letter of Credit Accommodations, Borrowers shall pay to
Agent, for the account of Lender, a letter of credit fee at a rate equal to two
percent (2.00%) per annum, or, after March 31, 1999, such other annual rate as
may be applicable by reference to the Pricing Grid, on the daily outstanding
balance of the Letter of Credit Accommodations for the immediately preceding
quarter (or part thereof), payable in arrears as of the first day of each
succeeding quarter. Unless Borrowers furnish cash collateral as provided in
Section 2.2(d) below, Borrowers shall pay to Agent, for the account of Lender, a
letter of credit fee, at Agent's option, at a rate equal to two percentage
points per annum above the otherwise applicable rate on such daily outstanding
balance for: the period from and after the date of termination or non-renewal
hereof until Lender has received full and final payment of all Obligations
(notwithstanding entry of a judgment against Borrowers) and the period from and
after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing as determined by Agent. Such letter of credit fee
shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed and the obligation of Borrowers to pay such fee shall
survive the termination or non-renewal of this Agreement.
<PAGE>
(c) No Letter of Credit Accommodations shall be available unless on the date of
the proposed issuance of any Letter of Credit Accommodations, the Revolving
Loans available to Borrowers (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than: if the proposed Letter of Credit
Accommodation is for the purpose of purchasing Eligible Inventory, the sum of
the percentage equal to one hundred percent (100%) minus the then applicable
percentage set forth in Section 2.1(a)(ii)(A) above of the Value of such
Eligible Inventory, plus freight, taxes, duty and other amounts which Agent
estimates must be paid in connection with such Inventory upon arrival and for
delivery to one of Borrowers' locations for Eligible Inventory within the United
States of America and if the proposed Letter of Credit Accommodation is for any
other purpose, an amount equal to one hundred percent (100%) of the face amount
thereof and all other commitments and obligations made or incurred by Agent or
Lender with respect thereto. Effective on the issuance of each Letter of Credit
Accommodation, an Availability Reserve shall be established in the applicable
amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Agent's discretion, the amount of all outstanding Letter of Credit
Accommodations and all other commitments and obligations made or incurred by
Lender in connection therewith shall not at any time exceed the Maximum Credit.
For any period after the date of termination or non-renewal hereof until Lender
has received full and final payment of all Obligations, or at any time an Event
of Default exists or has occurred and is continuing, upon Agent's request,
Borrowers will either furnish cash collateral to secure the reimbursement
obligations to the issuer in connection with any Letter of Credit Accommodations
or furnish cash collateral to Agent, for the account of Lender, for the Letter
of Credit Accommodations, in either case in an amount equal to 100% of the
Letter of Credit Accommodations. In either case, the Revolving Loans otherwise
available to Borrowers shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Borrowers shall indemnify and hold Agent and Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrowers assume all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation. Borrowers assume all risks for, and agrees to pay, all foreign,
Federal, state and local taxes, duties and levies relating to any goods subject
to any Letter of Credit Accommodations or any documents, drafts or acceptances
thereunder. Borrowers hereby release and hold Agent and Lender harmless from and
against any acts, waivers, errors, delays or omissions, whether caused by any
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
<PAGE>
(f) Nothing contained herein shall be deemed or construed to grant Borrowers any
right or authority to pledge the credit of Lender in any manner. Agent and
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrowers shall be bound by any interpretation made in good faith by Agent,
Lender, or any other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of any Borrower. Agent and Lender shall have the sole and
exclusive right and authority to, and Borrowers shall not, unless they have
furnished cash collateral in the manner and amount as provided in Section 2.2(d)
above: at any time an Event of Default exists or has occurred and is continuing,
approve or resolve any questions of non-compliance of documents, give any
instructions as to acceptance or rejection of any documents or goods or execute
any and all applications for steamship or airway guaranties, indemnities or
delivery orders, and at all times, grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances, or
documents, and agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents, drafts or
acceptances thereunder or any letters of credit included in the Collateral. In
the absence of such cash collateral Agent or Lender alone may take such actions,
either in its own name or in Borrowers' name.
(g) Any rights, remedies, duties or obligations granted or undertaken by
Borrowers to any issuer or corre-spondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrowers to Agent and Lender. Any duties or
obligations undertaken by Agent or Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Agent or Lender in favor of any issuer or correspondent relating to any Letter
of Credit Accommodation, shall be deemed to have been undertaken by Borrowers to
Agent and Lender and to apply in all re-spects to Borrowers.
(h) Nothing in this Section 2.2 shall constitute a waiver of any claim, right or
defense Borrowers may have under applicable law.
<PAGE>
2.3 Availability Reserves. All Revolving Loans otherwise available to Borrowers
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Agent's continuing right to
establish and revise Availability Reserves.
2.4 Maximum Credit Reduction. So long as no Event of Default has occurred and is
continuing, Borrowers may elect to reduce (which reduction shall be irrevocable)
the Maximum Credit in increments of $10,000,000.00 to not less than Fifty
Million Dollars ($50,000,000.00) at any time on or after one (1) year from the
date hereof.
2.5 Joint and Several Liability. The liability of Borrowers to repay all
existing and future Obligations shall be joint and several.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) The unpaid principal balance of cash Loans shall bear interest,
subject to the terms of this Agreement, at the per annum rate equal to either
(i) the Base Rate or (ii) the Adjusted LIBOR Rate for a specified LIBOR Interest
Period plus, in the case of both (i) and (ii), the Applicable Margin.
(b) Changes in the interest rate applicable to Base Rate Loans shall
become effective on the same day that a change in the Base Rate occurs.
(c) Unless otherwise designated by Crown as a LIBOR Rate Loan, in
accordance with this paragraph (c), each Loan shall be deemed to be a Base Rate
Loan.
(i) Base Rate Loans shall continue as Base Rate Loans unless
and until such Loans are converted into Loans of another Type. LIBOR Rate Loans
for any Interest Period shall continue as Loans of such Type until the end of
the then current LIBOR Interest Period therefor, at which time they shall be
automatically converted into Base Rate Loans unless Crown shall have given
Lender notice in accordance with clause (ii) below requesting that such Loans
continue as LIBOR Rate Loans for another LIBOR Interest Period of a specified
duration.
<PAGE>
(ii) To elect a LIBOR Rate Loan, Crown shall give Agent notice
(which shall be irrevocable) as required hereunder no later than 11:00 a.m. on
the third Business Day before the date of the Loan. Such notice shall also
specify (A) the requested date (which shall be a Business Day) of such funding,
conversion or continuation, (B) whether the subject Loan is a new Loan or an
existing Loan that is to be converted or continued, (C) in the case of any LIBOR
Rate Loan being continued, the last day of the current LIBOR Interest Period,
and (D) the amount of, and the desired LIBOR Interest Period for, the Loan
subject to such LIBOR Rate election provided that Borrowers shall not be
entitled to select a LIBOR Interest Period for any Loan which shall end on a
date later than the Revolving Credit Maturity Date.
(iii) Notwithstanding anything to the contrary contained in
clauses (i) or (ii) of this paragraph (c), so long as an Event of Default shall
have occurred and be continuing, Loans may only be converted into or continued
upon the expiration of the applicable current LIBOR Interest Period therefor as
Base Rate Loans. Thereafter, until no Event of Default shall continue to exist,
Loans may not be converted into or continued as Loans of any Type other than
Base Rate Loans.
(iv) Notwithstanding anything to the contrary contained in this
Agreement, Borrowers shall borrow, prepay, convert and continue Loans in a
manner such that (A) the aggregate principal amount of LIBOR Rate Loans of the
same Type shall, at all times, be not less than $5,000,000; (B) there shall not
be, at any time, more than four (4) LIBOR Interest Periods in effect; and (C)
Agent or Lender shall have determined that the Interest Period or Adjusted LIBOR
Rate is available to Lender through the Reference Bank and can be readily
determined as of the date of the request for such LIBOR Rate Loan by Crown.
(v) Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank may fund LIBOR Rate Loans from any source they
deem appropriate (in their sole discretion) without loss of any rights
hereunder.
(d) Interest shall be payable to Agent, for the account of Lender:
(i) in the case of Base Rate Loans, quarterly in arrears commencing January 1,
1999 and on the first day of each calendar quarter thereafter, (ii) in the case
of LIBOR Rate Loans, on the last day of each applicable LIBOR Interest Period
(and, in the case of any LIBOR Rate Loan having a LIBOR Interest Period longer
than three (3) months, on each three-month anniversary of the first day of such
LIBOR Interest Period) and (iii) in the case of any Loan, when such Loan shall
be due (whether at maturity, by reason of notice of prepayment or acceleration,
or otherwise) or converted, but only to the extent then accrued on the amount
then so due or converted.
<PAGE>
(e) Borrowers shall pay to Agent, for the account of Lender,
additional interest at the applicable prevailing rate(s) plus two percentage
points (2%) per annum: on the non-contingent Obligations for the period from and
after the date of termination or non-renewal hereof until such time as Lender
has received full and final payment of all such Obligations (notwithstanding
entry of any judgment against any Borrower), and the period from and after the
date of the occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by Agent and on the Revolving Loans at any
time outstanding in excess of the amounts available to Borrowers under Section 2
(whether or not such excess(es), arise or are made with or without Agent's or
Lender's knowledge or consent and whether made before or after an Event of
Default).
(f) (i) The Adjusted LIBOR Rate may be automatically adjusted by
Agent or Lender on a prospective basis to take into account the additional or
increased cost of maintaining any necessary reserves for LIBOR deposits or
increased costs due to changes in applicable law or regulation or the
interpretation thereof occurring subsequent to the commencement of the then
applicable LIBOR Interest Period, including but not limited to changes in tax
laws (except changes of general applicability in corporate income tax laws) and
changes in the reserve requirements imposed by the Board of Governors of the
Federal Reserve System (or any successor), excluding the Reserve Percentage and
any event which has resulted in a payment pursuant to Section 3.1(f)(v) below,
that increase the cost to Lender or the Reference Bank of funding the LIBOR Rate
Loan. Agent shall promptly give Borrowers notice of such a determination and
adjustment, which determination shall be prima facie evidence of the correctness
of the fact and the amount of such adjustment.
(ii) If Crown shall have requested a LIBOR Rate Loan and Lender
or Reference Bank shall have reasonably determined that LIBOR deposits equal to
the amount of the principal of the requested LIBOR Rate Loan and for the LIBOR
Interest Period specified are unavailable, or that the rate based on the
Adjusted LIBOR Rate will not adequately and fairly reflect the cost of the
Adjusted LIBOR Rate applicable to the specified LIBOR Interest Period of making
or maintaining the principal amount of the requested LIBOR Rate Loan specified
by Crown during the LIBOR Interest Period specified, or that by reason of
circumstances affecting Eurodollar markets, adequate and reasonable means do not
exist for ascertaining the rate based on the Adjusted LIBOR Rate applicable to
the specified LIBOR Interest Period, Agent shall promptly give notice of such
determination to Crown that the rate based on the Adjusted LIBOR Rate is not
available. A determination by Lender or Reference Bank hereunder shall be prima
facie evidence of the correctness of the fact and amount of such additional
costs or unavailability. Upon such a determination, (A) the obligation to
convert to, or maintain a LIBOR Rate Loan at the rate based on the Adjusted
LIBOR Rate shall be suspended until such conditions shall have ceased to exist,
and (B) the applicable Loan subject to the requested conversion shall continue
to accrue interest at the Base Rate plus the Applicable Margin.
<PAGE>
(iii) If, as a result of any changes in applicable law or
regulation or the interpretation thereof, it becomes unlawful for Lender or
Reference Bank to maintain Eurodollar liabilities sufficient to fund any LIBOR
Rate Loan subject to the rate based on the Adjusted LIBOR Rate, then Agent shall
immediately notify Crown thereof and Lender's obligations hereunder to convert
to, or maintain a LIBOR Rate Loan at the rate based on the Adjusted LIBOR Rate
shall be suspended until such time as Lender (or the Reference Bank) may again
cause the rate based on the Adjusted LIBOR Rate to be applicable to any LIBOR
Rate Loan and the LIBOR Rate Loan shall accrue interest at the Base Rate plus
the Applicable Margin. Promptly after it is no longer unlawful for Lender (or
the Reference Bank) to maintain such Eurodollar liabilities, Agent shall notify
Crown thereof and such suspension shall cease to exist.
(iv) If any payments or prepayments in respect of
the LIBOR Rate Loans are received by Agent, for the account of Lender other than
on the last day of the applicable Interest Period (whether pursuant to
acceleration, upon maturity or otherwise), including any payments pursuant to
the application of collections or any other payments made with the proceeds of
Collateral, Borrowers shall pay to Agent, for the account of Lender upon demand
by Agent (or Lender may, at its option, charge any loan account of Borrowers)
any amounts required to compensate Lender or the Reference Bank for any
additional loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of such prepayment or payment, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or re-employment of deposits or other funds acquired by such person
to make or maintain such LIBOR Rate Loans or any portion thereof.
(v) Borrowers shall indemnify, defend and hold
harmless Agent and Lender against any and all loss, liability, cost or expense
which Agent or Lender may sustain or incur as a consequence of (a) any failure
of Borrowers to borrow, convert or extend any LIBOR Rate Loan after notice
thereof has been given to Agent and Lender or (b) any payment, prepayment or
conversion of a LIBOR Rate Loan by Borrowers made for any reason (including,
without limitation, any acceleration of the Loan), on a date other than the last
day of the applicable LIBOR Interest Period.
(g) Additional Interest Provisions.
(i) Interest on the Loans, regardless of the rate option, shall
be calculated on the basis of a year of three hundred sixty (360) days but
charged for the actual number of days elapsed.
<PAGE>
(ii) All contractual rates of interest chargeable on
outstanding principal under the Loans, regardless of the rate option, shall
continue to accrue and be paid even after Default, an Event of Default,
maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind
or the happening of any event or occurrence similar or dissimilar.
(iii) In no contingency or event whatsoever shall the aggregate
of all amounts deemed interest hereunder and charged or collected pursuant to
the terms of this Agreement exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such court determines Lender has charged or
received interest hereunder in excess of the highest applicable rate, Lender
shall apply, in its sole discretion, and set off such excess interest received
by Lender against other Loan Obligations due or to become due and such rate
shall automatically be reduced to the maximum rate permitted by such law;
provided that if the Obligations have been paid and satisfied in full and the
Revolving Credit terminated, any excess interest shall be paid as such court
directs.
3.2 Closing Fee. Borrowers shall pay to Agent, for the account of Lender, as a
closing fee the amount of Six Hundred Thousand Dollars ($600,000.00), which
shall be fully earned as of and payable on the date hereof.
3.3 Unused Line Fee. Borrowers shall pay to Agent, for the account of Lender,
quarterly an unused line fee at a rate equal to one-half percent (.50%) per
annum calculated upon the amount by which the Maximum Credit exceeds the average
daily principal balance of the outstanding Revolving Loans and Letter of Credit
Accommodations during the immediately preceding quarter (or part thereof) while
this Agreement is in effect, which fee shall be payable on the first day of each
quarter in arrears.
3.4 Structuring Fee. Borrowers shall pay to Agent, for the account of
Lender, a structuring fee in the amount of Four Hundred Fifty Thousand Dollars
($450,000.00), which shall be fully earned as of and payable on the date hereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.
Each of the following is a condition precedent to the initial Loans and the
initial Letter of Credit Accommodations hereunder:
<PAGE>
(a) Agent shall have received evidence, in form and substance satisfactory to
Agent, that Agent, for the benefit of Lender, has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Obligations or the liability
of any Obligor in respect thereof, subject only to the security interests and
liens permitted herein or in the other Financing Agreements;
(b) All requisite corporate action and proceedings in connection with this
Agreement and the other Financing Agreements shall be satisfactory in form and
substance to Agent, and Agent shall have received all information and copies of
all documents, including records of requisite corporate action and proceedings
which Agent may have requested in connection therewith, such documents where
requested by Agent or its counsel to be certified by appropriate corporate
officers or governmental authorities;
(c) No material adverse change shall have occurred in the assets, business or
prospects of Borrowers since the date of Agent's latest field examination and no
change or event shall have occurred which would impair the ability of Borrowers
or any Obligor to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Agent to enforce the
Obligations or realize upon the Collateral;
(d) Agent shall have completed a field review of the Records and such other
information with respect to the Collateral as Agent may require to determine the
amount of Revolving Loans available to Borrowers, the results of which shall be
satisfactory to Agent, not more than three (3) Business Days prior to the date
hereof;
(e) Agent shall have received, in form and substance satisfactory to Agent, all
consents, waivers, acknowledgments and other agreements from third persons
which Agent may deem necessary or desirable in order to permit, protect and
perfect its security interests in and liens upon the Collateral or to effectuate
the provisions or purposes of this Agreement and the other Financing Agreements,
including Waivers;
(f) Agent shall have received evidence of insurance and loss payee endorsements
required hereunder and under the other Financing Agreements, in form and
substance satisfactory to Agent, and certificates of insurance policies and/or
endorsements naming Agent as loss payee;
(g) Agent shall have received, in form and substance satisfactory to Agent, such
opinion letters of counsel to Borrowers with respect to the Financing Agreements
and such other matters as Agent may request;
<PAGE>
(h) The Financing Agreements and all instruments and documents hereunder and
thereunder shall have been duly executed and delivered to Agent, in form and
substance satisfactory to Lender;
(i) Statoil shall have executed an intercreditor agreement
with Agent;
(j) the Processing Agreement shall be in full force and
effect and Crown shall not be in default thereunder and Crown shall not have
received any notice of proposed cancellation, termination or suspension of the
Processing Agreement by Statoil; and
(k) the Excess Availability as determined by Agent, on and
as of the date hereof, shall not be less than $15,000,000 after giving effect to
any Loans made or to be made on the date hereof.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each
of the following is an additional condition precedent to Lender's making Loans
and/or providing Letter of Credit Accommodations to Borrowers, including the
initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct in all material respects with the
same effect as though such representations and warranties had been made on and
as of the date of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice or passage
of time or both, would constitute an Event of Default, shall exist or have
occurred and be continuing on and as of the date of the making of such Loan or
the providing of each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrowers hereby
grant to Agent, for the benefit of Lender, a continuing security interest in, a
lien upon, and a right of set off against, and hereby assigns to Agent, for the
benefit of Lender as security, the following property and interests in property
of Borrowers, whether now owned or hereafter acquired or existing, and wherever
located (collectively, the "Collateral"):
<PAGE>
5.1 Accounts;
5.2 Inventory;
5.3 To the extent the following are current assets in accordance with
GAAP: all present and future contract rights, general intangibles (including tax
and duty refunds, licenses, whether as licensor or licensee, choses in action
and other claims), chattel paper, documents, instruments, securities and other
investment property, letters of credit, bankers' acceptances and guaranties;
5.4 All present and future monies, securities, credit balances, deposits,
deposit accounts (including the Payment Account) and other property of Borrowers
now or hereafter held by or received by or in transit to Lender or its
affiliates or at any other depository or other institution from or for the
account of Borrowers, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, Accounts,
Inventory or other Collateral, and deposits by and property of account debtors
or other persons securing the obligations of account debtors;
5.5 All rights to payment from Crown's independent dealers, whether under
the Dealer Agreements or otherwise, and whether characterized as Accounts,
contract rights, general intangibles, chattel paper, rentals, licensing fees or
otherwise;
5.6 All products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing; and
5.7 All Records relating to the foregoing.
<PAGE>
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Loan Account. Agent shall maintain one or more loan account(s) on its books
in which shall be recorded all Loans, Letter of Credit Accommodations and other
Obligations and the Collateral, all payments made by or on behalf of Borrowers
and all other appropriate debits and credits as provided in this Agreement,
including fees, charges, costs, expenses and interest. All entries in the loan
account(s) shall be made in accordance with Agent's customary practices as in
effect from time to time.
