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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-3876
HOLLY CORPORATION
(Exact name of registrant, as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1056913
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 CRESCENT COURT 75201-6927
SUITE 1600 (ZIP CODE)
DALLAS, TEXAS
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (214) 871-3555
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<C> <C>
Common Stock, $.01 Par Value American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On October 10, 1997, the aggregate market value of the Common Stock, par
value $.01 per share, held by non-affiliates of the registrant was $126,000,000.
(This is not to be deemed an admission that any person whose shares were not
included in the computation of the amount set forth in the preceding sentence
necessarily is an "affiliate" of the registrant.)
8,253,514 shares of Common Stock, par value $.01 per share, were
outstanding on October 10, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's proxy statement for its annual meeting of
stockholders in December 1997, which proxy statement will be filed with the
Securities and Exchange Commission within 120 days after July 31, 1997, are
incorporated by reference in Part III.
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ANNUAL REPORT ON FORM 10-K
OF HOLLY CORPORATION
FISCAL YEAR ENDED JULY 31, 1997
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 Form
10-K, including without limitation those under "Markets and Competition" under
Items 1 and 2 and "Liquidity and Capital Resources" and "Additional Factors that
May Affect Future Results" under Item 7 regarding the Company's financial
position and results of operations, are forward-looking statements. Such
statements are subject to risks and uncertainties, including but not limited to
risks and uncertainties with respect to the actions of actual or potential
competitive suppliers of refined petroleum products in the Company's markets,
the demand for and supply of crude oil and refined products, the spread between
market prices for refined products and crude oil, the possibility of constraints
on the transportation of refined products, the possibility of inefficiencies or
shutdowns in refinery operations, governmental regulations and policies, the
availability of financing to the Company on favorable terms, the effectiveness
of Company capital investments and marketing strategies, and completion of
capital projects associated with the recently announced alliance with FINA, Inc.
Should one or more of these risks or uncertainties, among others as set forth in
this Form 10-K, 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 Form 10-K,
including without limitation in conjunction with the forward-looking statements
included in this Form 10-K that are referred to above. All forward-looking
statements included in this 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.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Holly Corporation, including its consolidated and wholly-owned
subsidiaries, herein referred to as the "Company" unless the context otherwise
indicates, is an independent refiner of petroleum and petroleum derivatives and
produces high value light products such as gasoline, diesel fuel and jet fuel
for sale primarily in the southwestern United States and northern Mexico. Navajo
Refining Company ("Navajo"), one of the Company's wholly-owned subsidiaries,
owns a high-conversion petroleum refinery in Artesia, New Mexico, which Navajo
operates in conjunction with crude, vacuum distillation and other facilities
situated 65 miles away in Lovington, New Mexico (collectively, the "Navajo
Refinery"). The Navajo Refinery has a crude capacity of 60,000 barrels-per-day
("BPD") and can process a variety of high sulphur (sour) crude oils. The Company
also owns Montana Refining Company, a Partnership ("MRC"), which owns a 7,000
BPD petroleum refinery near Great Falls, Montana ("Montana Refinery"), which can
process a variety of high sulfur crude oils and which primarily serves the State
of Montana.
In addition to its refining operations, the Company also conducts a
small-scale oil and gas exploration and production program.
The Company was incorporated in Delaware in 1947.
The following table sets forth certain information about the refinery
operations of the Company during the last five fiscal years:
<TABLE>
<CAPTION>
Years ended July 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
Refinery production (BPD)(1)................... 68,600 68,400 68,100 64,300(2) 65,300
Crude charge (BPD) (3)......................... 65,625 65,446 65,636 60,911(2) 62,115
Refinery utilization(4)........................ 97.9% 97.7% 98.0% 90.9%(2) 92.7%
Average per barrel:
Net sales.................................... $ 28.23 $ 26.04 $ 24.02 $22.88 $ 25.43
Raw material costs(5) ....................... 23.24 20.71 19.02 16.99 20.10
------- ------- -------- ------ -------
Gross margin................................. $ 4.99 $ 5.33 $ 5.00 $ 5.89 $ 5.33
======= ======= ======== ====== =======
Product sales (percent of total sales volume)(6):
Gasolines.................................... 54.2% 55.4% 55.5% 54.5% 52.0%
Diesel fuels................................. 23.1 21.3 20.1 20.1 23.6
Jet fuels.................................... 9.6 10.2 11.3 11.7 10.4
Asphalt...................................... 9.0 8.5 8.4 9.4 9.8
LPG and other................................ 4.1 4.6 4.7 4.3 4.2
------- ------- -------- ------ -------
Total.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======== ====== =======
</TABLE>
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(1) Barrels per calendar day of refined products produced from crude oil and
other raw materials.
(2) Refinery production, crude charge and utilization rates were reduced as a
result of a scheduled turnaround for major maintenance at the Navajo
Refinery.
(3) Barrels per day of crude oil processed.
(4) Crude charge divided by crude capacity.
(5) Includes cost of refined products purchased for resale.
(6) Includes refined products purchased for resale representing 3.1%, 2.4%,
2.3%, 3.9% and 3.2%, respectively, of total sales volume for the periods
shown in the table above.
NAVAJO REFINING COMPANY
FACILITIES
The Navajo Refinery's crude capacity is 60,000 BPD and it has the ability
to process a variety of sour crude oils into high value light products (such as
gasoline, diesel fuel and jet fuel).
For the last three fiscal years, sour crude oils have represented
approximately 85% of the crude oils processed by the Navajo Refinery. The Navajo
Refinery's processing capabilities enable management to vary its crude supply
mix to take advantage of changes in raw material prices and to respond to
fluctuations in the availability of crude oil supplies. The Navajo Refinery
converts approximately 90% of its raw materials throughput into high value light
products. For fiscal 1997, gasoline, diesel fuel and jet fuel (including volumes
purchased for resale) represented 55.8%, 22.7%, and 9.9%, respectively, of
Navajo's sales volume.
The following table sets forth certain information concerning the
operations of Navajo during the last five fiscal years:
<TABLE>
<CAPTION>
Years ended July 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Refinery production (BPD)(1)................... 62,200 61,800 61,900 57,400(2) 58,600
Crude charge (BPD) (3)......................... 59,530 59,022 59,614 54,089(2) 55,488
Refinery utilization(4)........................ 99.2% 98.4% 99.4% 90.1%(2) 92.5%
Average per barrel:
Net sales.................................... $ 28.09 $ 25.91 $ 23.90 $ 22.63 $ 25.39
Raw material costs(5) ....................... 23.36 20.79 19.13 17.20 20.26
------- ------- ------- ------- -------
Gross margins................................ $ 4.73 $ 5.12 $ 4.77 $ 5.43 $ 5.13
======= ======= ======= ======= =======
</TABLE>
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(1) Barrels per calendar day of refined products produced from crude oil and
other raw materials.
(2) Refinery production, crude charge and utilization rates were reduced as a
result of a scheduled turnaround for major maintenance.
(3) Barrels per day of crude oil processed.
(4) Crude charge divided by crude capacity.
(5) Includes cost of refined products purchased for resale.
Navajo's Artesia facility is located on a 300-acre site and has fully
integrated crude, fluid catalytic cracking ("FCC"), vacuum distillation,
alkylation, hydrodesulfurization, isomerization and reforming units, and
approximately 1.5 million barrels of feedstock and product tank storage, as well
as other supporting units and office buildings at the site. The Artesia
facilities are operated in conjunction with integrated refining facilities
located in Lovington, New Mexico, approximately 65 miles east of Artesia. The
principal equipment at Lovington consists of a crude unit and an associated
vacuum unit. The Lovington facility processes crude oil into intermediate
products, which are transported to Artesia by means of a Company-owned
eight-inch pipeline.
The Company's 500 miles of crude gathering pipelines lead to the Artesia
and Lovington facilities from various points in southeastern New Mexico. The
Company distributes refined products from the Navajo Refinery to its principal
markets primarily through two Company-owned pipelines which extend from Artesia
to El Paso. The Company has product storage at terminals in Tucson, Albuquerque,
Artesia and El Paso in which the Company has 50% or greater interests.
MARKETS AND COMPETITION
The Navajo Refinery primarily serves the growing southwestern United States
market, including El Paso, Albuquerque, Phoenix and Tucson, and the northern
Mexico market. The Company's products are shipped by pipeline from El Paso to
Albuquerque via a products pipeline system owned by Chevron Pipeline Company and
from El Paso to Tucson and Phoenix via a products pipeline system owned by Santa
Fe Pacific Pipeline.