6.2 Statements. Agent shall render to Borrowers each month a statement setting
forth the balance in the loan account(s) maintained by Agent for Borrowers
pursuant to the provisions of this Agreement, including principal, interest,
fees, costs and expenses. Each such statement shall be subject to subsequent
adjustment by Agent but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Agent receives a
written notice from Borrowers of any specific exceptions of Borrowers thereto
within thirty (30) days after the date such statement has been mailed by Agent.
Until such time as Agent shall have rendered to Borrowers a written statement as
provided above, the balance in the loan account(s) shall be presumptive evidence
of the amounts due and owing to Lender by Borrowers.
<PAGE>
6.3 Payments.
(a) Subject to the provisions of Section 6.6 hereof, all
Accounts and all proceeds and collections of Collateral shall be payable to one
or more bank accounts as Borrowers shall from time to time designate for such
purpose and disclose to Agent ("Payment Account"). The Payment Account(s) shall
be subject to the security interest provided herein in favor of Agent. Agent may
apply payments received or collected from Borrowers or for the account of
Borrowers (including the monetary proceeds of collections or of realization upon
any Collateral) to such of the Obligations, whether or not then due, in such
order and manner as Agent and Lender determine. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrowers. Borrowers shall make all payments to Agent, for
the account of Lender, on the Obligations free and clear of, and without
deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of the Obligations, Agent
or Lender is required to surrender or return such payment or proceeds to any
Person for any reason, then the Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Agreement shall
continue in full force and effect as if such payment or proceeds had not been
received by Agent or Lender. Borrowers shall be liable to pay to Agent or
Lender, and do hereby indemnify and hold Agent and Lender harmless for the
amount of any payments or proceeds surrendered or returned. This Section 6.3
shall remain effective notwithstanding any contrary action which may be taken by
Agent or Lender in reliance upon such payment or proceeds. This Section 6.3
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
(b) For purposes of calculating the amount of the Loans
avail-able to Borrowers, such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Agent of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Agent's usual and customary
practices as in effect from time to time and within sufficient time to credit
the loan account on such day, and if not, then on the next Business Day. For the
purposes of calculating interest on the Obligations, such payments or other
funds received will be applied (conditional upon final collection) to the
Obligations the date of receipt of immediately available funds by Lender
provided such payments or other funds and notice thereof are received in
accordance with Lender's usual and customary practices as in effect from time to
time and within sufficient time to credit Borrowers' loan account on such day,
and if not, then on the next Business Day.
<PAGE>
(c) Borrowers and their respective Subsidiaries,
shareholders, directors and employees shall, acting as trustee for Lender,
receive, as the property of Lender, any monies, checks, notes, drafts or any
other payment relating to and/or proceeds of Accounts or other Collateral which
come into their possession or under their control.
6.4 Authorization to Make Loans. Lender is authorized to make the Loans and
provide the Letter of Credit Accommodations based upon telephonic or other
instructions received by Agent from any authorized agent of Crown identified on
SCHEDULE 6.4 hereto, as said schedule may be revised from time to time or, at
the discretion of Lender, if such Loans are necessary to satisfy any
Obligations. All requests for Loans or Letter of Credit Accommodations hereunder
shall specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business Day) and the
amount of the requested Loan. Requests received after 11:00 a.m. New York time
on any day shall be deemed to have been made as of the opening of business on
the immediately following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to have been
made to, and at the request of and for the benefit of, Borrowers when deposited
to the credit of Borrowers or otherwise disbursed or established in accordance
with the instructions of Borrowers or in accordance with the terms and
conditions of this Agreement.
6.5 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans
provided by Lender to Borrowers hereunder only for: payments to each of the
persons listed in any disbursement direction letter furnished by Borrowers to
Agent on or about the date hereof and costs, expenses and fees in connection
with the preparation, negotiation, execution and delivery of this Agreement and
the other Financing Agreements. All other Loans made or Letter of Credit
Accommodations provided by Lender to Borrowers pursuant to the provisions hereof
shall be used by Borrowers only for general operating, working capital and other
proper corporate purposes of Borrowers not otherwise prohibited by the terms
hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
<PAGE>
6.6 Blocked Account. If Excess Availability shall be less than
$15,000,000 as of the close of business on any Business Day, within ten (10)
days after receipt of notice of such event from Agent and at Agent's request
Borrowers shall establish and maintain, at Borrowers' expense, one or more
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Agent may specify, with First Union or such other bank
as is acceptable to Agent, into which Borrowers shall promptly deposit and
direct account debtors to directly remit all payments on Accounts and all
payments constituting proceeds of Inventory or other Collateral in the identical
form in which such payments are made, whether by cash, check or other manner.
The banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Agent, providing that all items
received or deposited in the Blocked Accounts are the property of Agent, that
the depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds on a daily basis, all funds received or
deposited into the Payment Account to a concentration or Blocked Account as may
be designated by Agent. Borrowers agree that all payments made to such Blocked
Account or other funds received and collected by Lender pursuant to this
Agreement, whether on the Accounts or as proceeds of Inventory or other
Collateral, or otherwise, shall be the Property of Lender. In no event shall the
funds in the Blocked Account be commingled with Borrowers' own funds. Borrowers
agree to reimburse Agent and Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's or Agent's payments to or indemnification of such bank or person. The
obligation of Borrowers to reimburse Agent or Lender for such amounts pursuant
to this Section 6.6 shall survive the termination or non-renewal of this
Agreement.
<PAGE>
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrowers shall provide Agent with the following
documents in a form satisfactory to Agent: on a regular basis as required by
Agent, a schedule of Accounts, sales made, credits issued and cash received; on
a weekly basis or more frequently as Agent may request, perpetual inventory
reports, inventory reports by category and agings of accounts payable, upon
Agent's request, copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, copies of
shipping and delivery documents, and copies of purchase orders, invoices and
delivery documents for Inventory acquired by Borrowers; agings of Accounts on a
weekly basis or more frequently as Agent may request; and such other reports as
to the Collateral as Agent shall request from time to time. If any of Borrowers'
records or reports of the Collateral are prepared or maintained by an accounting
service, contractor or shipper, Borrowers hereby irrevocably authorize such
service, contractor or shipper to deliver such records, reports, and related
documents to Agent and to follow Agent's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
(a) Borrowers shall notify Agent promptly of: any material delay in any
Borrowers' performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, all material adverse information relating to the financial
condition of any account debtor and any event or circumstance which, to
Borrowers' knowledge would cause Agent to consider any then existing Accounts as
no longer constituting Eligible Accounts. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor without Agent's consent, except in the ordinary course of Borrowers'
business. So long as no Event of Default exists or has occurred and is
continuing, Agent shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that an Event of
Default exists or has occurred and is continuing, Agent shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors or grant any credits, discounts or
allowances.
<PAGE>
(b) With respect to each Account: the amounts shown on any invoice delivered to
Agent or schedule thereof delivered to Agent shall be true and complete, in the
event the Blocked Account is established pursuant to Section 6.6, no payments
shall be made thereon except payments immediately delivered to Agent pursuant to
the terms of this Agreement, no credit, discount, exchanges, swaps, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor except as reported to Agent in accordance with this Agreement and except
for credits, discounts, allowances or extensions made or given in the ordinary
course of Borrowers' business, there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto
except as disclosed to Agent in accordance with the terms of this Agreement,
none of the transactions giving rise thereto will violate any applicable State
or Federal laws or regulations, all documentation relating thereto will be
legally sufficient under such laws and regulations and all such documentation
will be legally enforceable in accordance with its terms.
(c) Agent shall have the right at any time or times, in Agent's name or in the
name of a nominee of Agent or Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(d) Each Borrower shall deliver or cause to be delivered to Agent, with
appropriate endorsement and assignment, with full recourse to such Borrower, all
chattel paper and instruments which such Borrower now owns or may at any time
acquire and that constitute Collateral or the proceeds thereof, immediately upon
such Borrower's receipt thereof, except as Agent may otherwise agree.
<PAGE>
(e) Agent may, at any time or times that an Event of Default exists or has
occurred and is continuing, notify any or all account debtors that the Accounts
have been assigned to Agent and that Agent has a security interest therein and
Agent may direct any or all account debtors to make payment of Accounts directly
to Agent, extend the time of payment of, compromise, settle or adjust for cash,
credit or otherwise, and upon any terms or conditions, any and all Accounts or
other obligations included in the Collateral and thereby discharge or release
the account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, demand, collect or enforce
payment of any Accounts or such other obligations, but without any duty to do
so, and Agent shall not be liable for its failure to collect or enforce the
payment thereof nor for the negligence of its agents or attorneys with respect
thereto and take whatever other action Agent may deem necessary or desirable for
the protection of its interests. At any time that an Event of Default exists or
has occurred and is continuing, at Agent's request, all invoices and statements
sent to any account debtor shall state that the Accounts and such other
obligations have been assigned to Agent and are payable directly and only to
Agent and Borrowers shall deliver to Agent such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
(f) Upon the earlier of (i) thirty (30) days after notice
from Agent or (ii) expiration of the ten (10) day notice period described in
Section 6.6 of this Agreement, every Account in which the account debtor is the
United States of America, any State, political subdivision, department, agency
or instrumentality thereof shall not be an Eligible Account unless, within said
period Borrowers comply in full and in a manner satisfactory to Agent with the
Federal Assignment of Claims Act of 1940, as amended, or any similar Department
of Defense, State or local law, as applicable.
<PAGE>
7.3 Inventory Covenants. With respect to the Inventory: Borrowers shall at all
times maintain inventory records reasonably satisfactory to Agent, keeping
correct and accurate records itemizing and describing the kind, type, quality
and quantity of Inventory, Borrowers' cost therefor and daily withdrawals and
drawdowns therefrom and additions thereto; Borrowers shall conduct a physical
count of the Inventory at least once each year, but at any time or times as
Agent may request on or after an Event of Default, and promptly following such
physical inventory shall supply Agent with a report in the form and with such
specificity as may be reasonably satisfactory to Agent concerning such physical
count; Borrowers shall not remove any Inventory from the locations set forth in
SCHEDULE 8.3 to the Agreement without the prior written consent of Agent, except
for sales of Inventory in the ordinary course of Borrowers' business and except
to move Inventory directly from one location set forth in SCHEDULE 8.3 to the
Agreement to another such location; upon Agent's request, Borrowers shall, at
their expense, no more than once in any twelve (12) month period, but at any
time or times as Agent may request on or after an Event of Default, deliver or
cause to be delivered to Agent written reports or appraisals as to the Inventory
in form, scope and methodology acceptable to Agent and by an appraiser
acceptable to Agent, addressed to Agent or upon which Agent is expressly
permitted to rely; Borrowers shall produce, use, store and maintain the
Inventory with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto); Borrowers assume all
responsibility and liability arising from or relating to the production,
storage, transportation, use, sale or other disposition of the Inventory;
Borrowers shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrowers to
repurchase such Inventory; Borrowers shall keep the Inventory in good and
marketable condition; Borrowers shall not, without prior written notice to
Agent, acquire or accept any Inventory on consignment or approval, other than
pursuant to the Processing Agreement; (j) any time after, and during any period
of time that, the Excess Availability is less than $25,000,000, Borrowers shall
permit Agent or its agents, at Borrowers' expense, to conduct a physical count
of Inventory in storage tanks, wherever located, on a quarterly basis, and (k)
any time after, and during any period of time that, the Excess Availability is
less than $10,000,000, Borrowers shall permit Agent or its agents, at Borrowers'
expense, to conduct a physical count of Inventory in storage tanks, wherever
located, on a monthly basis.
<PAGE>
7.4 Power of Attorney. Each Borrower hereby irrevocably designates and appoints
Agent (and all persons designated by Agent) as such Borrower's true and lawful
attorney-in-fact, and authorizes Agent, in such Borrower's or Agent's name, to:
at any time an Event of Default exists or has occurred and is continuing demand
payment on Accounts or other proceeds of Inventory or other Collateral, enforce
payment of Accounts by legal proceedings or otherwise, exercise all of such
Borrower's rights and remedies to collect any Account or other Collateral, sell
or assign any Account upon such terms, for such amount and at such time or times
as the Agent deems advisable, settle, adjust, compromise, extend or renew an
Account, discharge and release any Account, prepare, file and sign such
Borrower's name on any proof of claim in bankruptcy or other similar document
against an account debtor, notify the post office authorities to change the
address for delivery of such Borrower's mail to an address designated by Agent,
and open and dispose of all mail addressed to such Borrower, and do all acts and
things which are necessary, in Agent's determination, to fulfill such Borrower's
obligations under this Agreement and the other Financing Agreements; at any time
an Event of Default exists or has occurred and is continuing or the Blocked
Account has been implemented and remains in effect under Section 6.6 to take
control in any manner of any item of payment or proceeds thereof, have access to
any lockbox or postal box into which such Borrower's mail is deposited, endorse
such Borrower's name upon any items of payment or proceeds thereof and deposit
the same in the Agent's account for application to the Obligations; or (c) at
any time, to (i) endorse such Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (ii) sign such Borrower's
name on any verification of Accounts and notices thereof to account debtors and
(iii) execute in such Borrower's name and file any UCC financing statements or
amendments thereto. Borrowers hereby release Agent and Lender and their
respective officers, employees and designees from any liabilities arising from
any act or acts under this power of attorney and in furtherance thereof, whether
of omission or commission, except as a result of Agent's or Lender's own gross
negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
<PAGE>
7.5 Right to Cure. Agent may, at its option, cure any default by Borrowers under
any agreement with a third party or pay or bond on appeal any judgment entered
against Borrowers, discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and pay any amount, incur any expense or perform any act which, in Agent's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Agent with respect thereto. Agent may add any
amounts so expended to the Obligations and charge Borrowers' account therefor,
such amounts to be repayable by Borrowers on demand. Agent shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of Borrowers. Any payment
made or other action taken by Agent under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.
7.6 Access to Premises. From time to time as requested by Agent, at the cost and
expense of Borrowers, Agent or its designee shall have complete access to all of
Borrowers' premises during normal business hours and after notice to Borrowers,
or at any time and without notice to Borrowers if an Event of Default exists or
has occurred and is continuing, for the purposes of inspecting, verifying and
auditing the Collateral and all of Borrowers' books and records, including the
Records, and Borrowers shall promptly furnish to Agent such copies of such books
and records or extracts therefrom as Agent may request, and use during normal
business hours such of Borrowers' personnel, equipment, supplies and premises as
may be reasonably necessary for the foregoing and if an Event of Default exists
or has occurred and is continuing for the collection of Accounts and realization
of other Collateral. In furtherance thereof, Borrowers will use their best
efforts to obtain from any secured creditor or lessor of any hardware, cabinetry
or equipment in which Records are stored or located, consents or agreements
giving Agent reasonable access to the Records.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrowers hereby jointly and severally represent and warrant to Agent and
Lender the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which are a continuing condition of the
making of Loans and providing Letter of Credit Accommodations by Lender to
Borrowers:
<PAGE>
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower is a
corporation duly organized and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign corporation and
in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary (each such Borrower and jurisdiction is shown on
SCHEDULE 8.1 attached hereto and made a part hereof), except for those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on such Borrower's financial condition, results of operation or
business or the rights of Agent in or to any of the Collateral. The execution,
delivery and performance of this Agreement, the other Financing Agreements and
the transactions contemplated hereunder and thereunder are all within such
Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of such Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which such Borrower is a party or by which such
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of such Borrower
enforceable in accordance with their respective terms. All of Crown's
Subsidiaries that are not named as Borrowers herein are disclosed on SCHEDULE
8.1.
8.2 Financial Statements; No Material Adverse Change. All financial statements
relating to Borrowers which have been or may hereafter be delivered by Borrowers
to Agent have been prepared in accordance with GAAP and fairly present the
consolidated financial condition and the results of operation of Crown and its
Subsidiaries as at the dates and for the periods set forth therein, subject, in
the case of interim statements, to customary year-end adjustments. Except as
disclosed in any interim financial statements furnished by Borrowers to Agent
prior to the date of this Agreement, there has been no material adverse change
in the assets, liabilities, properties and condition, financial or otherwise,
of Borrowers, since the date of the most recent audited financial statements
furnished by Borrowers to Agent prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive office of
Borrowers and Borrowers' Records concerning Accounts are located at the
addresses shown on SCHEDULE 8.3 attached hereto and made a part hereof and its
only other significant places of business and the only other locations of
material Collateral, if any, are the addresses shown on SCHEDULE 8.3 , subject
to the right of Borrowers to establish new locations in accordance with Section
9.2 below. SCHEDULE 8.3 correctly identifies any of such locations which are not
owned by Borrowers and sets forth the owners and/or operators thereof.
<PAGE>
8.4 Priority of Liens; Title to Properties. The security interests and liens
granted to Agent under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens shown on SCHEDULE 8.4 attached
hereto and made a part hereof and the other liens permitted under Section 9.8
hereof. Except as shown on SCHEDULE 8.3 hereof, Borrowers have good and
marketable title to all of their storage facilities, refineries and terminals,
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except such as are specifically shown on SCHEDULE 8.3 or
permitted under Section 9.8 hereof.
8.5 Tax Returns. Except as otherwise shown on SCHEDULE 8.5, each Borrower has
filed, or caused to be filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without requests for
extension except as previously disclosed in writing to Agent). All information
in such tax returns, reports and declarations is complete and accurate in all
material respects. Each Borrower has paid or caused to be paid all taxes due and
payable or claimed due and payable in any assessment received by it, except
taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to such Borrower and with respect
to which adequate reserves have been set aside on its books. Adequate provision
has been made for the payment of all accrued and unpaid Federal, State, county,
local, foreign and other taxes whether or not yet due and payable and whether or
not disputed.
8.6 Litigation. Except as previously disclosed to Agent in writing, there is no
present investigation by any governmental agency pending, or to the best of
Borrowers' knowledge threatened, against or affecting any Borrower, its assets
or business and there is no action, suit, proceeding or claim by any Person
pending, or to the best of Borrowers' knowledge threatened, against any Borrower
or its assets or goodwill, or against or affecting any transactions contemplated
by this Agreement, which if adversely determined against such Borrower would
result in any material adverse change in the assets, business or prospects of
such Borrower or would impair the ability of such Borrower to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Agent to enforce any Obligations or realize upon any
Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrowers are not in
default in any material respect under, or in violation in any material respect
of any of the terms of, any material agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound, and Borrowers are in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.
<PAGE>
8.8 Accuracy and Completeness of Information. All information furnished by or on
behalf of Borrowers in writing to Agent in connection with this Agreement or any
of the other Financing Agreements or any transaction contemplated hereby or
thereby, including all information shown on the Schedules hereto is true and
correct in all material respects on the date as of which such information is
dated or certified and does not omit any material fact necessary in order to
make such information not misleading. No event or circumstance has occurred
which has or could reasonably be expected to have a material adverse affect on
the consolidated business, assets or prospects of Crown, which has not been
fully and accurately disclosed to Agent in writing.
8.9 Survival of Warranties; Cumulative. All representa-tions and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Agent on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Agent regardless of any investigation made or information possessed
by Agent. The representations and warranties set forth herein shall be
cumulative and in addition to any other representations or warranties which
Borrowers shall now or hereafter give, or cause to be given, to Agent.
8.10 Year 2000 Compliance. The advent of the year 2000 shall not
materially adversely affect Borrowers' operations or the performance of their
information technology. Without limiting the generality of the foregoing, on and
after January 1, 2000 (i) the hardware and software utilized by Borrowers will
be designed to be used on and after calendar year 2000 A.D. and such hardware
and software will operate during each such time period without material error
relating to date data, specifically including any error relating to, or the
conduct of, date data which represents or references different centuries or more
than one century, (ii) the hardware and software utilized by Borrowers will not
abnormally end or provide materially invalid or incorrect results as a result of
date data, and (iii) the hardware and software utilized by Borrowers will be
designed to ensure material year 2000 A.D. compatibility, including date data,
century recognition, leap year, calculations which accommodate same century and
multicentury formulas and date values, and date data interface values that
reflect the century.