The petroleum refining business is highly competitive. Among the Company's
competitors are some of the world's largest integrated petroleum companies,
which have their own crude oil supplies, distribution and marketing systems. The
Company competes with independent refiners as well. Competition in particular
geographic markets is affected primarily by the amounts of refined products
produced by refineries located in such markets and by the availability of
refined products and the cost of transportation to such markets from refineries
located outside those markets.
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Ultramar Diamond Shamrock Corporation, an independent refiner and marketer,
operates a 409-mile, 10" refined products pipeline, which was completed in
November 1995, from its McKee refinery near Dumas, Texas to El Paso. According
to Ultramar Diamond Shamrock, this pipeline had an initial capacity of 27,000
BPD and has a current capacity of 45,000 BPD, and the pipeline is intended to
supply fuels to the El Paso, New Mexico, Arizona and northern Mexico markets.
This pipeline has increased and could further increase the supply of products in
the Company's principal markets.
Phillips Petroleum Company announced that it plans to construct a new
pipeline and modify an existing pipeline to carry petroleum products from its
Borger, Texas refinery to markets in El Paso, Texas and Arizona. The project
involves reversing and converting an existing 8" natural gas liquids pipeline
that extends from Borger to Gaines, Texas, constructing a new 220-mile, 10"
pipeline from Gaines to El Paso and building a new terminal at El Paso. Phillips
announced that it expects to complete the project in late 1998. This project
could also increase the supply of products in the Company's principal markets.
According to an October 1997 announcement by Longhorn Partners Pipeline,
L.P. (a partnership composed of affiliates of Exxon Pipeline Company, Amoco
Pipeline Company, Williams Energy Group, The Beacon Group Energy Investment
Fund, L.P. and Axis Gas Corporation), Longhorn will begin immediately the
construction of a pipeline for the transportation of petroleum products from
Gulf Coast refineries to El Paso. According to the announcement, the 18"-20"
pipeline from Houston to terminals in Midland and El Paso is scheduled to be
fully operational by late 1998 and is designed to have an ultimate capacity of
225,000 BPD. If the project is completed as described in the announcement, the
new pipeline will significantly increase the potential supply of products in the
Company's current principal markets that are served from El Paso.
In addition to the projects described above, other projects have been
explored from time to time by refiners and other entities, which projects, if
consummated, could result in a further increase in the supply of products to
some or all of the Company's markets.
Although not currently a problem, at times in the past the common carrier
pipelines used by the Company to serve the Arizona and Albuquerque markets have
been operated at or near capacity and have been subject to periods of proration.
As a result, the volumes of refined products that the Company and other shippers
have been able to deliver to these markets have at times been limited. In
particular, the flow of additional products into El Paso for shipments to
Arizona, either as a result of the new Ultramar Diamond Shamrock pipeline or
otherwise, could result in the reoccurrence of such constraints on deliveries to
Arizona. In July 1993, the Company entered into a settlement agreement regarding
this Arizona pipeline system. Under the agreement, the occurrence of certain
defined events will require increases in the capacity of the pipeline system. It
is anticipated that this settlement lessens, at least in the foreseeable future,
the likelihood of prolonged constraints on the movement of the Company's
products into Arizona. However, no assurances can be given that the Company will
not experience future constraints on its ability to deliver its products through
the pipelines to Arizona. In case of the Albuquerque market, the common carrier
pipeline used by the Company to serve this market currently operates at or near
capacity with resulting limitations at times on the amount
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of refined products that the Company and other shippers can deliver. As
discussed below (see "Capital Improvement Projects"), the Company has recently
entered into a Lease Agreement (the "Lease Agreement") with Mid-America Pipeline
Company and is currently constructing a new connecting pipeline and related
terminalling facilities. When completed, this project will allow the Company to
transport products directly to Albuquerque on the leased pipeline, thereby
eliminating by the end of the 1998 fiscal year the risk of future pipeline
constraints on shipments to Albuquerque. Any future constraints on the Company's
ability to transport its refined products could, if sustained, adversely affect
the Company's results of operations and financial condition.
An additional factor that could affect the Company's market, there is
excess pipeline capacity from the West Coast into the Company's Arizona markets.