<PAGE>
8.11 Environmental Matters. Except as disclosed to the Agent in writing,
Borrowers, to the best of their knowledge, have no knowledge:
(i) of any material on-site spills, releases, discharges,
disposal or storage of Hazardous Substances that have occurred or are presently
occurring on any of such real property, in violation of RCRA, CERCLA, the Clean
Air Act, the Clean Water Act, any similar state environmental law or any
environmental permit issued to any Borrower that would have a material adverse
effect on the consolidated financial condition, operations, business or
prospects of Crown and its Subsidiaries taken as a whole; or
(ii) that any notice has been provided to any
Borrower that such Borrower has transported or arranged for the transportation
of any Hazardous Substance to any location which is listed on the National
Priorities List under CERCLA, listed for possible inclusion on the National
Priorities List by the Environmental Protection Agency in its Comprehensive
Environmental Response, Compensation and Liability Information System List
(CERCLIS) or any similar state list or which is the subject of federal, state,
or local enforcement action which may lead to claims against such Borrower for
clean-up costs, remedial work, damages to natural resources or for personal
injury claims, including but not limited to, claims under CERCLA; or
(iii) of any notice, summons, citation, demand, request for
information or order sent to any Borrower from any state or federal agency
concerning any intentional or unintentional action or conduct, inaction or
omission, past or present, which is or may be in material violation of any state
or federal environmental law, rule, regulation, environmental permit,
registration or license except to the extent that such Borrower reasonably
anticipates that such action or conduct, inaction or omission would not have a
material adverse effect on the consolidated financial condition, operations,
business or prospects taken as a whole of Crown and its Subsidiaries.
8.12 Corporate Structure. Crown is the direct and/or beneficial owner of
all of the issued and outstanding Capital Stock of each of the other Borrowers.
Crown, directly or through Subsidiaries, furnishes management, financing,
accounting, administrative, insurance and other services to each of the other
Borrowers which are necessary for the operation by the other Borrowers of their
respective businesses. Financial statements are prepared for Borrowers on a
consolidated basis.
<PAGE>
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Each Borrower shall at all times preserve, renew
and keep in full force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Each Borrower shall give Agent thirty (30) days prior written notice
of any proposed change in its corporate name, which notice shall set forth the
new name, and such Borrower shall deliver to Agent a copy of the amendment to
the Certificate of Incorporation of such Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of such
Borrower as soon as it is available.
9.2 New Collateral Locations. Each Borrower will give: (a) Agent thirty (30)
days' prior written notice of the intended opening of any new retail or terminal
location and (b) five (5) days' prior written notice of the intended storage of
at least 25,000 barrels of Inventory for any period of more than ten (10) days
at any location not identified on SCHEDULE 8.3 hereto. Borrowers will execute
and deliver, or cause to be executed and delivered, to Agent, such agreements,
documents, and instruments as Agent may deem reasonably necessary or desirable
to protect its interests in the Collateral at such location, including, without
limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrowers shall at all times comply,
and shall cause their Subsidiaries to comply, in all respects with all laws,
rules, regulations, licenses, permits, approvals and orders of any federal,
state or local governmental authority applicable to it.
9.4 Payment of Taxes and Claims. Borrowers shall duly pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrowers and with respect to which adequate reserves have been set
aside on its books. Borrowers shall be liable for any tax or penalties imposed
on Agent or Lender as a result of the financing arrangements provided for herein
and Borrowers agree to indemnify and hold Agent and Lender harmless with respect
to the foregoing, and to repay to Agent and Lender on demand the amount thereof,
and until paid by Borrowers such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed to require
Borrowers to pay any income or franchise taxes attributable to the income of
Agent and Lender from any amounts charged or paid hereunder to Agent and Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
<PAGE>
9.5 Insurance. Borrowers shall, at all times, maintain with financially sound
and reputable insurers insurance with respect to the Collateral against loss or
damage and all other insurance of the kinds and in the amounts customarily
insured against or carried by corporations of established reputation engaged in
the same or similar businesses and similarly situated. Said policies of
insurance shall be satisfactory to Agent as to form, amount and insurer.
Borrowers shall furnish certificates, policies or endorsements to Agent as Agent
shall require as proof of such insurance, and, if Borrowers fail to do so, Agent
is authorized, but not required, to obtain such insurance at the expense of
Borrowers. All policies shall provide for at least thirty (30) days prior
written notice to Agent of any cancellation or reduction of coverage and that
Agent may act as attorney for Borrowers in obtaining, and at any time an Event
of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrowers shall cause Agent to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrowers shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Agent. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Agent as its interest may appear and further specify that Agent's interest
shall not be impaired or terminated by any act or omission by Borrowers or any
of their affiliates. At its option, Agent may apply any insurance proceeds
received by Agent at any time after the occurrence of an Event of Default to
payment of the Obligations, whether or not then due, in any order and in such
manner as Agent may determine or hold such proceeds as cash collateral for the
Obligations.
<PAGE>
9.6 Financial Statements and Other Information.
(a) Borrowers shall keep proper books and records in which true and complete
entries shall be made of all dealings or transactions of or in relation to the
Collateral and the business of Crown and its consolidated Subsidiaries in
accordance with GAAP and Crown shall furnish or cause to be furnished to Agent:
within fifty (50) days after the end of each of the first three fiscal quarters,
quarterly unaudited consolidated financial statements (including in each case
balance sheets, statements of operations and statements of cash flows), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Crown and its consolidated Subsidiaries as of the end of and
through such fiscal quarter, subject to customary year-end adjustments (with
separate statements for Tiara Insurance Company, a Vermont corporation
("Tiara")) and within ninety-five (95) days after the end of each fiscal year,
audited consolidated financial statements of Crown and its consolidated
Subsidiaries (with separate audited year-end statements for Tiara within one
hundred eighty-five (185) days after the end of each fiscal year) (including in
each case balance sheets, statements of operations, statements of cash flows and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Crown and its consolidated Subsidiaries as of the end of and
for such fiscal year, together with the unqualified opinion of independent
certified public accountants, which accountants shall be an independent
accounting firm selected by Crown and reasonably acceptable to Agent, that such
financial statements have been prepared in conformity with GAAP, and present
fairly, in all material respects, the consolidated financial position and the
consolidated results of operations and cash flows of Crown and its consolidated
Subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrowers shall promptly notify Agent in writing of the details of any loss
(other than normal losses incurred in the ordinary course of business), damage,
investigation, action, suit, proceeding or claim: (A) relating to the Collateral
or any other property which is security for the Obligations having a book value
in any instance in excess of $500,000; or (B) which would result in any material
adverse change in Borrowers' business, properties, assets, goodwill or
condition, financial or otherwise and the occurrence of any Event of Default or
event which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Crown shall promptly after the sending or filing thereof furnish or cause to
be furnished to Agent copies of all reports and mailings which Crown sends to
its stockholders or to the holders of Crown's 10 7/8% Senior Notes due 2005 (or
their representatives), and copies of all Forms 10-Q, 10-K and other reports and
registration statements which Crown files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
<PAGE>
(d) Borrowers shall furnish or cause to be furnished to Agent such budgets,
forecasts, projections and other information respecting the Collateral and the
business of Borrowers and their Subsidiaries, as Agent may, from time to time,
reasonably request. Agent is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrowers to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrowers will promptly deliver
or cause to be delivered to Agent, at Borrowers' expense, all reports or
management letters prepared by Borrowers' accountants or auditors on behalf of
Borrowers. Any documents, schedules, invoices or other papers delivered to Agent
may be destroyed or otherwise disposed of by Agent one (1) year after the same
are delivered to Agent, except as otherwise designated by Borrowers to Agent in
writing.
(e) Officer's Compliance Certificate: Along with the set
of financial statements delivered to Agent pursuant to Section 9.6(a) hereof,
Borrowers shall deliver to Agent a certificate from its chief financial officer
or treasurer setting forth that the signer has reviewed the relevant terms of
this Agreement, and has made (or caused to be made under his supervision) a
review of the transactions and conditions of Borrowers from the beginning of the
fiscal year covered by the statements being delivered therewith to the date of
the certificate, and that such review has not disclosed the existence during
such period of any condition or event which constitutes an Event of Default or
if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action Borrowers have taken or propose to
take with respect thereto.
<PAGE>
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower shall,
directly or indirectly: merge into or with or consolidate with any other Person
or permit any other Person to merge into or with or consolidate with it, except
for (i) the merger of a Borrower or Subsidiary into or consolidation of a
Borrower or Subsidiary with another Borrower and (ii) the merger or
consolidation with any other Person if, in either case, such Borrower is the
surviving entity and immediately after giving effect to such merger or
consolidation no Event of Default has occurred; sell, assign, lease, transfer,
abandon or otherwise dispose of any stock or indebtedness to any other Person or
any of its assets to any other Person, except for sales of Inventory in the
ordinary course of business, the disposition of worn-out or obsolete equipment
or equipment no longer used in the business of Borrowers; (iii) so long as no
Event of Default has occurred and is continuing or would occur after giving
effect to such transaction, the sale or other disposition of non-current assets
and the sale thereof, in the aggregate, does not exceed a book or market value
(whichever is higher) of $10,000,000 per annum; and (iv) so long as no Event of
Default has occurred and is continuing or would occur after giving effect to
such transaction, the sale or other disposition of non-current assets, provided,
however, that with respect to a sale of a non-current asset or a series of
related sales of non-current assets having an aggregate book or market value
(whichever is higher) of $500,000 which, individually or when added to all prior
sales of non-current assets in the then current fiscal year of Borrowers, would
amount to a sale of non-current assets in such year in excess of a book or
market value (whichever is higher) of $10,000,000, Borrowers have given Agent
thirty (30) days' prior written notice of the proposed sale or other disposition
and Agent has not, within ten (10) days after receipt of such notice, objected
in writing to such sale or other disposition; acquire any Subsidiaries, except
for the acquisition of Subsidiaries by payment of the purchase price solely in
Capital Stock of a Borrower or its Subsidiary; wind up, liquidate or dissolve;
or (e) agree to do any of the foregoing.
<PAGE>
9.8 Encumbrances. Borrowers shall not create, incur, assume or suffer to exist
any security interest, mortgage, pledge, lien, charge or other encumbrance of
any nature whatsoever on any of their assets or properties, including the
Collateral, except: liens and security interests of Agent; liens securing the
payment of taxes, either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrowers and with respect to which adequate reserves have been set
aside on its books; non-consensual statutory liens (other than liens securing
the payment of taxes) arising in the ordinary course of Borrowers' business to
the extent: such liens secure indebtedness which is not overdue or such liens
secure indebtedness relating to claims or liabilities which are fully insured
and being defended at the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate proceedings diligently
pursued and available to Borrowers, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books; zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use of real property
which do not interfere in any material respect with the use of such real
property or ordinary conduct of the business of Borrowers as presently conducted
thereon or materially impair the value of the real property which may be subject
thereto; (e) purchase money liens, security interests and the interests of
lessee under capital leases to finance the acquisition of capital assets and
improvements; (f) liens on investments permitted under Section 9.10 of this
Agreement to secure margin calls by any major commodities exchange for contracts
traded with such exchange that constitute Product Hedging Obligations entered
into in compliance with both Section 9.9(d) hereof and the Trading Policy; and
(g) liens and encumbrances in existence on the date hereof.
9.9 Indebtedness. Borrowers shall not incur, create, assume, become or be liable
in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:
(a) Borrowers may incur indebtedness consisting of: (i) the
Obligations; (ii) trade obligations and normal accruals in the ordinary course
of business not yet due and payable, or with respect to which a Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to such Borrower, and with respect
to which adequate reserves have been set aside on its books; (iii) purchase
money indebtedness (including capital leases) outstanding at any time, not to
exceed $16,500,000; (iv) indebtedness for Product Hedging Obligations incurred
for hedging purposes (and not speculation) in order to protect Borrowers against
reasonably anticipated fluctuations in the prices applicable to existing or
reasonably anticipated requirements of crude oil, other feedstocks, retail
petroleum products, or additives thereto or components thereof or existing or
reasonably anticipated requirements for energy supplies; (v) the indebtedness
shown on SCHEDULE 9.9, and (vi) replacements or refinancings of existing
indebtedness and refinancings of indebtedness incurred under Section 9.9(b).
<PAGE>
(b) In addition to the indebtedness permitted by Subsection 9.9(a)
above, Borrowers may incur additional indebtedness, provided the Net Fixed
Charge Coverage Ratio for Borrowers for the twelve-month period coinciding with
the most recent four full fiscal quarters taken as one period (herein, the
"Relevant Period") immediately preceding the incurrence of such indebtedness
taken as one period (and after giving pro forma effect) to:
(i) the incurrence of such indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
indebtedness, as if such indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such Relevant Period;
(ii) the incurrence, repayment or retirement of any other
indebtedness by Borrowers since the first day of such Relevant Period as if such
indebtedness was incurred, repaid or retired at the beginning of such Relevant
Period (except that, in making such computation, the amount of indebtedness
under this Agreement will be computed based upon the average daily balance of
such indebtedness (including Letter of Credit Accommodations) during such
Relevant Period or, if less, for the period commencing with the date hereof
through the end of such Relevant Period); and
(iii) any acquisition or disposition by Crown and its
Subsidiaries of any company or any business or any assets out of the ordinary
course of business, whether by merger, stock purchase or sale or asset purchase
or sale or any related repayment of indebtedness, since the first day of such
Relevant Period, as if such acquisition or disposition occurred at the beginning
of such Relevant Period);
is at least equal to 2.0:1.0.
(c) Borrowers may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof
(d) Borrowers shall not, directly or indirectly as to any material
indebtedness: (i) without prior notice to Agent, amend, modify, alter or change
the terms of such indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof, or (ii) without the prior consent of
Agent redeem, retire, defease, purchase or otherwise acquire such indebtedness,
or set aside or otherwise deposit or invest any sums for such purpose;
(e) Borrowers shall furnish to Agent all notices or demands in
connection with such indebtedness either received by Borrowers or on their
behalf, promptly after the receipt thereof, or sent by Borrowers or on their
behalf, concurrently with the sending thereof, as the case may be.
<PAGE>
9.10 Loans, Investments, Guarantees, Etc. No Borrower shall directly or
indirectly, make any loans or advance money or property to any Person (except to
another Borrower), or invest in (by capital contribution, dividend or otherwise)
or purchase or repurchase (except for the repurchase of such Borrower's own
capital stock) the stock or indebtedness or all or a substantial part of the
assets or property of any Person (except another Borrower), or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly)
the indebtedness, performance, obligations or dividends of any Person (except
another Borrower) or agree to do any of the foregoing, except: the endorsement
of instruments for collection or deposit in the ordinary course of business;
investments in (i) direct obligations of the United States of America or any
agency thereof with maturities of one year or less from the date of acquisition,
(ii) repurchase agreements with a term of not more than one year or less from
the date of acquisition, (iii) repurchase agreements with a term of not more
than 30 days and fully collateralized by securities described in (b) (i), (iv)
commercial paper (or other instruments with a maturity of one year or less from
the date of acquisition) of a domestic issuer rated at least A-2 by S&P or P-2
by Moody's, (v) eurodollar time deposits rated at least A-2 by S&P or P-2 by
Moody's, (vi) municipal bonds or notes with maturities of one year or less from
the date of acquisition rated A or better by S&P or Moody's or guaranteed by one
or more banks rated at least A by S&P or Moody's, (vii) obligations of U.S.
savings and loan and thrift institutions or commercial banks operating within
the United States of America with maturities of one year or less, provided that
such institutions have total assets of $500,000,000 or more at the time of
investment and have a long-term rating of at least A by S&P or Moody's, (viii)
participation in or notes evidencing loans with maturities of one year or less
made by any bank to any corporation organized under the laws of the United
States of America or any state thereof having a short-term rating of at least
A-2 by S&P or P-2 by Moody's or a long-term rating of at least A by S&P or
Moody's; (ix) shares in an open-end money market fund organized by a bank or
financial institution with combined total assets of at least $500,000,000
investing solely in obligations permitted by the foregoing clauses (i) through
(viii) inclusive; (x) contributions made to Crown Central Petroleum Foundation,
Inc. for charitable purposes not to exceed $500,000.00 per annum; and (xi)
payments to Tiara for ordinary and customary business purposes.
9.11 Transactions with Affiliates. Borrowers shall not, directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, any officer, director, lender or other person affiliated with
Borrowers, except in the ordinary course of and pursuant to the reasonable
requirements of Borrowers' business and upon fair and reasonable terms no less
favorable to the Borrowers than Borrowers would obtain in a comparable arm's
length transaction with an unaffiliated person or make any payments of
management, consulting or other fees for management or similar services, or of
any indebtedness owing to any officer, employee, shareholder, director or other
person affiliated with Borrowers except reasonable compensation to officers,
employees and directors for services rendered to Borrowers in the ordinary
course of business.
<PAGE>
9.12 Minimum Net Adjusted Working Capital. Borrowers shall cause Adjusted
Current Assets to exceed consolidated current liabilities by (a) $25,000,000 at
the end of each quarter, commencing with the quarter ending December 31, 1998
through December 31, 1999, and (b) $35,000,000 at the end of each quarter
thereafter.
9.13 Minimum FIFO Tangible Net Worth. Borrowers shall cause FIFO Tangible
Net Worth to be at least (a) $175,000,000 at the end of each quarter, beginning
with the quarter ending December 31, 1998 through December 31, 1999, and (b)
$180,000,000 at the end of each quarter thereafter.
9.14 Costs and Expenses. Borrowers shall pay to Agent on demand all
costs, expenses, (a) filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Agent's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, without limitation: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all insurance
premiums, appraisal fees and search fees; costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Agent's and Lender's customary
charges and fees with respect thereto; charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations; costs and
expenses of preserving and protecting the Collateral; costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Agent, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Agent or Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); all
out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Agent during the course of periodic field examinations of the
Collateral and Borrowers' operations, plus a per diem charge at the rate of Six
Hundred Fifty Dollars ($650.00) per person per day for Agent's examiners in the
field and office; and the fees and disbursements of counsel (including legal
assistants) to Agent or Lender in connection with any of the foregoing.
<PAGE>
9.15 Further Assurances. At the request of Agent at any time and from
time to time, Borrowers shall, at their expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Agent may
at any time and from time to time request a certificate from an officer of
Borrowers representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Agent, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until Agent
has received such certificate and, in addition, Agent has determined that such
conditions are satisfied. Where permitted by law, Borrowers hereby authorize
Agent to execute and file one or more UCC financing statements signed only by
Agent.
9.16 Year 2000 Compliance. Borrowers shall take all action necessary to
assure that at all times the computer-based systems utilized by Borrowers will
be able to effectively interpret, process and manipulate material data,
including dates before, on and after December 31, 1999. At Agent's request,
Borrowers shall from time to time provide to Agent assurance reasonably
satisfactory to Agent that the computer-based systems utilized by Borrowers will
be able to recognize and perform without error material functions involving
dates before, on and after December 31, 1999.
9.17 Conduct of Business. Borrowers shall comply in all material respects
with the Trading Policy. Borrowers shall not amend the Trading Policy without
the prior written notice to Agent.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of the
following events are referred to herein individually as an "Event of Default",
and collectively as "Events of Default":
(a) Borrowers fail to pay any of the Obligations within ten (10) days after the
same becomes due; or fail to perform or comply with any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Financing Agreements within thirty (30) days after Agent has given Borrowers
notice of such event (except that there shall be no requirement of notice and
shall be no cure period with respect to the provisions of Sections 9.1, 9.4,
9.6, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14).
<PAGE>
(b) Any representation, warranty or statement of fact made by Borrowers to Agent
and Lender in this Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or otherwise shall when made or
deemed made be false or misleading in any material respect;
(c) Any judgment or judgments for the payment of money is rendered against any
Borrowers in excess of $5,000,000 in the aggregate and shall not be effectively
stayed or shall remain undischarged or unvacated thirty (30) days from the entry
thereof;
(d) Without the prior consent of Agent, any Collateral Borrower dissolves or
suspends or discontinues doing business;
(e) Any Collateral Borrower becomes Insolvent or makes an assignment for the
benefit of creditors;
(f) A case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or all or any part of its properties and such
petition or application is not dismissed within sixty (60) days after the date
of its filing or such Borrower shall file any answer admitting or not contesting
such petition or application or indicates its consent to, acquiescence in or
approval of, any such action or proceeding or the relief requested is granted
sooner;
(g) A case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or for all or any part of its property;
(h) Any payment or monetary default by Crown or any Subsidiary under the
Indenture; any default by Crown under the Processing Agreement; or any default
under any other agreement, document or instrument relating to any indebtedness
of any Borrower for borrowed money owing to any person other than Agent or
Lender, or any capitalized lease obligations, contingent indebtedness in
connection with any guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Agent or Lender, in any case in an
amount in excess of $5,000,000, which default continues for more than the
applicable cure period, if any, with respect thereto; or
<PAGE>
(i) the indictment or threatened indictment of any Borrower under any criminal
statute, or commencement or threatened commencement of criminal or civil
proceedings against such Borrower, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of the
property of such Borrower.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is continuing,
Agent shall have all rights and remedies provided in this Agreement, the other
Financing Agreements, the UCC and other applicable law, all of which rights and
remedies may be exercised without notice to or consent by Borrowers or any
Obligor, except as such notice or consent is expressly provided for hereunder or
required by applicable law. All rights, remedies and powers granted to Agent
hereunder, under any of the other Financing Agreements, the UCC or other
applicable law, are cumulative, not exclusive and enforceable, in Agent's
discretion, alternatively, successively, or concurrently on any one or more
occasions, and shall include, without limitation, the right to apply to a court
of equity for an injunction to restrain a breach or threatened breach by
Borrowers of this Agreement or any of the other Financing Agreements. Agent may,
at any time or times, proceed directly against Borrowers to collect the
Obligations without prior recourse to the Collateral. All rights and remedies
granted to or available to Agent under this Agreement or the other Financing
Agreements are exercisable by Agent, for the benefit of Lender, whether or not
expressly granted to or available to Agent.
<PAGE>
(b) Without limiting the foregoing, at any time an Event of Default exists or
has occurred and is continuing, Agent or Lender may, in its discretion and
without limitation, accelerate the payment of all Obligations and demand
immediate payment thereof to Agent (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(f) and 10.1(g), all Obligations
shall automatically become immediately due and payable), with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, require Borrowers, at their expense, to assemble and
make available to Agent any part or all of the Collateral at any place and time
designated by Agent, collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, remove any or all of the Collateral from
any premises on or in which the same may be located for the purpose of effecting
the sale, foreclosure or other disposition thereof or for any other purpose,
sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of Agent or
elsewhere) at such prices or terms as Agent may deem reasonable, for cash, upon
credit or for future delivery, with the Agent or Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of redemption of Borrowers,
which right or equity of redemption is hereby expressly waived and released by
Borrowers and/or terminate this Agreement. If any of the Collateral is sold or
leased by Agent upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment therefor is finally collected
by Agent. If notice of disposition of Collateral is required by law, five (5)
days prior notice by Agent to Borrowers designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrowers waive any other notice. In the event Agent institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrowers waive the posting of any bond which might
otherwise be required.
(c) Agent or Lender may apply the cash proceeds of Collateral actually received
by Agent or Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Agent may elect, whether or not then due. Borrowers shall remain liable to
Agent and Lender for the payment of any deficiency with interest at the highest
rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
<PAGE>
(d) Without limiting the foregoing, upon the occurrence of an Event of Default,
Agent may, at its option, without notice, cease making Loans or arranging for
Letter of Credit Accommodations or reduce the lending formulas or amounts of
Revolving Loans and Letter of Credit Accommodations available to Borrowers
and/or terminate any provision of this Agreement providing for any future Loans
or Letter of Credit Accommodations to be made by Lender to Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Agreement and the other
Financing Agreements and any dispute arising out of the relationship between the
parties hereto, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of New York (without giving effect to
principles of conflicts of law).
(b) Borrowers and Agent irrevocably consent and submit to the non-exclusive
jurisdiction of the State of New York and the United States District Court for
the Southern District of New York and waive any objection based on venue or
forum non conveniens with respect to any action instituted therein arising under
this Agreement or any of the other Financing Agreements or in any way connected
with or related or incidental to the dealings of the parties hereto in respect
of this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Agent shall have the right to bring any action or
proceeding against Borrowers or the Collateral in the courts of any other
jurisdiction which Agent deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrowers or the
Collateral).
(c) Each Borrower hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth on the signature
pages hereof and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or, at Agent's
option, by service upon Borrowers in any other manner provided under the rules
of any such courts. Within thirty (30) days after such service, Borrowers shall
appear in answer to such process, failing which Borrowers shall be deemed in
default and judgment may be entered by Agent against Borrowers for the amount of
the claim and other relief requested.
<PAGE>
(d) BORROWERS AND AGENT EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OF
THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS AND AGENT HEREBY AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT BORROWERS OR AGENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Agent and Lender shall not have any liability to Borrowers (whether in tort,
contract, equity or otherwise) for losses suffered by Borrowers in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Agent and/or Lender, that the losses were the
result of acts or omissions constituting gross negligence or willful misconduct.
In any such litigation, Agent and/or Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrowers hereby expressly waive demand, presentment,
protest and notice of protest and notice of dishonor with respect to any and all
instruments and commercial paper, included in or evidencing any of the
Obligations or the Collateral, and any and all other demands and notices of any
kind or nature whatsoever with respect to the Obligations, the Collateral and
this Agreement, except such as are expressly provided for herein. No notice to
or demand on Borrowers which Agent may elect to give shall entitle Borrowers to
any other or further notice or demand in the same, similar or other
circumstances.
<PAGE>
11.3 Amendments and Waivers. Neither this Agreement nor any provision hereof
shall be amended, modified, waived or discharged orally or by course of conduct,
but only by a written agreement signed by an authorized officer of Agent, and as
to amendments, as also signed by an authorized officer of Borrowers. Agent shall
not, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Agent. Any such
waiver shall be enforceable only to the extent specifically set forth therein. A
waiver by Agent of any right, power and/or remedy on any one occasion shall not
be construed as a bar to or waiver of any such right, power and/or remedy which
Agent would otherwise have on any future occasion, whether similar in kind or
otherwise.
11.4 Waiver of Counterclaims. Borrowers waive all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto, but reserve the right to bring a separate action or
proceeding to assert, establish or enforce such claims or counterclaims.
11.5 Indemnification. Borrowers shall jointly and severally indemnify and hold
Agent and Lender, and their respective directors, agents, employees and counsel,
harmless from and against any and all losses, claims, damages, liabilities,
costs or expenses imposed on, incurred by or asserted against any of them in
connection with any litigation, investigation, claim or proceeding commenced or
threatened related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement, any other
Financing Agreements, or any undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including amounts paid in settlement, court costs,
and the fees and expenses of counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrowers shall pay the maximum
portion which it is permitted to pay under applicable law in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
<PAGE>
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the Financing Agreements shall become effective as of the
date set forth on the first page hereof and shall continue in full force and
effect for a term ending on the date three (3) years from the date hereof (the
"Renewal Date"). With respect to the initial Renewal Date, Agent may, at its
option, offer to extend the term of this Agreement to December 10, 2002, by
giving Borrowers notice of such offer at least ninety (90) days prior to the
Renewal Date. If the Renewal Date is so extended by agreement of the parties,
the term of this Agreement shall extend from year to year, subject to the right
of Agent or Borrowers to terminate this Agreement effective on the anniversary
of the Renewal Date by giving the other party at least ninety (90) days prior
written notice. Upon any termination of this Agreement all Financing Agreements
shall be terminated simultaneously. Upon the effective date of termination or
non-renewal of the Financing Agreements, Borrowers shall pay to Agent, for the
account of Lender, in full, all outstanding and unpaid Obligations and shall
furnish cash collateral to Agent in such amounts as Agent determines are
reasonably necessary to secure Agent from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Agent has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to such bank account of Agent, as Agent may, in
its discretion, designate in writing to Borrowers for such purpose. Interest
shall be due until and including the next business day, if the amounts so paid
by Borrowers to the bank account designated by Agent are received in such bank
account later than 12:00 noon, New York time.
(b) No termination of this Agreement or the other Financing Agreements shall
relieve or discharge Borrowers of their respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Agent's
continuing security interest in the Collateral and the rights and remedies of
Agent and Lender hereunder, under the other Financing Agreements and applicable
law, shall remain in effect until all such Obligations have been fully and
finally discharged and paid.
<PAGE>
(c) If for any reason this Agreement is terminated prior to the end of the then
current term or renewal term of this Agreement, in view of the impracticality
and extreme difficulty of ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of Lender's lost profits as a result
thereof, Borrowers agree to pay to Agent, for the account of Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
<TABLE>
Amount Period
<S> <C> <C>
(i) 1.0% of the then Maximum Credit From the date hereof to and including
December 9, 1999
(ii) .50% of the then Maximum Credit From December 10, 1999 to and including
December 9, 2000
(iii) .25% of the then Maximum Credit From December 10, 2000 to and including
December 9, 2001
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrowers agree
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Agent does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrowers or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
Notwithstanding the foregoing, Agent shall waive the above termination fee if
(a) Borrowers refinance the Credit Facilities under this Agreement with First
Union after one (1) year from the date hereof or (b) any time after one (1) year
from the date hereof, Borrowers refinance the Credit Facilities under this
Agreement in any other manner ("Outside Financing") after having first provided
First Union in good faith and with full disclosure an opportunity to extend such
refinancing under terms substantially similar to the Outside Financing and First
Union declines to extend such refinancing under terms substantially similar to
the Outside Financing based on then prevailing market conditions and
underwriting criteria.
12.2 Notices. All notices, requests and demands hereunder shall be in writing
and made to Agent at its address set forth below and to Borrowers at the chief
executive office set forth below, or to such other address as either party may
designate by written notice to the other in accordance with this provision, and
deemed to have been given or made: if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next business day, one (1)
business day after sending; and if by certified mail, return receipt requested,
five (5) days after mailing.
<PAGE>
If to Borrowers: Crown Central Petroleum Corporation
One North Charles Street
Baltimore, MD 21201
Attn: John E. Wheeler, Jr., Executive
Vice President and Chief Financial Officer
Facsimile: (410) 659-4747
With copy to: McGuire, Woods, Battle & Boothe, L.L.P.
The Army & Navy Club Building
Washington, DC 20006-4007
Attn: Clive R.G. O'Grady, Esquire
Facsimile: (202) 828-2980
If to Agent: Congress Financial Corporation (Southern)
200 Galleria Parkway, NW, Suite 1500
Atlanta, GA 30339
Attn: Drew C. Stawin, Vice President
Facsimile: (770) 956-8120
<PAGE>
With copy to: Blank Rome Comisky & McCauley LLP
36 South Charles Street, Suite 2401
Baltimore, MD 21201
Attn: Leslie J. Polt, Esquire
Facsimile: (410) 659-1414
12.3 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the Financing Agreements and any other document
referred to herein or therein shall be binding upon and inure to the benefit of
and be enforceable by Agent, Lender, Borrowers and their respective successors
and assigns, except that Borrowers may not assign its rights under this
Agreement, the Financing Agreements and any other document referred to herein or
therein without the prior written consent of Agent. Each Lender may, upon giving
forty-five (45) days' advance notice to Borrowers, assign its rights and
delegate its obligations under this Agreement and the Financing Agreements and
further may assign, or sell participations in, all or any part of the Loans, the
Letter of Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would have if it were Lender hereunder, except as
otherwise provided by the terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the Financing Agreements, any supplements
hereto or thereto, and any instru-ments or documents delivered or to be
delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
<PAGE>
SECTION 13. AGENT
As between Agent, on one hand, and Lender, on the other hand, Agent and
Lender agree as follows (with the consent and approval of Borrowers):
13.1 Appointment and Authorization. Lender hereby irrevocably appoints
and authorizes Agent to take such action on its behalf and to exercise such
powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. Subject to the
provisions of this Agreement, Agent will handle all transactions relating to the
Loans and all other Obligations, including, without limitation, all transactions
with respect to Letter of Credit Accommodations, this Agreement, the Financing
Agreements and all related documents in accordance with its usual banking
practices. Except as otherwise expressly provided herein, Borrowers are hereby
authorized by Lender to deal solely with Agent in all transactions which affect
Lender under this Agreement and the Financing Agreements. The rights, privileges
and remedies accorded to Agent hereunder shall be exercised by Agent on behalf
of Lender.
13.2 General Immunity. In performing its duties as Agent hereunder, Agent
will take the same care as it takes in connection with loans in which it alone
is interested. Subject to Section 13.6 of this Agreement, neither Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them hereunder or in connection herewith
except as such action or omission are caused solely from its or their own gross
negligence or willful misconduct unless such action was taken or omitted to be
taken by Agent at the direction of Lender.
13.3 Consultation with Counsel. Agent may consult with legal counsel and
any other professional advisors or consultants deemed necessary or appropriate
and selected by Agent and shall not be liable for any action taken or suffered
in good faith by it in accordance with the advice of such counsel.
13.4 Documents. Agent shall not be under a duty to examine into or pass
upon the effectiveness, genuineness or validity of this Agreement or any of the
Financing Agreements or any other instrument or document furnished pursuant
hereto or in connection herewith, and Agent shall be entitled to assume that the
same are valid, effective and genuine and what they purport to be. In addition
Agent shall not be liable for failing to make any inquiry concerning the
accuracy, performance or observance of any of the terms, provisions or
conditions of such instrument or document.
<PAGE>
13.5 Rights as a Lender. Agent shall have the same rights and powers
hereunder as a Lender and may exercise the same as though it were not Agent. The
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include Agent in its individual capacity.
13.6 Responsibility of Agent. It is expressly understood and agreed that
the obligations of Agent hereunder are only those expressly set forth in this
Agreement and that Agent shall be entitled to assume that no Event of Default
has occurred and is continuing, unless Agent has actual knowledge of such fact.
Except to the extent Agent is required by Lender pursuant to the express terms
hereof to take a specific action, Agent shall be entitled to use its discretion
with respect to exercising or refraining from exercising any rights which may be
vested in it by, or with respect to taking or refraining from taking any action
or actions that it may be able to take under or in respect of, this Agreement
and the Financing Agreements. Agent shall incur no liability under or in respect
of this Agreement and the Financing Agreements by acting upon any notice,
consent, certificate, warranty or other paper or instrument believed by it to be
genuine or authentic or to be signed by the proper party or parties, or with
respect to anything that it may do or refrain from doing in the reasonable
exercise of its judgment, or that may seem to it to be necessary or desirable
under the circumstances. It is agreed among Agent and Lender that Agent shall
have no responsibility to carry out audits or otherwise examine the books and
records or properties of Borrowers, except as Agent in its sole discretion deems
appropriate or as otherwise expressly required hereunder. The relationship
between Agent and each Lender is and shall be that of agent and principal only
and nothing herein shall be construed to constitute Agent a joint venturer with
Lender, a trustee or fiduciary for Lender or for the holder of a participation
therein nor impose on Agent duties and obligations other than those set forth
herein.
13.7 Collections and Disbursements.
(a) Agent will have the right to collect and receive all payments of
the Obligations, together with all fees, charges or other amounts due under this
Agreement and the Financing Agreements, and Agent will remit to Lender all such
payments actually received by Agent (subject to any required clearance
procedures) in accordance with the settlement procedures established by Agent
from time to time.
(b) If any such payment received by Agent is rescinded or otherwise
required to be returned for any reason at any time, whether before or after
termination of this Agreement and the Financing Agreements, Lender will, upon
written notice from Agent, promptly pay over to Agent the amount so rescinded or
returned, together with interest and other fees thereon if also required to be
rescinded or returned.
<PAGE>
(c) All payments by Agent and Lender to each other hereunder shall
be in immediately available funds. Agent will at all times maintain proper books
of account and records reflecting the interest of Lender in the Revolving Credit
and the Letter of Credit Accommodations, in a manner customary to Agent's
keeping of such records, which books and records shall be available for
inspection by Lender at reasonable times during normal business hours, at
Lender's sole expense.
13.8 Indemnification. Lender hereby indemnifies Agent (and any issuer
with respect to letters of credit) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against Agent (or issuer, as the case may be) in any
way relating to or arising out of this Agreement or any other Financing
Agreements or any action taken or omitted by Agent (or issuer, as the case may
be) under or related to this Agreement or the Loans, provided that Lender shall
not be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from Agent's (or issuer's, as the case may be) gross negligence or
willful misconduct. Agent shall have the right to deduct, from any amounts to be
paid by Agent to any Lender hereunder, any amounts owing to Agent by Lender by
virtue of this paragraph.
13.9 Expenses. (a) All out-of-pocket costs and out-of-pocket expenses
incurred by Agent and not reimbursed on demand by Borrowers, in connection with
the analysis, negotiation, preparation, consummation, creation, amendment,
administration, termination, work-out, forbearance and enforcement of the
Obligations (including, without limitation, audit expenses, counsel fees and
expenditures to protect, preserve and defend Agent's and Lender's rights and
interest under the Financing Agreements) shall be shared and paid on demand by
Lender; (b) Agent may deduct from payments or distributions to be made to Lender
such funds as may be necessary to pay or reimburse Agent for such costs or
expenses.
13.10No Reliance. By execution of or joining in this Agreement, each
Lender acknowledges that it has entered into this Agreement and the Financing
Agreements solely upon its own independent investigation and is not relying upon
any information supplied by or any representations made by Agent. Each Lender
shall continue to make its own analysis and evaluation of Borrowers. Agent makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of Borrowers, any Obligor or any Account debtor of
Borrowers; the accuracy, sufficiency or currency of any information concerning
the financial condition, prospects or results of operations of Borrowers; or for
sufficiency, authenticity, legal effect, validity or enforceability of the
Financing Agreements. Agent assumes no responsibility or liability with respect
to the collectibility of the Obligations or the performance by Borrowers under
the Financing Agreements.
<PAGE>
13.11Reporting. During the term of this Agreement, and subject to Section
9.6, Agent will promptly furnish each Lender with copies of all financial
statements of Borrowers to be delivered or obtained hereunder and such other
financial statements and reports as Lender may reasonably request. Agent will
immediately notify Lender when it receives actual knowledge of any Event of
Default under the Financing Agreements.
13.12 Removal of Agent. Agent may resign at any time upon giving
forty-five (45) days prior written notice thereof to Lender and Borrowers. Agent
may be removed as Agent hereunder upon the written consent of all Lenders
exclusive of Agent upon the following: (i) willful misconduct in the performance
of Agent's duties or responsibilities under this Agreement; or (ii) if a
receiver, trustee or conservator is appointed for Agent or any state or federal
regulatory authority assumes management or control of Agent or if, under
applicable law, the administrative or discretionary duties and responsibilities
of Agent hereunder become controlled by or subject to the approval of any state
or federal regulatory authority. Upon any resignation or permitted removal of
Agent, Lender may appoint a successor agent. Upon the acceptance of the
appointment as a successor agent hereunder by such successor agent, such
successor agent shall thereupon succeed to and become vested with all rights,
powers, obligations and duties of the retiring Agent and the retiring Agent
shall be discharged from its duties and obligations hereunder.