To the extent additional West Coast products are available, there can be no
assurance that West Coast refiners will not seek to increase shipments of
refined products into the Company's markets through existing pipelines, new
pipelines or otherwise.
Recently there have been several refining and marketing consolidations or
acquisitions between entities competing in the Company's geographic market.
While these transactions could increase the competitive pressures on the
Company, the specific ramifications of these or other potential consolidations
cannot presently be determined. In one such transaction, Tosco Corporation
recently purchased from Unocal all of the operating assets of 76 Products
Company, Unocal's West Coast refining and marketing division. In fiscal 1997,
the Company's combined sales to Tosco Corporation and its affiliates amounted to
approximately 22% of the Company's total sales.
CRUDE OIL AND FEEDSTOCK SUPPLIES
The Navajo Refinery is situated near the Permian Basin in an area which
historically has had abundant supplies of crude oil available both for regional
users, such as the Company, and for export to other areas. The Company purchases
crude oil from producers in nearby southeastern New Mexico and west Texas, from
major oil companies and on the spot market. Crude oil is gathered both through
the Company's pipelines and tank trucks and through third party crude oil
pipeline systems. Crude oil acquired in locations distant from the refinery is
exchanged for crude oil that is transportable to the refinery.
PRINCIPAL PRODUCTS AND MARKETS
The Navajo Refinery converts approximately 90% of its raw materials
throughput into high value light products. Set forth below is certain
information regarding the principal products of Navajo during the last five
fiscal years:
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<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- -------------- --------------- -------------- --------------
BPD % BPD % BPD % BPD % BPD %
------ --- ------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Product sales (percent of
total sales volumes)(1)
Gasolines ............... 34,800 55.8% 36,000 56.9% 36,400 57.8% 33,200 56.5% 32,600 53.4%
Diesel fuels ............ 14,200 22.7 13,000 20.6 12,300 19.5 11,600 19.7 14,500 23.7
Jet fuels ............... 6,200 9.9 6,600 10.4 6,900 11.0 6,500 11.1 5,900 9.7
Asphalt ................. 4,600 7.4 4,700 7.4 4,500 7.1 4,900 8.3 5,500 9.0
LPG and other ........... 2,600 4.2 3,000 4.7 2,900 4.6 2,600 4.4 2,600 4.2
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
62,400 100% 63,300 100% 63,000 100% 58,800 100% 61,100 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
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(1) Includes refined products purchased for resale representing 2.3%, 1.8%,
1.9%, 4.0% and 3.2%, respectively, of total sales volume for the periods
shown in the table above.
Light products are shipped by product pipelines or are made available at
distant points by exchanges with others. Light products are also made available
to customers through truck loading facilities at the refineries and at
terminals. The demand for the Company's gasoline and asphalt products has
historically been stronger from March through October, which are the peak
"driving" and road construction months, than during the rest of the year.
Navajo's principal customers for gasoline include other refiners,
convenience store chains, independent marketers, an affiliate of PEMEX (the
government-owned energy company of Mexico) and retailers. Navajo's gasoline is
marketed in the southwestern United States, including the metropolitan areas of
El Paso, Phoenix, Albuquerque, and Tucson, and in portions of northern Mexico.
Diesel fuel is sold to other refiners, wholesalers, independent dealers and
railroads. Jet fuel is sold primarily for military use. Military jet fuel is
sold to the Defense Fuel Supply Center (the "DFSC") of the Defense Logistics
Agency under a series of one-year contracts that can vary significantly from
year to year. Navajo sold approximately 6,100 BPD of jet fuel to the DFSC in its
1997 fiscal year and has a contract to supply 7,500 BPD to the DFSC for the year
ending September 30, 1998. Asphalt is sold to contractors and government
authorities for highway construction and maintenance. Carbon black oil is sold
for further processing and LPGs are sold to petrochemical plants and are used as
fuel in refinery operations.