13.13Action on Instructions of Lender. With respect to any provision of
this Agreement, or any issue arising thereunder, concerning which Agent is
authorized to act or withhold action by direction of Lender, Agent shall in all
cases be fully protected in so acting, or in so refraining from acting,
hereunder in accordance with written instructions signed by Lender. Such
instructions and any action taken or failure to act pursuant thereto shall be
binding on Lender.
13.14Consent of Lender.
(a) Except as expressly provided herein, Agent shall have the sole
and exclusive right to service, administer and monitor the Loans and the
Financing Agreements, including without limitation, the right to exercise all
rights, remedies, privileges and options under the Financing Agreements, and
including without limitation the credit judgment with respect to the making of
advances and the determination as to the basis on which and extent to which
advances may be made.
<PAGE>
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior consent of Lender:
(i) extend the Renewal Date, (ii) except as contemplated under this Agreement,
reduce any interest rate applicable to the Revolving Credit any fee payable
hereunder or any fee for any letter of credit, (iii) increase the Maximum
Credit, (iv) compromise or settle all or a portion of the Obligations, (v)
release any Obligor from the Obligations except in connection with termination
of the Revolving Credit and full payment and satisfaction of all Obligations,
(vi) amend this Section 13.14(b), (vii) enter into any written amendment to any
of the Financing Agreements; (viii) waive any Borrower's compliance with the
terms and conditions of the Financing Agreements or any Event of Default
hereunder or thereunder, or (ix) consent to any Borrower's taking any action
which, if taken, would constitute an Event of Default under this Agreement or
under any of the Financing Agreements.
(c) After an acceleration of the Obligations, Agent shall have the
sole and exclusive right, after consultation (to the extent reasonably
practicable under the circumstances) with Lender, and, unless otherwise directed
by the Lender, to exercise or refrain from exercising any and all right,
remedies, privileges and options under the Financing Agreements and actions,
including, without limitation, instituting and pursuing all legal actions
brought against Borrowers or to collect the Obligations, or defending any and
all actions brought by Borrowers or other Person; or incurring expenses or
otherwise making expenditures to protect the Loans, the Collateral or Lenders'
rights or remedies.
(d) To the extent Agent is required to obtain or otherwise elects to
seek the consent of Lenders to an action Agent desires to take, if Lender fails
to notify Agent, in writing, of its consent or dissent to any request of Agent
hereunder within five (5) days of Lender's receipt of such request, Lender shall
be deemed to have given its consent thereto.
IN WITNESS WHEREOF, Agent and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
ADDRESS: CONGRESS FINANCIAL CORPORATION,
as Administrative Agent for Lenders
1133 Avenue of the Americas By: /s/---Michael J. Nieberding
New York, NY 10036 Michael J. Nieberding, Vice President
<PAGE>
CROWN CENTRAL PETROLEUM CORPORATION
By: /s/---John E. Wheeler, Jr.
One North Charles Street John E. Wheeler, Jr., Executive Vice President
Baltimore, MD 21201 and Chief Financial Officer
CONTINENTAL AMERICAN CORPORATION
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., President
CROWN CENTRAL HOLDING CORPORATION
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., President
CROWN CENTRAL PIPE LINE COMPANY
4747 Bellaire Blvd. By: /s/---John E. Wheeler, Jr.
Bellaire, TX 77401 John E. Wheeler, Jr., Vice President
CROWN-RANCHO PIPE LINE CORPORATION
4747 Bellaire Blvd. By: /s/---John E. Wheeler, Jr.
Bellaire, TX 77401 John E. Wheeler, Jr., Vice President
<PAGE>
CROWN STATIONS, INC
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., Vice President
F Z CORPORATION
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., Vice President
FAST FARE, INC.
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., Vice President
LA GLORIA OIL AND GAS COMPANY
4747 Bellaire Blvd. By: /s/--- John E. Wheeler, Jr.
Bellaire, TX 77401 John E. Wheeler, Jr., Vice President
LOCOT, INC.
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., President
<PAGE>
MCMURREY PIPE LINE COMPANY
4747 Bellaire Blvd. By: /s/---John E. Wheeler, Jr.
Bellaire, TX 77401 John E. Wheeler, Jr., President
MOLLIE'S PROPERTIES, INC.
(f/k/a TIARA PROPERTIES, INC.)
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr., Vice President
CROWNCEN INTERNATIONAL N.V.
One North Charles Street By: /s/---John E. Wheeler, Jr.
Baltimore, MD 21201 John E. Wheeler, Jr.
<PAGE>
Schedule 1
Loan and Security Agreement
PRICING GRID TABLE*
<TABLE>
<CAPTION>
Net Fixed Charge Coverage Ratio: <1 1 to 2 2 to 3 3 to 4 >4
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base Rate Loans .75% .50% .25% .00% .00%
Libor Rate Loans 3.75% 3.25% 2.75% 2.25% 2.0%
Letter of Credit Fee 2.5% 2.25% 2.0% 1.75% 1.5%
</TABLE>
*expressed as annual rates.
EXHIBIT 4.F
================================================================================
FIRST SUPPLEMENTAL INDENTURE
Between
CROWN CENTRAL PETROLEUM CORPORATION
as Issuer
and
STATE STREET BANK AND TRUST COMPANY
as Trustee
Dated as of December 2, 1998
Supplementing the Indenture
Dated as of January 24, 1995
With respect to
$125,000,000 Aggregate Principal Amount
of 10 7/8% Senior Notes due 2005
================================================================================
<PAGE>
THIS SUPPLEMENTAL INDENTURE ("Supplemental Indenture") is entered
into as of December 2, 1998, between Crown Central Petroleum Corporation, a
corporation duly organized and existing under the laws of the State of Maryland
(herein called the "Company"), and State Street Bank and Trust Company, a
Massachusetts banking corporation, as trustee (herein called the "Trustee").
WITNESSETH THAT:
WHEREAS, the Company and the First National Bank of Boston (the
"Original Trustee") entered into an indenture (the "Indenture") dated as of
January 24, 1995 with respect to $125,000,000 aggregate principal amount of 10
7/8% Senior Notes due 2005 of the Company, and the Trustee became the successor
to the Original Trustee as of April 26, 1996 under Section 611 of the Indenture
following its acquisition of the corporate trusts business of the Original
Trustee;
WHEREAS, Section 902 of the Indenture provides that with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities, the Company and the Trustee may enter into one or more
supplemental indentures for the purpose of adding any provisions to or changing
in any manner of eliminating any of the provisions of the Original Indenture,
and the Company wishes to effect an amendment to the Indenture (the "Proposed
Amendment") which requires the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities (the "Requisite
Consents");
WHEREAS, the Company has solicited (the "Consent Solicitation")
consents ("Consents", and each a "Consent") by the Holders of record of the
Outstanding Securities as of October 15, 1998, upon the terms and subject to the
conditions set forth in a consent solicitation statement dated October 16, 1998
(the "Consent Solicitation Statement"), to the adoption of the Proposed
Amendment;
WHEREAS, the Consent Solicitation by its terms was originally to
have expired at 5:00p.m., New York City time, on Friday, October 30, 1998, but
was extended to expire at 5:00 p.m., New York City time, on Monday, November 30,
1998 (the "Consent Date"), by which time and date the Company had received the
Requisite Consents to the Proposed Amendment;
WHEREAS, in the Consent Solicitation Statement as supplemented by
subsequent notices to the Holders, the Company confirmed that it would pay to
each Holder who has delivered (and not revoked) a valid Consent on or prior to
the Consent Date a consent fee in the amount of $32.50 for each $1,000
outstanding principal amount of Notes in respect of which such Consent has been
validly delivered (the "Consent Fee"), that this Supplemental Indenture would be
executed on or subsequent to the Consent Date, and that the Proposed Amendment
would not be operative until and unless the Consent Fee had been paid by the
Company;
<PAGE>
WHEREAS, all other conditions set forth in the Consent
Solicitation Statement other than the payment of the Consent Fee have been
satisfied or waived;
WHEREAS, the Company has duly authorized the execution and
delivery of this Supplemental Indenture, and all things necessary have been done
to make this Supplemental Indenture a valid agreement of the Company in
accordance with its terms;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That in order to declare additional terms and conditions
applicable to the Outstanding Securities, and in consideration of the premises
and of the payment by the Company of the Consent Fee to those Holders of
Outstanding Securities who delivered (and did not revoke) a valid Consent on or
prior to the Consent Date, the Company covenants and agrees with the Trustee,
for the equal and proportionate benefit of the respective Holders from time to
time of all the Outstanding Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1. Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein are used with the respective meanings ascribed to such terms in
the Indenture.
2. Effectiveness. This Supplemental Indenture shall become effective,
and shall bind the parties hereto upon its execution by the parties hereto,
provided, however, that the amendments to the Indenture effected by Article Two
hereof shall not become effective until the Consent Fee shall have been paid by
the Company to the Trustee for the benefit of the Holders.
3. Incorporation of Supplemental Indenture into Indenture. This
Supplemental Indenture is executed by the Company and the Trustee pursuant to
the provisions of Section 902 of the Indenture, and the terms and conditions
hereof shall be deemed to be part of the Indenture for all purposes upon the
effectiveness of this Supplemental Indenture. The Indenture, as amended and
supplemented by this Supplemental Indenture, is in all respects hereby adopted,
ratified and confirmed.
4. Effect of Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
5. Governing Law. The internal laws of the State of New York shall
govern and be used to construe this Supplemental Indenture, without regard to
the conflicts of laws provisions thereof.
6. Counterparts. This Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
<PAGE>
7. Recitals. The recitals contained herein shall be taken as the
statements of the Company and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Supplemental Indenture.
ARTICLE TWO
AMENDMENTS TO PROVISIONS OF INDENTURE
1. Definitions. (a) Section 1.01 of the Indenture is hereby amended by
amending and restating the following definition:
"Credit Facility" means the Credit Agreement, dated as of May 10, 1993,
among the Company and the lenders named therein and The Chase Manhattan Bank,
N.A., as agent, and any successor lenders and/or agents party thereto including
any ancillary documents executed in connection therewith, as such agreement may
be amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive amendments, renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplementations or other
modifications of the foregoing). For all purposes under this Indenture, "Credit
Facility" includes any amendments, renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplements or any other
modifications that increase the principal amount of the Indebtedness or the
commitments to lend thereunder and have been made in compliance with Section
1008 hereof. If all or a portion of the Credit Facility becomes available to the
Company as liquidity support or credit enhancement for a commercial paper
program established by the Company, the amount of Indebtedness thereunder in
respect of such support or enhancement shall be the aggregate principal amount
thereunder that is then available to support or enhance outstanding commercial
paper of the Company, and the aggregate face amount of such commercial paper
which is outstanding that equals the aggregate principal amount thereunder that
is then available for support or enhancement of such commercial paper shall not
be considered to be outstanding for purposes of the operation of the covenant
set forth in Section 1008 hereof.
(b) Section 1.01 of the Indenture is hereby amended by adding the
following definitions in the appropriate alphabetical order:
"Permitted Collateral" means all of the present and future current
assets (as determined under GAAP) of the Company and its Subsidiaries, including
without limitation all accounts, contract rights, general intangibles, chattel
paper, documents, instruments, deposit accounts, short term investments, and
inventory, and all products and proceeds thereof.
"Secured Credit Facility" means the Credit Facility as it may be
secured by a Lien over Permitted Collateral pursuant to Section 1012(j)
hereof.
2. Limitations on Liens. Section 1012 of the Indenture is hereby amended
and restated in its entirety as follows:
SECTION 1012. Limitation on Liens.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, affirm or suffer to exist any
Lien of any kind upon any of its property or assets (including any
intercompany notes), owned at the date of the this Indenture or acquired
after the date of this Indenture, or any income or profits therefrom,
unless the Securities (or in the case of Liens on property or assets of
a Guarantor, the related Guarantee) are directly secured equally and
ratably with (or prior to in the case of Liens with respect to
Subordinated Indebtedness or Indebtedness of a Guarantor subordinated in
right of payment to its Guarantee) the
<PAGE>
obligation or liability secured by such Lien, excluding, however, from
the operation of the foregoing any of the following (collectively,
"Permitted Liens"):
(a) any Lien existing as of the date of this Indenture;
(b) any Lien arising by reason of (I) any judgment, decree or order of
any court, so long as such Lien in adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such judgment,
decree or order have not been finally terminated or the period within which such
proceedings may be initiated has not expired; (ii) taxes not yet delinquent or
which are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, and against which appropriate reserves have
been established in accordance with GAAP; (iii) security for payment of workers'
compensation or other insurance; (iv) good faith deposits in connection with
tenders, leases or contracts (other than contracts for the payment of money);
(v) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests, mortgages,
obligations, liens and other encumbrances incurred, created, assumed or
permitted to exist and arising by, through or under a landlord or owner of the
leased property, with or without consent of the lessee), none of which
materially impairs the use of any parcel of property material to the operation
of the businesses of the Company or any of its Subsidiaries or the value of such
property for the purpose of such businesses; (vi) deposits to secure public or
statutory obligations, or in lieu of surety or appeal bonds; (vii) certain
surveys, exceptions, title defects, encumbrances, easements, reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph or
telephone lines and other similar purposes or zoning or other restrictions as to
the use of real property not materially adversely interfering with the ordinary
conduct of the businesses of the Company or any of its Subsidiaries; or (viii)
operation of law in favor of mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums which are not
yet delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof and against which
appropriate reserves have been established;
(c) any Lien (including extensions and renewals thereof) upon real or
tangible personal property acquired or constructed in the ordinary course of
business after the date of this Indenture; provided that (i) such Lien is
created (A) solely for the purpose of securing Purchase Money Indebtedness
incurred in respect of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within 90 days after the later of
the acquisition, the completion of construction or the commencement of full
operation of such property or (B) to refinance any Purchase Money Indebtedness
previously incurred and so secured, (ii) the principal amount of Purchase Money
Indebtedness secured by such Lien does not exceed 100% of the lesser of the
aggregate cost or the Fair Market Value of such item of property or assets,
(iii) any such Lien does not extend to or cover any property or assets other
than such
<PAGE>
item or property or assets and any improvements on such item and (iv) any such
Lien does not extend to or cover any property or assets of the Company or any of
its Subsidiaries existing as of the date of this Indenture;
(d) any Lien now or hereafter existing on property or assets of the
Company or any of its Subsidiaries securing the Securities;
(e) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any of its Subsidiaries, in each case which
Indebtedness is permitted under Section 1008 hereof; provided that any such Lien
only extends to the assets that were subject to such Lien securing such Acquired
Indebtedness prior to the related transaction by the Company or its
Subsidiaries;
(f) any Lien securing Hedging Obligations that the Company enters into
in the ordinary course of business for the purpose of protecting against
fluctuations in the price of crude oil, other feedstocks or refined products;
(g) any Lien on pipeline or pipeline facilities which arise out of
operation of law;
(h) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing paragraphs (a) through (g) so long
as no additional assets become subject to such Liens as a result of such
extension, renewal, refinancing or replacement;
(i) any Lien on property of the Company or any of its Subsidiaries that
is subject to a Sale and Leaseback Transaction, provided that after giving
effect to such transaction the aggregate principal amount of Attributable
Indebtedness in respect of all Sale and Leaseback Transactions entered into by
the Company and its Subsidiaries then outstanding, other than any Sale and
Leaseback Transactions existing as of the date of the Indenture, does not at the
time such Lien is incurred exceed 10% of the Consolidated Net Worth of the
Company; and
(j) any Lien over Permitted Collateral directly or indirectly securing
the payment of any Indebtedness of the Company or any of its Subsidiaries under
the Secured Credit Facility and incurred pursuant to clause (b)(I) of Section
1008 of this Indenture, whether absolute, accrued, contingent or based upon any
contingency.
IN WITNESS WHEREOF, the Company and the Trustee have executed this
Supplemental Indenture and have caused their names to be signed hereto by their
respective officers thereunto duly authorized, all as of the day and year first
above written.
CROWN CENTRAL PETROLEUM CORPORATION
As Issuer
<PAGE>
By: /s/- - John E. Wheeler, Jr.
------------------------------------
Title: Executive Vice President - Chief
Financial Officer
Attest: /s/ - - Dolores B. Rawlings
-----------------------
Title: Vice President - Secretary
STATE STREET BANK AND TRUST COMPANY
As Trustee
By: /s/ - - Sandy Lamar Cody
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Title: Vice President
Attest: /s/ - - Scott A. Knox
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Title: Assistant Secretary
EXHIBIT 10.L
CROWN CENTRAL PETROLEUM CORPORATION
1994 LONG-TERM INCENTIVE PLAN
(AS RESTATED ON DECEMBER 17, 1998)
SECTION 1: ESTABLISHMENT AND PURPOSE
The purpose of the Crown Central Petroleum Corporation 1994 Long-Term Incentive
Plan (the "Plan") is to benefit the Corporation and its Subsidiaries. The Plan
is also intended to benefit the Corporation's stockholders by encouraging high
levels of performance by individuals who are key to the success of the
Corporation and its Subsidiaries and to enable the Corporation and its
Subsidiaries to attract, motivate and retain talented and experienced
individuals essential to the Corporation's success. This is to be accomplished
by providing such employees an opportunity to obtain or increase their
proprietary interest in the Corporation's performance and by providing such
employees with additional incentives to remain with the Corporation and its
Subsidiaries.
SECTION 2: DEFINITIONS
The following terms, as used herein, shall have the meaning specified:
a. "ADMINISTRATIVE COSTS" means total administrative operating
expenses exclusive of refinery, supply and transportation, and
marketing expenses plus total interest expense including
capitalized interest costs net of interest income.
b. "AWARD" means Non-qualified Stock Options and Performance Vested
Restricted Stock granted pursuant to Section 4 hereof.
c. "AWARD AGREEMENT" means an agreement described in Section 6
hereof entered into between the Corporation and a Participant,
setting forth the terms and conditions applicable to the Award
granted to the Participant.
d. "BOARD OF DIRECTORS" means the Board of Directors of the
Corporation as it may be comprised from time to time.
e. "CAUSE" means an act that constitutes cause for termination of
employment under the Corporation or Subsidiary's normal personnel
practices.
f. "CODE" means the Internal Revenue Code of 1986, and any successor
statute, and the regulations promulgated thereunder, as it or
they may be amended from time to time.
g. "COMMITTEE" means the Committee as defined in Section 8 hereof.
<PAGE>
h. "CORPORATION" means Crown Central Petroleum Corporation, and any
successor corporation.
i. "COVERED EMPLOYEE" means a covered employee within the meaning of
Code Section 162(m)(3).
j. "EMPLOYEE" means officers and other key employees of the
Corporation or a Subsidiary, but excludes directors who are not
also officers or employees of the Corporation.
k. "EXCHANGE ACT" means the Securities Exchange Act of 1934, and any
successor statute, as it may be amended from time to time.
l. "FAIR MARKET VALUE" means the average of the highest and lowest
sale price of the Stock as reported on the American Stock
Exchange on the relevant date, or if no sale of the Stock is
reported for such date, the next preceding day for which there is
a reported sale.
m. "INSIDER" means any person who is subject to Section 16.
n. "MARKETING CONTRIBUTION" means Crown's marketing income minus
marketing expenses.
o. "NET MARGIN" means the Corporation's Refining Gross Margin
reduced by Total Refining Costs and Administrative Costs and
increased by the Marketing Contribution, as determined by the
Committee under the Corporation's regular accounting practices on
a consistent basis.
p. "NON-QUALIFIED STOCK OPTION" means an option to purchase Stock
that is granted pursuant to Section 4(a) hereof that does not
meet the requirements of Code Section 422, or if meeting those
requirements, is not intended to be an incentive stock option
under Code Section 422.
m. "PARTICIPANT" means any Employee who has been granted an Award
pursuant to this Plan.
n. "REFINING GROSS MARGIN" means the measure of actual gross margin
at the refinery (revenues minus costs of goods) compared to a
model for optimal refining performance.
o. "SECTION 16" means Section 16 of the Exchange Act, and any
successor statutory provision, and the rules promulgated
thereunder, as it or they may be amended from time to time.
p. "STOCK" means shares of Class B Common Stock of the Corporation,
par value $5 per share, or any security of the Corporation issued
in substitution, exchange or lieu thereof.
u. "SUBSIDIARY" means any corporation in which the Corporation,
directly or indirectly, controls 50% or more of the total
combined voting power of all classes of such corporation's stock.
<PAGE>
v. "TOTAL REFINING COSTS" means total refinery operating costs.
SECTION 3: ELIGIBILITY
Persons eligible for Awards shall consist of Employees who hold positions of
significant responsibility with the Corporation and/or a Subsidiary or whose
performance or potential contribution, in the judgment of the Committee, will
benefit the future success of the Corporation and/or a Subsidiary.
<PAGE>
SECTION 4: AWARDS
The Committee may grant either of the following types of Awards, singly or in
combination, as the Committee may in its sole discretion determine:
a. NON-QUALIFIED STOCK OPTIONS. A Non-qualified Stock Option is an
option to purchase a specific number of shares of Stock during
such specified time as the Committee may determine, not to exceed
ten (10) years, at a price not less than 100% of the Fair Market
Value of the Stock on the date the option is granted.
1) The purchase price of the Stock subject to the option may
be paid in cash. At the discretion of the Committee at the
time of exercise or as provided in the Award Agreement,
the purchase price may also be paid by the tender of Stock
(the value of such Stock shall be its Fair Market Value on
the date of exercise), or through a combination of Stock
and cash, or through such other means as the Committee
determines are consistent with the Plan's purpose and
applicable law. No fractional shares of Stock will be
issued or accepted.
2) Without limiting the foregoing, to the extent permitted by
law (including relevant state law), (A) the Committee may
agree to accept as full or partial payment of the purchase
price of Stock issued upon exercise of options, a
promissory note of the Participant evidencing the
Participant's obligation to make future cash payments to
the Corporation, which promissory notes shall be payable
as determined by the Committee (but in no event later than
five (5) years after the date thereof), shall be secured
by a pledge of the shares of Stock purchased, and shall
bear interest at a rate established by the Committee which
shall be at least equal to the minimum interest rate
required at the time to avoid imputed interest under the
Code, and (B) the Committee may also permit Participants,
at the time of exercise or as provided in the Award
Agreement, simultaneously to exercise options and sell the
shares of Stock thereby acquired, pursuant to a brokerage
or similar arrangement approved in advance by the
Committee, and use the proceeds from such sale as payment
of the purchase price of such Stock.
b. PERFORMANCE VESTED RESTRICTED STOCK. Performance Vested
Restricted Stock is Stock that is issued to a Participant and is
subject to the attainment of performance goals, restrictions on
transfer or such other restrictions on incidents of ownership, if
any, as the Committee may determine.
1) The performance goals shall be based on such measure or
measures of performance, which may include, but need not
be limited to, the performance of the Corporation, one or
more Subsidiaries or one or more of their divisions or
units, or any combination of the foregoing, as the
Committee shall determine, and may be applied on an
absolute basis or be relative to industry or other
indices, or any combination thereof. Unless otherwise
provided in an Award, such performance goals may be
adjusted in any manner by the Committee in its discretion
at any time and from time to time if it determines that
such performance goals are not appropriate under the
circumstances. The performance goals for Covered Employees
shall be based on the Corporation's Net Margin unless
prior to the grant of an Award the Committee determines
that another performance measurement or measurements
should be substituted.
<PAGE>
2) Subject to such restrictions, the Participant as owner of
such shares of Performance Vested Restricted Stock shall
have the rights of the holder thereof, except that the
Committee may provide at the time of the Award that any
dividends or other distributions paid on such Stock while
subject to such restrictions shall be accumulated or
reinvested in Stock and held subject to the same
restrictions as the Performance Vested Restricted Stock
and such other terms and conditions as the Committee shall
determine.
3) A certificate for the shares of Performance Vested
Restricted Stock, which certificate shall be registered in
the name of the Participant, shall bear an appropriate
restrictive legend and shall be subject to appropriate
stop-transfer orders or the certificates representing
shares of Performance Vested Restricted Stock shall be
held in custody by the Corporation until the restrictions
relating thereto otherwise lapse and the Participant shall
deliver to the Corporation a stock power endorsed in blank
relating to the Performance Vested Restricted Stock.
<PAGE>
SECTION 5: SHARES OF STOCK AVAILABLE UNDER PLAN
a. Subject to the adjustment provisions of Section 9 hereof, the
number of shares of Stock with respect to which Awards may be
granted under the Plan shall not exceed 1,100,000 shares of
Stock; provided that no more than 550,000 of the shares of Stock
available for Awards shall be available for Awards in the form of
Performance Vested Restricted Stock; and provided further that no
single Participant shall receive, in any one calendar year,
Awards (i) in the form of Non-qualified Stock Options with
respect to more than 150,000 shares of Stock and (ii) for more
than 50,000 Performance Vested Restricted Shares, as determined
for purposes of Code Section 162(m). The number of shares shall,
if permissible under Rule 16b-3 of the Exchange Act, include the
number of shares surrendered by a Participant or retained by the
Corporation in payment of applicable withholding taxes under
Section 6(a)(4) hereof.
b. Any unexercised or undistributed portion of any terminated or
forfeited Award shall be available for further Awards in addition
to those available under Section 5(a) hereof to the extent
permitted under Section 16.
c. The Stock which may be issued pursuant to an Award under the Plan
may be authorized but unissued Stock, or Stock that is acquired,
subsequently or in anticipation of the transaction, in the open
market to satisfy the requirements of the Plan.
SECTION 6: AWARD AGREEMENTS
Each Award under the Plan shall be evidenced by an Award Agreement setting forth
the number of shares of Stock subject to the Award and such other terms and
conditions applicable to the Award, as determined by the Committee, not
inconsistent with the terms of the Plan.
a. Award Agreements shall include the following terms:
1) NON-ASSIGNABILITY. A provision that no Award shall be
assignable or transferable except by will or by laws of
descent and distribution and that, during the lifetime of
a Participant, the Award shall be exercised only by such
Participant or by his or her guardian or legal
representative.
<PAGE>
2) TERMINATION OF EMPLOYMENT.
A. A provision describing the treatment of an Award
in the event of the retirement, disability, death
or other termination of a Participant's employment
with the Corporation or a Subsidiary, including but
not limited to terms relating to the vesting, time
for exercise, forfeiture or cancellation of an
Award in such circumstances. Participants who
terminate employment due to retirement, permanent
disability, or death prior to the satisfaction of
applicable conditions and restrictions associated
with their Award(s) may be entitled to a prorated
Awards(s) as and to the extent determined by the
Committee.
B. A provision that for purposes of the Plan, (i) a
transfer of an Employee from the Corporation to a
Subsidiary or affiliate of the Corporation, whether
or not incorporated, or vice versa, or from one
Subsidiary or affiliate of the Corporation to
another, and (ii) a leave of absence, duly
authorized in writing by the Corporation, shall not
be deemed a termination of employment.
C. A provision describing the effect of an event of
Cause on an Award.
3) RIGHTS AS A STOCKHOLDER. A provision stating that a
Participant shall have no rights as a stockholder with
respect to any Stock covered by an Award of a
Non-qualified Stock Option until the date the Participant
becomes the holder of record. Except as provided in
Section 9 hereof, no adjustment shall be made for
dividends or other rights, unless the Award Agreement
specifically requires such adjustment.
<PAGE>
4) WITHHOLDING. A provision requiring the withholding of
applicable taxes required by law from all amounts paid in
satisfaction of an Award. A Participant may satisfy the
withholding obligation by (A) paying the amount of any
taxes in cash, (B) with the approval of the Committee at
the time applicable taxes are due or as provided in the
Award Agreement, shares of Stock may be deducted from the
payment to satisfy the obligation in full or in part, or
(C) with the approval of the Committee at the time
applicable withholding taxes are due or as provided in the
Award Agreement, deliver already owned Stock to satisfy
the obligation in full or in part. The amount of the
withholding and the number of shares to be deducted shall
be determined by the Committee with reference to the Fair
Market Value of the Stock when the withholding is required
to be made. Any use of Stock by an Insider for payment of
applicable withholding taxes shall be subject to the
provisions of Rule 16b-3 as to the manner and timing of
the election.
5) EXECUTION. A provision stating that no Award is
enforceable until the Award Agreement or a receipt has
been signed by the Participant and the Corporation or a
Subsidiary. By executing the Award Agreement or receipt, a
Participant shall be deemed to have accepted and consented
to any action taken under the Plan by the Committee, the
Board of Directors or their delegates.
6) HOLDING PERIOD. In the case of an Award to an Insider: (A)
of an equity security, a provision stating (or the effect
of which is to require) that such security must be held
for at least six (6) months (or such longer period as the
Committee in its discretion specifies) from the date of
acquisition; or (B) of a derivative security with a fixed
exercise price within the meaning of Section 16, a
provision stating (or the effect of which is to require)
that at least six (6) months (or such longer period as the
Committee in its discretion specifies) must elapse from
the date of acquisition of the derivative security to the
date of disposition of the derivative security (other than
upon exercise or conversion) or its underlying equity
security.
b. Award Agreements may include the following terms:
1) REPLACEMENT AND SUBSTITUTION. Any provisions (A)
permitting the surrender of outstanding Awards or
securities held by the Participant in order to exercise or
realize rights under other Awards, or in exchange for the
grant of new Awards under similar or different terms or
(B) requiring holders of Awards to surrender outstanding
Awards as a condition precedent to the grant of new Awards
under the Plan.
2) OTHER TERMS. Such other terms as the Committee may
determine are necessary and appropriate to effect an Award
to the Participant, including, but not limited to, the
term of the Award, vesting provisions, any requirements
for continued employment with the Corporation or a
Subsidiary, any other restrictions or conditions
(including performance goals) on the Award and the method
by which restrictions or conditions lapse, the effect on
the Award of a change in control of the Corporation, the
price, amount or value of Awards, and the terms, if any,
pursuant to which a Participant may elect to defer the
receipt of cash or Stock under an Award.
<PAGE>
SECTION 7: AMENDMENT AND TERMINATION
The Board of Directors may at any time amend, suspend or discontinue the Plan,
in whole or in part. The Committee may at any time alter or amend any or all
Award Agreements under the Plan to the extent permitted by law, but no such
alteration or amendment shall impair the rights of any holder of an Award
without the holder's consent, except to preserve the Plan's qualification as a
safe harbor plan under Section 16. However, no such action may, without approval
of the stockholders of the Corporation, be effective with respect to (A) any
Insider if such approval is required by Section 16, or (B) any Covered Employee
if such approval is required by Code Section 162(m)(4)(C).
SECTION 8: ADMINISTRATION
a. The Plan and all Awards granted pursuant thereto shall be
administered by a Committee of the Board of Directors, which
Committee shall consist of not less than three (3) members of
such Board of Directors and shall be constituted so as to permit
the Plan to comply with the administration requirements of Rule
16b-3(c)(2)(i) and (ii) of the Exchange Act and Code Section
162(m)(4)(C). The members of the Committee shall be designated by
the Board of Directors. Unless the Board provides otherwise, the
Committee shall be the Executive Compensation and Bonus Committee
of the Board of Directors. A majority of the members of the
Committee shall constitute a quorum. The vote of a majority of a
quorum shall constitute action by the Committee.
<PAGE>
b. The Committee shall have the power to interpret and administer
the Plan. All questions of interpretation with respect to the
Plan, the number of shares of Stock or other security or rights
granted and the terms of any Award Agreements, including the
timing, pricing, and amounts of Awards, shall be determined by
the Committee, and its determination shall be final and
conclusive upon all parties in interest. The Committee's
determinations under the Plan need not be uniform and may be made
by it selectively among Employees who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons are
similarly situated.
c. In the event of any conflict between an Award Agreement and this
Plan, the terms of this Plan shall govern.
d. It is the intent of the Corporation that this Plan and Awards
hereunder satisfy, and be interpreted in a manner that satisfies,
(i) in the case of Participants who are or may be Insiders, the
applicable requirements of Rule 16b-3 of the Exchange Act, so
that such persons will be entitled to the benefits of Rule 16b-3,
or other exemptive rules under Section 16, and will not be
subjected to avoidable liability thereunder; (ii) with respect to
Non-qualified Stock Options in the case of Participants who are
or may be Covered Employees, the applicable requirements of Code
Section 162(m) so that the tax deduction for the Corporation or a
Subsidiary for remuneration in respect of this Plan for services
performed by such Covered Employees with respect to such
Non-qualified Stock Options, is not disallowed in whole or in
part by the operation of such Code Section, and (iii) with
respect to Performance Vested Restricted Stock in the case of
Participants who are or may be Covered Employees, the applicable
requirements of Code Section 162(m) to the extent designated by
the Committee at the time of an Award. If any provision of this
Plan or of any Award would otherwise frustrate or conflict with
the intent expressed in this Section 8(d), that provision to the
extent possible shall be interpreted and deemed amended so as to
avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provision shall be
deemed void as applicable to Insiders and/or Covered Employees,
as applicable.
<PAGE>
e. The Committee may delegate to the officers or employees of the
Corporation and its Subsidiaries the authority to execute and
deliver such instruments and documents, to do all such acts and
things, and to take all such other steps deemed necessary,
advisable or convenient for the effective administration of the
Plan in accordance with its terms and purpose, except that the
Committee may not delegate any discretionary authority with
respect to substantive decisions or functions regarding the Plan
or Awards thereunder as these relate to Insiders or Covered
Employees, including, but not limited to, decisions regarding the
timing, eligibility, pricing, amount or other material terms of
such Awards.
SECTION 9: ADJUSTMENT PROVISIONS
a. In the event of any change in the outstanding shares of Stock by
reason of a stock dividend or split, recapitalization, merger or
consolidation (whether or not the Corporation is a surviving
corporation), reorganization, combination or exchange of shares
or other similar corporate changes or an extraordinary dividend
payback in cash or property, the number of shares of Stock (or
other securities) then remaining subject to this Plan, and the
maximum number of shares that may be issued to any single
participant pursuant to this Plan, including those that are then
covered by outstanding Awards, shall (i) in the event of an
increase in the number of outstanding shares, be proportionately
increased and the price for each share then covered by an
outstanding Award shall be proportionately reduced, and (ii) in
the event of a reduction in the number of outstanding shares, be
proportionately reduced and the price for each share then covered
by an outstanding Award shall be proportionately increased.
b. The Committee shall make any further adjustments as it deems
necessary to ensure equitable treatment of any holder of an Award
as the result of any transaction affecting the securities subject
to the Plan not described in (a), or as is required or authorized
under the terms of any applicable Award Agreement.
c. The existence of the Plan and the Awards granted hereunder shall
not affect or restrict in any way the right or power of the Board
of Directors or the shareholders of the Corporation to make or
authorize any adjustment, recapitalization, reorganization or
other capital structure of its business, any merger or
consolidation of the Corporation, any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the
Stock or the rights thereof, the dissolution or liquidation of
the Corporation or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding.
SECTION 10: CHANGE OF CONTROL
a. In the event of a change in control of the Corporation, in
addition to any action required or authorized by the terms of an
Award Agreement, the Committee may, in its sole discretion unless
otherwise provided in an Award Agreement, take any of the
following actions as a result, or in anticipation, of any such
event:
1) accelerate time periods for purposes of vesting in, or
realizing gain from, any outstanding Award made pursuant
to this Plan;
<PAGE>
2) offer to purchase any outstanding Award made pursuant to
this Plan from the holder for its equivalent cash value,
as determined by the Committee, as of the date of the
change of control; or
3) make adjustments or modifications to outstanding Awards as the Committee
deems appropriate to maintain and protect the rights and interests of
Participants following such change of control.
Any such action approved by the Committee shall be conclusive and
binding on the Corporation and all Participants.
b. For purposes of this Section, a change of control shall mean the
following:
1) A tender offer or exchange offer is made whereby the
effect of such offer is to take over and control the
affairs of the Corporation, and such offer is consummated
for the ownership of securities of the Corporation
representing twenty percent (20%) or more of the combined
voting power of the Corporation's then outstanding voting
securities.
2) The Corporation is merged or consolidated with another
corporation and, as a result of such merger or
consolidation, less than seventy-five percent (75%) of the
combined voting power of the surviving or resulting
corporation shall then be owned in the aggregate by the
former stock holders of the Corporation.
3) The Corporation transfers substantially all of its assets
to another corporation or entity that is not a wholly
owned subsidiary of the Corporation.
<PAGE>
4) Any person (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) other than a person included
within the definition of Rosenberg Shareholder in Section
II.6, Stock Not Subject to the Control Share Act, of the
Corporation's Bylaws (or any group controlled by or
consisting of persons included within the definition of
Rosenberg Shareholder) is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation
representing twenty percent (20%) or more of the combined
voting power of the Corporation's then outstanding
securities.
5) As the result of a tender offer, merger, consolidation,
sale of assets, or contested election, or any combination
of such transactions, the persons who were members of the
Board of Directors of the Corporation immediately before
the transaction, cease to constitute at least a majority
thereof.
6) As the result of any sale, exchange, business combination,
joint venture or other transaction with a third party or
any combination of such transactions: (A) the
Corporation's refining capacity is reduced to less than
80,000 barrels per day, (B) for a period in excess of two
years, the refining capacity over which the Corporation
will have operational control and market risk is less than
80,000 barrels per day, or (C) the Corporation has less
than 175 company operated and dealer retail units.
SECTION 11: UNFUNDED PLAN
The Plan shall be unfunded. No provision of the Plan or any Award Agreement will
require the Corporation or its Subsidiaries, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust or
other entity to which contributions are made or otherwise to segregate any
assets, nor will the Corporation or its Subsidiaries maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Participants will
have no rights under the Plan other than as unsecured general creditors of the
Corporation and its Subsidiaries, except that insofar as they may have become
entitled to payment of additional compensation by performance of services, they
will have the same rights as other employees under generally applicable law.
<PAGE>
SECTION 12: LIMITS OF LIABILITY
a. Any liability of the Corporation or a Subsidiary to any
Participant with respect to an Award shall be based solely upon
contractual obligations created by the Plan and the Award
Agreement.
b. Neither the Corporation nor a Subsidiary, nor any member of the
Board of Directors or of the Committee, nor any other person
participating in any determination of any question under the
Plan, or in the interpretation, administration or application of
the Plan, shall have any liability to any party for any action
taken or not taken in good faith under the Plan.
SECTION 13: RIGHTS OF EMPLOYEES
a. Status as an eligible Employee shall not be construed as a
commitment that any Award will be made under this Plan to such
eligible Employee or to eligible Employees generally.
b. Nothing contained in this Plan or in any Award Agreement (or in
any other documents related to this Plan or to any Award or Award
Agreement) shall confer upon any Employee or Participant any
right to continue in the employ or other service of the
Corporation or a Subsidiary or constitute any contract or limit
in any way the right of the Corporation or a Subsidiary to change
such person's compensation or other benefits or to terminate the
employment or other service of such person with or without cause.
SECTION 14: TERM
The Plan shall be adopted by the Board of Directors effective as of January 1,
1994, subject to approval by the Corporation's stockholders. The Committee may
grant Awards prior to stockholder approval, provided, however, that Awards
granted prior to such stockholder approval are automatically canceled if
stockholder approval is not obtained at or prior to the period ending twelve
months after the date the Plan is adopted. Notwithstanding anything to the
contrary herein, no Award may be exercisable prior to the date stockholder
approval is obtained. The Plan shall remain in effect until all Awards under the
Plan have been exercised or terminated under the terms of the Plan and
applicable Award Agreements, provided that Awards under the Plan may only be
granted within ten years from the effective date of the Plan.