Approximately 10% of the Company's revenues for fiscal 1997 resulted from
the sale of military jet fuel to the United States government. Although there
can be no assurance that the Company will be awarded such contracts in the
future, the Company has had a supply contract with the United States government
for each of the last 28 years. Approximately 10% of the Company's revenues for
fiscal 1997 resulted from the sale for export of gasoline and diesel fuel to an
affiliate of PEMEX. Those sales were made under contracts that expire in the
next two years. The loss of the Company's supply contract with the United States
government or with PEMEX could have a material adverse effect on the Company's
results of operations. In
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addition to the United States Government and PEMEX, another refiner, Tosco
Corporation and its affiliates, which is a purchaser of gasoline and diesel fuel
for resale to retail customers, accounted for approximately 22% of the Company's
revenues in fiscal 1997. While a loss of, or reduction in amounts purchased by,
major purchasers that resell to retail customers could have an adverse effect on
the Company, the Company believes that the impact of such a loss on the
Company's results of operations should be limited because the Company's sales
volumes with respect to products whose end-users are retail customers is more
dependent on general retail demand and product supply in the Company's primary
markets than on sales to any specific purchaser.
CAPITAL IMPROVEMENT PROJECTS
As part of its efforts to improve operating efficiencies, the Company is in
the process of enhancing the Navajo Refinery by the recent addition of an
isomerization unit and its current upgrading of the FCC unit.
The isomerization unit, which was completed in February 1997, increases the
refinery's internal octane generating capabilities, thereby improving light
product yield and increasing the refinery's ability to upgrade additional
amounts of lower priced purchased natural gasoline into finished gasoline. The
other significant project is a revamp of the refinery's FCC unit. This revamp,
which is being implemented during the Navajo Refinery's scheduled turnaround in
the first quarter of fiscal 1998, will improve the yield of high value products
from the FCC unit by incorporating certain state-of-the-art upgrades. The total
estimated costs of these two projects is $15 million, of which $3 million will
be spent in early fiscal 1998.
The Company has entered into an agreement with Mid-America Pipeline Company
to lease more than 300 miles of 8" pipeline running from Chavez County to San
Juan County, New Mexico (the Leased Pipeline). The Company is in the process of
constructing a 12" pipeline, from the Navajo Refinery to the Leased Pipeline,
and related terminalling facilities. These facilities will allow the Company to
use the Leased Pipeline to transport refined products from the Navajo Refinery
to markets in northwest New Mexico. The Leased Pipeline and related facilities
are projected to be operational near the end of fiscal 1998. The total estimated
cost of this project is $17 million, of which $14 million will be spent in
fiscal 1998.
The Company has a 25% interest in a pipeline joint venture with Mid-America
Pipeline Company and Amoco Pipeline Company to transport liquid petroleum gases
to Mexico. Deliveries by the joint venture began in April 1997. For the Company,
the project involved the construction of a new 12" pipeline from Orla to El
Paso, Texas, which was completed in October 1996 and which replaced a portion of
an 8" pipeline previously used by Navajo that was transferred to the joint
venture. The Company's total net cash investment in these projects (in addition
to the contribution of the existing 8" pipeline to the joint venture) was $8
million, including a cash investment in the joint venture of $4.1 million.
The additional pipeline capacity resulting from the new pipelines
constructed in conjunction with the joint venture and resulting from the Leased
Pipeline and related pipeline and terminalling facilities should reduce pipeline
operating expenses at current throughputs. In
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addition, the new pipeline capacity would allow the Company to increase volumes,
through refinery expansion or otherwise, that are shipped into existing and new
markets and could allow the Company to shift volumes among markets in response
to any future increased competition in particular markets.
The Company announced in February 1997 the formation of an alliance with
FINA, Inc. to create a comprehensive supply network that can increase
substantially the supplies of gasoline and diesel in the West Texas, New Mexico,
and Arizona markets to meet expected increasing demand in coming years. When
fully operational, the system will have the capacity to provide up to 155,000
barrels of refined products per day to these Southwest and other markets. The
project will utilize existing assets. FINA's bi-directional Amdel Pipeline could
be converted, when needed, from the transportation of crude oil to transport up
to 50,000 barrels per day of refined products from FINA's Port Arthur Refinery
on the Gulf Coast while 45,000 barrels per day can be shipped from FINA's Big
Spring Refinery. In addition, the Navajo Refinery will continue to provide
60,000 barrels per day of refined products. FINA will construct a 50-mile
extension of its Amdel Pipeline from Wink, Texas to the Company's pipeline
station at Orla, Texas, from which FINA will be able to transport up to 20,000
barrels per day on the Company's recently completed 12" pipeline to El Paso
under the terms of a long-term agreement between FINA and the Company. In New
Mexico, the completion by the Company of the 12" inch pipeline from the Navajo
Refinery to the Leased Pipeline will then provide direct transportation service
to Albuquerque and northwest New Mexico. The alliance will provide product
supply along the full extent of this system, from Bloomfield in northwest New
Mexico, east to Duncan, Oklahoma, and south to El Paso. This pipeline system,
along with Ultramar Diamond Shamrock's recently completed El Paso area pipeline
expansion should provide sufficient supply to fully utilize all existing common
carrier pipelines which transport products from El Paso to New Mexico, Arizona
and Mexico. It is anticipated that this pipeline network should be fully
operational by August 1998, at which time the Company will begin to realize
pipeline and terminalling revenues from FINA under the terms of the agreement.