SECTION 15: REQUIREMENTS OF AND GOVERNING LAW
a. The Plan, the Award Agreements and all actions taken hereunder or
thereunder shall be governed by, and construed in accordance
with, the laws of the state of Maryland without regard to the
conflict of law principles thereof.
b. Notwithstanding anything contained herein or in any Award
Agreement to the contrary, the Corporation shall not be required
to sell or issue shares of Stock hereunder if the issuance
thereof would constitute a violation by the Participant or the
Corporation of any provisions of any law or regulation of any
governmental authority or any national
<PAGE>
securities exchange; and as a condition of any sale or issuance
the Corporation may require such agreements or undertakings, if
any, as the Corporation may deem necessary or advisable to assure
compliance with any such law or regulation.
EXHIBIT 10.M
This first amendment, effective as of March 25, 1999, to the 1994 Long-Term
Incentive Plan, as amended and restated, amends the definition of "Employee" set
forth in Section 2 of the Plan to read as follows:
j. "Employees" means officers, other key employees and all non-union
salaried employees of the Corporation or a Subsidiary, but excludes directors
who are not also officers or employees of the Corporation.
EXHIBIT 10.N
CROWN CENTRAL PETROLEUM CORPORATION
EXECUTIVE SEVERANCE PLAN
(As Restated December 17, 1998)
The Crown Central Petroleum Corporation Executive Severance Plan (the "Plan") is
hereby established by Crown Central Petroleum Corporation, a Maryland
corporation (the "Corporation") for the benefit of its eligible executives. The
purpose of the Plan is to provide certain benefits to eligible executives in the
event of a termination of employment under defined circumstances after a Change
of Control.
Section 1. Definitions. For purposes of this Plan:
(a) "Annual Incentive Plan" means the Crown Central Petroleum Corporation 1994
Annual Incentive Plan and any successor plan that provides for annual cash
bonuses, as changed from time to time.
(b) "Beneficiary" shall mean the person or entity designated by an Executive, by
written instrument delivered to the Corporation, to receive the benefits payable
under this Plan in the event of the Executive's death. If an Executive fails to
designate a Beneficiary, or if no Beneficiary survives the Executive, such death
benefits shall be paid to the Executive's estate.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Change of Control" shall mean:
(i) A tender offer or exchange offer is made whereby the effect of such offer is
to take over and control the affairs of the Corporation, and such offer is
consummated for the ownership of securities of the Corporation representing
twenty percent (20%) or more of the combined voting power of the Corporation's
then outstanding voting securities.
(ii) The Corporation is merged or consolidated with another corporation and, as
a result of such merger or consolidation, less than seventy-five percent (75%)
of the combined voting power of the surviving or resulting corporation shall
then be owned in the aggregate by the former stockholders of the Corporation.
(iii) The Corporation transfers substantially all of its assets to another
corporation or entity that is not a wholly owned subsidiary of the Corporation.
<PAGE>
(iv) Any person (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act) other than a person included within the definition of Rosenberg
Shareholder in Section II.6, Stock Not Subject to the Control Share Act, of the
Corporation's Bylaws is or becomes the beneficial owner, directly or indirectly,
of securities of the Corporation representing twenty percent (20%) or more of
the combined voting power of the Corporation's then outstanding securities.
(v) As the result of a tender offer, merger, consolidation, sale of assets, or
contested election, or any combination of such transactions, the persons who
were members of the Board immediately before the transaction, cease to
constitute at least a majority thereof.
(vi) As the result of any sale, exchange, business combination, joint venture or
other transaction with a third party or any combination of such transactions:
(A) the Corporation's refining capacity is reduced to less than 80,000 barrels
per day, (B) for a period in excess of two years, the refining capacity over
which the Corporation will have operational control and market risk is less than
80,000 barrels per day, or (C) the Corporation has less than 175 company
operated and dealer retail units.
(e) "Code" shall mean the Internal Revenue Code of 1986.
(f) "Compensation" shall mean the total compensation paid to an Executive by the
Corporation as reportable on Internal Revenue Service Form W-2 (i) plus any
amount contributed by the Executive pursuant to a salary reduction agreement and
which is not includible in gross income under Code Sections 125 or 402(a)(8),
and any amount of salary reductions elected by the Executive under the
Supplemental Savings Plan, and (ii) reduced by any income recognized by the
Executive from the exercise of stock options, the grant of stock or any other
income arising from the Crown Central Petroleum Corporation 1994 Long-Term
Incentive Plan or any successor plan of the Corporation.
(g) "Effective Date" shall mean September 26, 1996, subject to approval of the
Plan by the Board.
(h) "Executive" shall mean only a Vice President or higher executive officer of
the Corporation on the Effective Date, and any Vice President or higher
executive officer of the Corporation hired after the Effective Date upon
approval of his participation in the Plan by the Board.
(i) "Final Compensation" shall mean an amount equal to a Executive's
Compensation for the calendar year during the three calendar years prior to the
termination of the Executive's employment for which the Executive received the
largest amount of Compensation.
(j) "Good Cause" shall mean:
<PAGE>
(i) fraud or material misappropriation by the Executive with respect to the
business or assets of the Corporation,
(ii) the persistent refusal or willful failure of the Executive materially to
perform his duties and responsibilities to the Corporation, which continues
after the Executive receives notice of such refusal or failure, or
(iii) the Executive's conviction of a felony or crime involving moral turpitude.
(k) "Good Reason" shall exist with respect to an Executive if, without the
Executive's express written consent:
(i) there is a significant adverse change in the nature or the scope of the
Executive's authority or in his overall working environment after a Change of
Control;
(ii) the Executive is assigned duties materially inconsistent with his duties,
responsibilities and status at the time of a Change of Control;
(iii) there is a reduction, which is not agreed to by the Executive, in the
Executive's rate of base salary, incentive compensation, welfare benefits, or
perquisites such as car allowances as in effect at the time of a Change of
Control; or
(iv) the Corporation changes by 50 miles or more the principal location in which
the Executive is required to perform services from the location at which the
Executive was employed as of the Change of Control.
(l) "Retirement Plan" shall mean any qualified or supplemental employee pension
benefit plan, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), currently or hereinafter made
available by the Corporation in which an Executive is eligible to participate.
(m) "Salary Continuance Benefit" shall mean the benefit provided in Section
5(b).
(n) "Severance Benefit" shall mean the Salary Continuance Benefit and the
Welfare Continuance Benefit.
(o) "Severance Period" shall mean the period beginning on the date an
Executive's employment with the Corporation terminates and ending on the date 36
months thereafter.
(p) "SRI Plan" shall mean the Crown Central Petroleum Corporation Supplemental
Retirement Income Plan For Senior Executives, as amended from time to time.
(q) "Supplemental Savings Plan" shall mean the Crown Central Petroleum Employees
Supplemental Savings Plan, as amended from time to time.
(r) "Welfare Continuance Benefit" shall mean the benefit provided in Section
5(e).
(s) "Welfare Plan" shall mean any health plan, dental plan, disability plan,
survivor income plan or life insurance plan, as defined in Section 3(1) of
ERISA, currently or hereafter made available by the Corporation in which an
Executive is eligible to participate.
<PAGE>
All references made to the masculine gender are intended to refer equally to the
female gender.
Section 2. Supplemental Retirement Benefits.
(a) Upon a Change of Control, the following provisions shall apply to the
Executives who are Participants in the SRI Plan as of the Change of Control and
who, within 24 months of a Change of Control, terminate employment for Good
Reason or are terminated without Good Cause. All capitalized terms used in this
Section 2(a) shall have the meanings as provided in the SRI Plan.
(i) For purposes of calculating the Regular SRI Benefit, a Participant's age
shall be deemed to be the Participant's actual age plus three (3) years (but not
in excess of age 65) (the "Enhanced Age"), and the Participant's Total Service
shall be deemed to be the Participant's actual Total Service plus three (3)
years (the "Enhanced Service"). The Participant shall be deemed to earn his
Final Compensation for each of the deemed additional three (3) years.
(ii) The Participant shall be entitled to an immediate payment of the Actuarial
Equivalent of his Regular SRI Benefit Plan as adjusted by this Plan and his
Limitation SRI Benefit. Payment shall be made as a single lump sum payment.
(iii) To determine the Actuarial Equivalent of a Participant"s Regular SRI
Benefit, the following provisions shall apply. The Actuarial Equivalent shall be
determined under the provisions of the Retirement Plan relating to the
calculation of lump sum payments. The amount of the Regular SRI Benefit shall be
calculated with the enhancements provided in Section 2(a)(i). The Participant's
benefit shall be deemed to start at: (A) age 65 if the Participant's Enhanced
Service is less than ten (10) years; (B) age 55 if the Participant's Enhanced
Service is ten (10) years or more and Enhanced Age is less than age 55; (C)
immediately if the Participant's Enhanced Service is ten (10) years or more and
Enhanced Age is age 55 or older; and (D) immediately if the Participant's
Enhanced Service is less than ten (10) years and Enhanced Age is age 65 or
older. The Participant's age for purposes of the calculation shall be: (A) the
Participant's actual age if the Participant's Enhanced Service is ten (10) years
or more and Enhanced Age is age 55 or older; (B) the Participant's actual age if
the Participant's Enhanced Age is age 65 or older; and (C) the Participant's
Enhanced Age in all other cases.
(iv) Immediately prior to a Change of Control, the Crown Central Petroleum
Corporation Supplemental Retirement Income Plan For Senior Executives Plan Trust
(the "Trust") shall become effective. The Corporation shall immediately fund the
Trust with an amount equal to then Actuarial Equivalent of the SRI Benefits, as
determined under Section 2(a)(iii), of all Participants in the SRI Plan who are
Executives at the time of the Change of Control. The Corporation will maintain
sufficient assets in the Trust to pay such SRI Benefits for 24 months after the
Change of Control. The Trust shall be funded with cash or cash equivalents other
than stock of the Corporation.
(v) The provisions of Section 6 of the SRI Plan relating to noncompetition shall
not apply.
(b) Upon a Change of Control, the following provisions shall apply to the
Executives who are Participants in the Savings Plan as of the Change of Control
and who, within 24 months of a Change of Control, terminate employment for Good
Reason or are terminated without Good Cause. All capitalized terms used in this
Section 2(b) shall have the meanings as provided in the Supplemental Savings
Plan.
(i) An Executive shall be fully vested in the Participant's Matching Credits
Account.
<PAGE>
(ii) The Corporation shall make an additional contribution to the Participant's
Matching Credits Account in the Supplemental Savings Plan. The additional
contribution shall be equal to three (3) times the sum of the Corporation's
Matching Contributions under the Savings Plan to the Participant plus the
amounts credited to the Participant's Matching Credits Account in the
Supplemental Savings Plan for the calendar year prior to the Change of Control.
Section 3. Annual Incentive Plan.
This Section 3 shall apply to all Executives who are employed on the date of a
Change of Control. Upon any Change of Control, for purposes of the Annual
Incentive Plan for the fiscal year in which the Change of Control occurs, the
Corporation shall be deemed to have achieved the level of performance as to each
Performance Criteria that is the greater of (a) the actual level of performance,
or (b) the level of performance that would result in a 100-percent Performance
Adjustment. Any Executive who is not also employed on the last day of the
calendar year in which the Change of Control occurs shall receive a pro rata
award under the Annual Incentive Plan as adjusted under this Section 3 based on
the portion of the calendar year during which the Executive was employed.
<PAGE>
Section 4. Outplacement Services.
Upon a Change of Control, any Executive who, within 24 months of a Change of
Control, terminates employment for Good Reason or is terminated without Good
Cause shall be entitled to receive complete outplacement services, including job
search and interview skill services. The services shall be provided by a
nationally recognized outplacement organization selected by the Executive with
the approval of the Corporation (which approval shall not be unreasonably
withheld). The services shall be provided for up to 24 months after the
Executive's termination of employment.
Section 5. Benefits Upon Termination of Employment.
(a) Subject to the provisions of section 8, an Executive shall be entitled to a
Salary Continuance Benefit and a Welfare Continuance Benefit if, within 24
months after a Change of Control: (i) the employment of the Executive with the
Corporation is terminated by the Corporation for any reason other than Good
Cause, or (ii) the Executive terminates his employment with the Corporation for
Good Reason.
(b) The Salary Continuance Benefit shall be a lump sum payment equal to three
(3) times the Executive's Final Compensation.
(c) Payment of the Salary Continuance Benefit shall be subject to the following
terms and conditions:
(i) Salary Continuance Benefits shall be made net of all required federal and
state withholdings taxes and similar required withholdings.
(ii) Payment of the Salary Continuance Benefit shall not affect the entitlement
of the Executive or his Beneficiary, or any other person entitled to receive
benefits with respect to the Executive under any Retirement Plan, Welfare Plan,
or other plan or program maintained by the Corporation in which the Executive
participates at the date of termination of employment.
(iii) The Salary Continuance Benefit shall not be affected by any employment
that the Executive may obtain after termination with the Corporation nor
otherwise be subject to mitigation in any respect.
<PAGE>
(d) This subsection shall apply if a Change of Control occurs and a
determination is made that all or a portion of any payment, acceleration or
benefit to the Executive under the Plan (alone or in conjunction with any other
plan, program or policy of the Corporation) in connection with, on account of,
or as a result of, such Change of Control constitutes "excess parachute
payments" as defined in Section 280G of the Code, subject to the excise tax
("Excise Tax") provisions of Section 4999 of the Code, or any successor sections
thereof, or any similar state or local tax. The Executive shall be entitled to
receive from the Corporation, in addition to any other amounts payable
hereunder, a lump sum payment in an amount equal to the Excise Tax imposed on
the Executive. Such amount shall be payable to the Executive as soon as may be
practicable after such final determination is made. All determinations required
under this subsection shall be made by a nationally recognized accounting firm
selected by the Executive with the approval of the Corporation (which approval
shall not be unreasonably withheld). The fees and expenses of the accounting
firm shall be borne by the Corporation.
(e) During the Severance Period, an Executive and his dependents will continue
to be covered by all Welfare Plans in which he and his dependents were
participating immediately prior to the date of his termination (the "Welfare
Continuance Benefit"). Any changes to any Welfare Plan during the Severance
Period shall be applicable to the Executive and his dependents as if he
continued to be an employee of the Corporation. The Corporation will pay the
costs of the Welfare Continuance Benefit for the Executive and his dependents
under the Welfare Plans on the same basis as applicable, from time to time, to
active employees covered under the Welfare Plans. If such participation in any
one or more of the Welfare Plans included in the Welfare Continuance Benefit is
not possible under the terms of the Welfare Plan, the Corporation will provide
substantially identical benefits directly or through another insurance
arrangement. The Welfare Continuance Benefits as to any Welfare Plan will cease
if and when the Executive notifies the Corporation that all or part of the
Welfare Continuance Benefit may be terminated.
Section 6. Death.
If an Executive dies while receiving a Welfare Continuance Benefit, the
Executive's spouse and other dependents shall continue to be covered under all
applicable Welfare Plans during the remainder of the Severance Period.
<PAGE>
Section 7. Determinations of Eligibility.
If an Executive makes a claim for benefits under the Plan and that claim is
denied, the Corporation shall seek legal advice from a special independent
counsel selected by the Executive and approved by the Corporation (which
approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company within the last five (5) years (other than in
connection with this Plan) or for the Executive. Such counsel shall render a
written opinion to the Corporation and Executive as to whether and to what
extent the Executive is entitled to benefits under the Plan. The Corporation
shall indemnify the Executive against any and all expenses (including attorneys'
fees) which are incurred by the Executive in connection with any claim made for
benefits under the Plan that is initially denied by the Corporation and that is
ultimately paid under the Plan.
Section 8. Release of Claims.
In consideration for and as a condition to receiving any payments under this
Plan, the Executive must execute a written release in a form provided by the
Corporation. In addition to any other provisions determined by the Corporation,
the release may provide that the Executive agrees, for himself and his heirs,
representatives, successors and assigns, that the Executive has finally and
permanently separated from employment with the Corporation, and that he waives,
releases and forever discharges the Corporation from any and all claims, known
or unknown, that he has or may have, including but not limited to those relating
to or arising out of his employment with the Corporation and the termination
thereof, including but not limited to any claims of wrongful discharge, breach
of express or implied contract, fraud, misrepresentation, defamation, liability
in tort, any claims under Title VII of the Civil Rights Act of 1964, as amended,
the Age Discrimination in Employment Act, the Employee Retirement Income
Security Act, the Fair Labor Standards Act, or any other federal, state or local
law relating to employment, employee benefits or the termination of employment,
excepting only any claims to vested retirement benefits.
Section 9. No Setoff.
Payment of a Severance Benefit shall be in addition to any other amounts
otherwise payable to the Executive, including any accrued but unpaid vacation
pay. No payments or benefits payable to or with respect to an Executive pursuant
to this Plan shall be reduced by any amount the Executive may owe to the
Corporation (except for amounts owed to the Corporation on account of loans,
travel or standing advances, personal charges on Corporation credit cards or
accounts, or the value of Corporation property not returned to the Corporation),
or by any amount an Executive may earn or receive from employment with another
employer or from any other source.
<PAGE>
Section 10. No Assignment of Benefit.
No interest of any Executive or any Beneficiary under this Plan, or any right to
receive any payment or distribution hereunder, shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment, or other alienation
or encumbrance of any kind, nor may such interest or right to receive a payment
or distribution be taken, voluntarily or involuntarily, for the satisfaction of
the obligations or debts of, or other claims against, the Executive or
Beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
Section 11. Benefits Unfunded.
All rights under this Plan of the Executives and Beneficiaries, shall at all
times be entirely unfunded, and no provision shall at any time be made with
respect to segregating any assets of the Corporation for payment of any amounts
due hereunder except as provided with respect to the SRI Plan. The Executives
and Beneficiaries shall have only the rights of general unsecured creditors of
the Corporation.
Section 12. Applicable Law.
This Plan shall be construed and interpreted pursuant to the laws of the State
of Maryland.
Section 13. No Employment Contract.
Nothing contained in this Plan shall be construed to be an employment contract
between an Executive and the Corporation.
Section 14. Severability.
In the event any provision of this Plan is held illegal or invalid, the
remaining provisions of this Plan shall not be affected thereby.
Section 15. Successors.
The Plan shall be binding upon and inure to the benefit of the Corporation, the
Executives and their respective heirs, representatives and successors.
Section 16. Litigation Expenses.
The Corporation shall pay the litigation expenses, including reasonable
attorneys' fees, incurred by any Executive or Beneficiary in a suit against the
Corporation in which such Executive or Beneficiary successfully sues to enforce
his rights under the Plan.
Section 17. Amendment and Termination.
The Board shall have the right to amend the Plan from time to time and may
terminate the Plan at any time, except as provided below:
(a) No amendment may be made to the Plan and the Plan may not be terminated for
24 months after a Change of Control,
<PAGE>
(b) No amendment or termination shall reduce the benefits payable to an
Executive who is receiving a Severance Benefit, and
(c) No amendment or termination that would adversely affect an Executive shall
be effective with respect to any existing Executive until 24 months after
approval of the amendment or termination by the Board.
EXHIBIT 13.a
LETTER TO THE SHAREHOLDERS:
Crown Central Petroleum Corporation's results for 1998 reflect both the impact
of a global oil glut and a weak operating environment (depressed margins) caused
largely by overcapacity in all segments of the industry. For the full year,
Crown reported a net loss from operating activities of $25 million ($2.54 per
share) and a net loss of $29.4 million ($2.99 per share) after including the
impact of inventory writedowns versus a net profit of $19.2 million ($1.97 per
share) in 1997. Revenues for the two years were $1.3 billion and $1.6 billion,
respectively. The decline in revenues is primarily attributable to a decrease in
the average selling price of finished product.