In addition to the above-mentioned capital improvement products, the
Company's 1998 capital budget calls for approximately $7 million of capital
expenditures for various refinery improvements and environmental and safety
enhancements for the Navajo Refinery and approximately $10 million of capital
expenditures for various pipeline and transportation projects.
MONTANA REFINING COMPANY
MRC owns a 7,000 BPD petroleum refinery near Great Falls, Montana, which
can process a wide range of crude oils and which serves primarily the State of
Montana. For the last three fiscal years, excluding downtime for scheduled
maintenance and turnarounds, the Montana Refinery has operated at an average
annual crude capacity utilization rate of approximately 94%.
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The following table sets forth certain information regarding the principal
products of MRC during the last five years:
<TABLE>
<CAPTION>
Years ended July 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
BPD % BPD % BPD % BPD % BPD %
----- --- ----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Product sales (percent of
total sales volumes)(1)
Gasolines ............. 2,700 39.1% 2,900 40.3% 2,400 35.3% 2,700 38.6% 2,700 39.1%
Diesel fuels .......... 1,700 24.6 2,000 27.8 1,700 25.0 1,700 24.3 1,600 23.2
Jet fuels ............. 500 7.3 500 6.9 1,100 16.2 1,100 15.7 1,200 17.4
Asphalt ............... 1,700 24.6 1,500 20.8 1,300 19.1 1,300 18.6 1,200 17.4
LPG and other ......... 300 4.4 300 4.2 300 4.4 200 2.8 200 2.9
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
6,900 100% 7,200 100% 6,800 100% 7,000 100% 6,900 100%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
</TABLE>
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(1) Includes refined products purchased for resale representing 12.2%, 7.5%,
6.5%, 3.4% and 3.2%, respectively, of total sales volume for the periods
shown in the table above.
The Montana Refinery obtains its supply of crude oils primarily from
suppliers in Canada via a 93-mile Company-owned pipeline, which runs from the
Canadian border. The Montana Refinery's principal markets include Great Falls,
Helena, Bozeman and Billings, Montana. MRC competes principally with three other
Montana refineries.
JET FUEL TERMINAL
The Company owns and operates a 120,000 barrel capacity jet fuel terminal
near Mountain Home, Idaho, which serves as a terminalling facility for jet fuel
sold by unaffiliated producers to the Mountain Home United States Air Force
Base.
NAVAJO WESTERN ASPHALT COMPANY
Navajo Western Asphalt Company, a wholly-owned subsidiary of the Company,
owns and operates an asphalt marketing facility near Phoenix. The Company has
recently completed in fiscal 1995 construction of asphalt processing and storage
facilities that has allowed it to expand this operation. In addition to
marketing asphalt produced at the Navajo Refinery, Navajo Western markets
asphalt obtained from third parties.
EXPLORATION AND PRODUCTION
The Company contracts with an independent oil and gas consulting group to
identify oil and gas exploration and production projects for the Company. The
scope of this activity is presently modest relative to the Company's refining
operations. For fiscal 1998, the Company has budgeted approximately $3 million
for capital expenditures related to oil and gas exploration activities.
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EMPLOYEES AND LABOR RELATIONS
The Company has approximately 572 employees. Of its employees, 220 are
covered by collective bargaining agreements ("covered employees"). Contracts
relating to the covered employees at all facilities were negotiated during 1996
and will expire in 1999. The Company considers its employee relations to be
good.