For the fourth quarter of 1998, Crown reported a net loss from operating
activities of $12.2 million ($1.24 per share) before the impact of inventory
writedowns resulting from the significant decline in crude oil and refined
product prices. Including the inventory writedown of $7.1 million, net loss for
the fourth quarter was $16.6 million ($1.68 per share) on revenues of $285
million, compared to a net loss of $.7 million ($.07 per share) on revenues of
$405 million for the fourth quarter of 1997.
The average thirty day delayed Gulf Coast 3:2:1 crack spread, the industry
benchmark for refining profitability, averaged only $1.89 per barrel in 1998,
$.85 below the 1997 figure and the lowest figure in the 1990's. In the fourth
quarter, the spreads actually declined at a time to below $.50 per barrel. While
this is disappointing, it should be noted that our refining segment margin
performance significantly outperformed the industry benchmark for the quarter.
This was a credit to our operating managers.
Supply and demand for crude oil and refined products are factors largely beyond
our control. In 1998, West Texas Intermediate (WTI), the benchmark used to
measure domestic crude cost, ranged from $17.80 on January 29 to $10.70 on
December 21. This extreme volatility
<PAGE>
makes it all the more critical for Crown to be disciplined yet flexible in
conducting its own day-to-day business.
REFINING
Refining results in 1998 were under extreme pressure as high refinery
utilization rates kept refined product inventories at totals well above levels
previously experienced in the 1990's. This development continues today and
reverses the trend of decreasing year-to-year inventories experienced over the
past five years. The high utilization rates and high inventories have caused a
substantial decline in inventory values and have placed significant pressure on
refining margins.
In October of 1998, the company entered into a processing agreement with Statoil
Marketing and Trading (US) Inc. This two year agreement, which provides for
processing 35,000 barrels per day at the Pasadena refinery, is similar to the
agreement we had with Statoil in 1996-97. The terms of the new agreement provide
for Statoil to deliver crude oil to the refinery in Pasadena, and for a
processing fee, Crown delivers gasoline and heating oil to Statoil. This type of
agreement gives Crown steady cash flow and reduces our investment in inventory.
The Tyler refinery continued to utilize the improvements resulting from the
crude unit turnaround in 1997, processing several grades of crude oils and a
variety of feedstocks. Total throughput at the Tyler plant in 1998 was 7% higher
than the past five year average.
In 1998, the company and the Texas Natural Resource Conservation Commission
(TNRCC) reached an agreement on a program to improve the removal of hydrogen
sulfide from fuel gas and to reduce sulfur dioxide in the sulfur unit
incinerator at the Pasadena refinery. Several improvements have already been
made in conjunction with the TNRCC program over the past 18 months, including
modifications made during the recent maintenance turnaround in the sulfur
recovery unit. The company has continued to improve its record of sulfur removal
at the Pasadena refinery.
<PAGE>
Health and Safety continue to receive much attention at our refineries. At
Pasadena, because of the lockout and our increased reliance on outside contract
assistance, we have formed a Partnership for Safety organization comprised of
representatives from the company and each of the contract groups working in the
plant. This initiative has resulted in a refreshingly candid and
improvement-driven effort to identify potential problems and take appropriate
actions to further enhance safety in the workplace. In Pasadena, our safety
incident rate in 1998 was 15% below the previous three year average and 4% below
the 1997 rate. In Tyler, the incident rate in 1998 was 28% below the 1997 rate
and 14% below the previous three year average.
MARKETING
CrownCen Marketing finished a strong year in which improvements were achieved in
operating performance. Same store merchandise sales showed a 6.6% increase while
merchandise margin dollars were up 4.4%; this after comparable gains in 1997.
Although fuel gallonage was down 2.2% due to less aggressive pricing strategies,
same store net fuel profits increased 13.6% for Crown as motor fuel retail
margins strengthened during 1998 in several of Crown's market areas.
CrownCen's 1998 capital budget expenditures were focused in acquisitions,
rebuilds, car washes and in the Point-Of-Sale (POS) and reimaging programs.
Total store count rose from 339 at the end of 1997 to 348 for the year just
ended. Fourteen brand new sites were opened in Maryland, Virginia and North
Carolina.
CrownCen continues to aggressively pursue its reimaging program designed to
upgrade existing units into an integrated, fresh new "look" with consistent
graphics, canopy colors, interior quality, equipment and merchandise
presentation. A total of 61 units completed the program in 1998. In addition,
ATM facilities are now available in 158 of our locations with 10 more scheduled
for the current year. These provide retail traffic, customer convenience and
rental income for the store location.
<PAGE>
Crown's POS and scanning equipment is providing us with operational benefits
from the standpoint of customers, store employees and retail marketing
management. In 1999, we look forward to obtaining improved retail data analysis
and completing the full integration of the POS system with Crown's corporate
information management systems.
In the past year, CrownCen conducted a detailed retail marketing survey to
establish customer loyalty criteria. While the convenience store industry is in
a constant state of flux, the survey helped determine that customer loyalty can
be built by consistent high standards of attentiveness to product presentation,
customer service, product quality and merchandise selection. This consumer
knowledge promotes more effective use of our marketing resources and promotion
dollars.
Crown's Fleet Fueling program continues to be a generator of new customers by
enhancing offerings to our corporate clients. The Fleet Fueling credit card now
has the added convenience to be used as a telephone calling card.
The challenge of employee retention, especially at the store level, continues to
receive management priority. We seek to identify personnel strategies that
encourage quality employees to commit to long term career opportunities with our
company.
In December, Crown was pleased to announce that it had successfully completed
the replacement/update of 1,100 underground gasoline tanks at a cost of
approximately $20 million. This action was required to comply with EPA
regulations adopted ten years ago. Much of the industry lagged behind, and
Crown's full compliance represents part of our aggressive management commitment
to a cleaner, safer environment.
BPIP
Crown's Business Process Improvement Project (BPIP) continued in 1998 with
successful implementation of the company's asset management, financial
accounting and reporting, and Pasadena Refinery warehouse
<PAGE>
activities on the new system. In 1999, the company expects to implement the
remaining phases of the project which include Wholesale Marketing business
processes, Human Resources/Payroll and integration of the new POS system being
installed in retail locations with our enterprise-wide business software.
Both the BPIP and POS projects have represented a significant investment by the
company in state-of-the-art technology and are key aspects of the company's Year
2000 Compliance program. A more complete Year 2000 Readiness Disclosure can be
found in the attached Form 10-K.
LOCKOUT ACTIVITIES
The lockout of the Oil, Chemical and Atomic Workers (OCAW) union (now known as
the Paper, Allied-Industrial, Chemical & Energy Workers International union
(PACE)) bargaining unit employees at the Pasadena refinery continues. The
lockout was instituted due to pervasive sabotage in the days and weeks
surrounding the contract expiration date and the union's intransigence at the
bargaining table. Finally, when the union announced that it was withdrawing a
24-hour rolling contract extension and could strike at any time without notice,
a lockout was our only reasonable choice. The National Labor Relations Board
(NLRB) has twice upheld the legality of the lockout. Numerous allegations of
unfair labor practices filed by the union in connection with the lockout have
been rejected by the NLRB; one minor part of one charge was settled, but not a
single charge has resulted in the filing of a complaint by that agency.
The company has also been sued by various plaintiffs in three separate law suits
which claim environmental violations, personal injury, property damage and
employment discrimination. It is our considered judgment that these suits have
been instigated and supported by OCAW as part of their "corporate campaign" to
force a settlement of the labor dispute on their terms. The company believes
that the claims of these law suits are without merit and we will vigorously
defend the cases.
<PAGE>
In January 1998, Crown filed two law suits in U.S. District Court for the
Southern District of Texas - Houston Division against OCAW and some of its
members to recover damages for breach of contract and sabotage. These cases are
in the pretrial discovery phase.
In December 1998, five identified OCAW member shareholders filed a so-called
"derivative suit" purporting to represent the company in seeking damages from
the company's directors and some of the officers. The then-president of the OCAW
was present for the press conference held by the plaintiffs' attorney to
announce the filing of the case, and the union has broadcast news of this and
the other lawsuits in numerous press releases, circulars and handouts.
- --------------------------------------------------------------------------------
The focus of the company's government affairs activity in 1998 was on the
impending rule from the EPA establishing reduced sulfur levels in gasoline.
Collectively, the petroleum refining industry proposed to significantly reduce
these levels over the next 8-10 years through a phased-in approach. The company
seeks to ensure that the rule expected in early 1999 allow for the most
cost-effective methods of sulfur reduction and for adequate time to make
necessary expenditures in capital equipment.
Thomas L. Owsley was elected Senior Vice President - Legal. J. Michael Mims was
elected Senior Vice President - Human Resources. Philip A. Millington joined the
company as Vice President - Treasurer. William A. Wolters was elected Senior
Vice President - Supply and Transportation.
On December 31, 1998, Sanford V. Schmidt resigned as a member of the Board of
Directors at the time of the completion of the reorganization of American
Trading & Production Corporation (ATAPCO). Also, Edward L. Rosenberg, Executive
Vice President - Supply and Transportation, resigned to accept the position of
President and CEO of Rosemore, Inc., the Rosenberg family investments unit
resulting
<PAGE>
from the reorganization of ATAPCO. The company wishes them well in their future
endeavors.
Despite the year end results for Crown, I am proud of our performance relative
to our competitors. Crown's unique marketing locations and refining operations
offer an excellent opportunity for positive performance once the price of
petroleum recovers to more normal ranges and value. We will continue to explore
all appropriate avenues to improve our performance and shareholder value.
Our work force continues to handle the many challenges and demands with
professionalism and commitment. The support of our loyal shareholders and Board
of Directors reflects confidence and pride in our company for which as Chairman,
I am exceedingly grateful.
Sincerely,
/s/---Henry A. Rosenberg, Jr.
HENRY A. ROSENBERG, JR.
Chairman of the Board, President
and Chief Executive Officer
March 1, 1999
EXHIBIT 13.b
Crown Central Petroleum Corporation And Subsidiaries
OPERATING RESULTS
<TABLE>
<CAPTION>
Twelve Months Ended December 31
---------------------------------------------
Dollars in thousands, except per share
data 1998 1997 1996
-------------------------------- ------------- -------------- ------------
<S> <C> <C> <C>
Sales and operating revenues (1) $ 1,264,317 $ 1,609,083 $ 1,641,875
(Loss) income before income taxes (45,745) 31,358 (3,423)
Net (loss) income (29,380) 19,235 (2,767)
Net (loss) income per share (2.99) 1.97 (.28)
Net (loss) income per share
assuming dilution (2.99) 1.94 (.28)
Weighted average shares used in the
computation of (loss) income
Per share - Basic 9,832,705 9,752,011 9,721,693
Weighted average shares used in the
computation of (loss) income
Per share - assuming diluation 9,832,705 9,898,904 9,721,693
</TABLE>
<TABLE>
<CAPTION>
KEY FINANCIAL STATISTICS
--------------------------------------------------
1998 1997 1996
------------- -------------- ------------
<S> <C> <C> <C>
Working capital (in millions) $ 18.6 $ 81.3 $ 52.9
Working capital ratio 1.12 : 1 1.47 : 1 1.29 : 1
Liquid assets as a percentage of
Current liabilities (2) 49.7% 80.4% 83.2%
Long-term debt as a percentage of
total capitalization (3) 44.1% 38.4% 40.7%
Equity ratio (4) 34.3% 34.9% 32.8%
Return on average shareholders' equity (15.2%) 9.3 (1.5%)
Gross profit margin (1) 8.6% 10.8% 8.7%
--------------------------------------------------------------------------------
</TABLE>
(1) Sales and operating revenues and Gross profit margin for 1997 and 1996
have been adjusted to reflect certain reclassifications as Discussed in Note
A of Notes to Consolidated Financial Statements.
(2) Liquid assets defined as cash, cash equivalents and trade accounts
receivable.
(3) Total capitalization defined as long-term debt and common stockholders'
equity.
<PAGE>
(4) Common stockholders' equity divided by total assets.
EXHIBIT 13.c
Crown Central Petroleum Corporation
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
JACK AFRICK 2,3,4
President and CEO
North Atlantic Trading Co.
GEORGE L. BUNTING, JR. 2,3
President and CEO
Bunting Management Group
MICHAEL F. DACEY 2
President
Evolution Partners, Ltd., Inc.
THOMAS M. GIBBONS 1,3,4
Retired Chairman of the Board
The Chesapeake and Potomac
Telephone Companies (part of Bell
Atlantic Corporation)
PATRICIA A. GOLDMAN 1
Retirement Senior Vice President
Corporate Communications
USAir
WILLIAM L. JEWS 1
President and Chief Executive Officer
Blue Cross and Blue Shield
of Maryland
REV. HAROLD E. RIDLEY, JR., S.J. 1
President
Loyola College in Maryland
HENRY A. ROSENBERG, JR. 3,5
Chairman of the Board, President and
Chief Executive Officer of the
Corporation
SANFORD V. SCHMIDT
(resigned close of business 12/31/98)
Senior Vice President
and Chief Administrative Officer
American Trading and Production Corporation
1 Members of Executive Compensation
and Bonus Committee
2 Members of Audit Committee
3 Members of Succession Planning Committee
4 Member of Executive Committee
5 Chairman of Executive Committee
OFFICERS
HENRY A. ROSENBERG, JR.
<PAGE>
Chairman of the Board,
President and Chief Executive Officer
RANDALL M. TREMBLY
Executive Vice President
JOHN E. WHEELER, JR.
Executive Vice President,
Chief Financial Officer
FRANK B. ROSENBERG
Senior Vice President - Marketing
THOMAS L. OWSLEY
Senior Vice President - Legal
J. MICHAEL MIMS
Senior Vice President - Human Resources
WILLIAM A. WOLTERS
Senior Vice President - Supply and Transportation
PHILIP A. MILLINGTON
Vice President - Treasurer
PAUL J. EBNER
Vice President - Shared Services
DENNIS W. MARPLE
Vice President - Wholesale Sales
and Terminals
JAMES R. EVANS
Vice President - Retail Marketing
DELORES B. RAWLINGS
Vice President - Secretary
JAN L. RIES
Controller
PHILLIP F. HODGES
Assistant Secretary
ANDREW LAPAYOWKER
Assistant Secretary
JONATHAN E. BLAKISTONE
Assistant Secretary
LAWRENCE BRAGER
Assistant Treasurer
KURT S. LARSEN
Assistant Treasurer
FAST FARE, INC.
FRANK B. ROSENBERG
President
LAGLORIA OIL & GAS COMPANY
RANDALL M. TREMBLY
President
TRANSFER AGENT AND REGISTRAR
Boston Equiserve, Division of
<PAGE>
Equiserve
P. O. Box 8040
Boston, Massachusetts 02266-8040
800-736-3001
Stock listed on American Stock Exchange
symbol: CNPA and CNPB
Internet Access
http://www.prnewswire.com
EXHIBIT 13.d
CORPORATE INFORMATION
Crown Central Petroleum Corporation is one of the largest independent
refiners and marketers of petroleum products in the United States. The
Company operates two high conversion refineries in Texas with a combined
capacity of 152,000 barrels per day. Crown markets its refined products at
343 retail gasoline facilities and convenience stores in seven Mid-Atlantic
and Southeastern states. Crown's wholesale operations extend from its Texas
refineries into the Southeastern, Mid-Atlantic and Midwestern regions of the
United States via 13 product terminals along the Colonial, Plantation and
Texas Eastern Products pipelines.
EXHIBIT 13.e
Crown Central Petroleum Corporation and Subsidiaries
OPERATING STATISTICS
<TABLE>
<CAPTION>
Twelve Months Ended December 31
----------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Combined Refinery Operations
Production (BPD - M) 155 159
Production (Mmbbl) 56.6 58.0
Sales (Mmbbl) 61.4 59.3
Gross Margin ($/bbl) 1.59 2.69
Gross Profit ($MM) 97.6 159.4
Operating Cost ($/bbl) (2.17) (2.25)
Operating Cost ($MM) (133.6) (133.5)
Refining Operating (Loss) Profit ($MM) (36.0) 25.9
Retail
Number Stores 343 336
Volume (pmps - Mgal) 129 132
Volume (MMgal) 529 530
Gasoline Gross Margin ($/gal) 0.125 0.116
Gasoline Gross Profit ($MM) 66.0 61.3
Merchandise Sales (pmps - $M) 27.3 25.7
Merchandise Sales ($MM) 112.4 103.7
Merchandise Gross Margin (%) 31.6 30.4
Merchandise Gross Profit ($MM) 35.5 31.5
Retail Gross Profit ($MM) 101.5 92.8
Retail Operating Costs (pmps - $M) (21.0) (18.7)
Retail Operating Costs ($MM) (86.4) (75.4)
Retail Non-Operating (Expense) ($MM) (0.7) (0.9)
Retail Net Profit ($MM) 14.4 16.5
Wholesale/Terminal Operating (Loss) ($MM) (10.5) (5.3)
Other
LIFO Recovery ($MM) 24.8 27.3
Corporate Overhead ($MM) (25.1) (21.3)
Net Interest (Expense) ($MM) (12.4) (11.5)
Other (Expense) ($MM) (1.0) (0.3)
Income Tax Benefit (Expense) ($MM) 16.4 (12.1)
Total Net (Loss) Income ($MM) (29.4) 19.2
Depreciation and Amortization ($MM) 34.0 31.6
Net Interest Expense ($MM) 12.4 11.5
LIFO (Recovery) ($MM) (24.8) (27.3)
(Gain) Loss from Asset Disposals ($MM) (0.4) 0.4
Income Tax (Benefit) Expense ($MM) (16.4) 12.1
EBITDAAL ($MM) (24.6) 47.5
Capital Expenditures ($MM) 36.2 31.9
</TABLE>
BPD = Barrels per day
bbl = barrel or barrels as applicable
gal = gallon or
<PAGE>
gallons as applicable
pmps = per month per store
M = in thousands
MM = in millions
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 6,930
<SECURITIES> 7,540
<RECEIVABLES> 60,966
<ALLOWANCES> 739
<INVENTORY> 80,104
<CURRENT-ASSETS> 168,828
<PP&E> 668,395
<DEPRECIATION> 362,684
<TOTAL-ASSETS> 521,583
<CURRENT-LIABILITIES> 150,253
<BONDS> 129,899
0
0
<COMMON> 50,268
<OTHER-SE> 128,505
<TOTAL-LIABILITY-AND-EQUITY> 521,583
<SALES> 1,264,317
<TOTAL-REVENUES> 1,264,317
<CGS> 1,155,194
<TOTAL-COSTS> 1,155,194
<OTHER-EXPENSES> 142,857
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 14,740
<INCOME-PRETAX> (45,745)
<INCOME-TAX> (16,365)
<INCOME-CONTINUING> (29,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,380)
<EPS-PRIMARY> (2.99)
<EPS-DILUTED> (2.99)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 5,021
<SECURITIES> 38,565
<RECEIVABLES> 103,267
<ALLOWANCES> 738
<INVENTORY> 109,279
<CURRENT-ASSETS> 261,310
<PP&E> 635,063
<DEPRECIATION> 339,854
<TOTAL-ASSETS> 600,967
<CURRENT-LIABILITIES> 179,985
<BONDS> 127,506
0
0
<COMMON> 50,291
<OTHER-SE> 157,064
<TOTAL-LIABILITY-AND-EQUITY> 600,967
<SALES> 1,609,083
<TOTAL-REVENUES> 1,609,083
<CGS> 1,435,707
<TOTAL-COSTS> 1,435,707
<OTHER-EXPENSES> 130,733
<LOSS-PROVISION> (266)
<INTEREST-EXPENSE> 14,168
<INCOME-PRETAX> 31,358
<INCOME-TAX> 12,123
<INCOME-CONTINUING> 19,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,235
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.94
</TABLE>