REGULATION
Refinery operations are subject to federal, state and local laws regulating
the discharge of matter into the environment or otherwise relating to the
protection of the environment. Over the years, there have been and continue to
be ongoing communications, including notices of violations, and discussions
about environmental matters between the Company and federal and state
authorities, some of which have resulted or will result in changes of operating
procedures and in capital expenditures by the Company. Compliance with
applicable environmental laws and regulations will continue to have an impact on
the Company's operations, results of operations and capital requirements.
Effective January 1, 1995, certain cities in the country were required to
use only reformulated gasoline ("RFG"), a cleaner burning fuel. Phoenix is the
only principal market of the Company that currently requires RFG although this
requirement could be implemented in other markets over time. Phoenix is
presently considering implementing even more rigorous fuel specifications.
Further, other requirements of the Clean Air Act, or other presently existing or
future environmental regulations, could cause the Company to expend substantial
amounts at its refineries. The specifics and extent of these or other
regulations and their attendant costs are not presently determinable.
The Company is and has been the subject of various state, federal and
private proceedings relating to environmental regulations, conditions and
inquiries. The most significant of these is the enforcement action which has
been brought by the United States Department of Justice ("DOJ"), on behalf of
the EPA, and which is discussed in the Management's Discussion and Analysis of
Financial Condition and Results of Operations and in Note 11 to the Consolidated
Financial Statements. In addition to the expenditures that have been and will be
incurred in connection with a resolution of this matter, current and future
environmental regulations inevitably will require other expenditures, including
remediation, at the New Mexico and Montana refineries. The extent of any such
expenditures cannot presently be determined.
The Company's operations are also subject to various laws and regulations
relating to occupational health and safety. The Company maintains safety,
training and maintenance programs as part of its ongoing efforts to ensure
compliance with applicable laws and regulations. Moreover, recently enacted
comprehensive health and safety legislation have required and continue to
require substantial expenditures.
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<PAGE> 13
INSURANCE
The Company's operations (including its limited exploration and production
activities) are subject to normal hazards of operations, including fire,
explosion and weather-related perils. The Company maintains various insurance
coverages, including business interruption insurance, subject to certain
deductibles. The Company is not fully insured against certain risks because such
risks are not fully insurable, coverage is unavailable or premium costs, in the
judgment of the Company, do not justify such expenditures.
ITEM 3. LEGAL PROCEEDINGS
In July 1993, the DOJ, acting on behalf of the EPA, filed a complaint in
the United States District Court for the District of New Mexico alleging that
Navajo, beginning in September 1990 and continuing until the present, had
violated and continues to violate RCRA and implementing regulations of the EPA
by treating, storing and disposing of certain hazardous wastes without necessary
authorization and without compliance with regulatory requirements. The complaint
seeks a court order directing Navajo to comply with these regulatory standards
and civil penalties for the alleged non-compliance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 11 to
the Consolidated Financial Statements.
The Company is a party to various other litigation and proceedings which it
believes, based on advice of counsel, will not have a materially adverse impact
on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's 1997 fiscal year.
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<PAGE> 14
Executive Officers of Registrant (per instruction 3 to Item 401(b) of Regulation
S-K)
The executive officers of the Company as of October 21, 1997 are as
follows:
<TABLE>
<CAPTION>
Executive
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Lamar Norsworthy 51 Chairman of the Board 1971
and Chief Executive Officer
Matthew P. Clifton 46 President and Director 1988
Jack P. Reid 61 Executive Vice President, 1976
Refining and Director
William J. Gray 56 Senior Vice President, 1976
Marketing and Supply
and Director
David G. Blair 39 Vice President, Marketing 1994
Asphalt and LPG
Christopher L. Cella 40 Vice President, General 1990
Counsel and Secretary
Randall R. Howes 40 Vice President, Engineering 1997
and Economics
John A. Knorr 47 Vice President, Crude Oil 1988
Supply and Trading
Virgil R. Langford 52 Vice President, Refining 1989
Mike Mirbagheri 58 Vice President, International 1982
Crude Oil and Refined
Products
Richard J. Neville 51 Vice President, Finance 1997
Henry A. Teichholz 54 Vice President, Treasurer 1984
and Controller
James G. Townsend 42 Vice President, Pipelines and Terminals 1997
Gregory A. White 40 Vice President, Marketing 1994
Light Oils
</TABLE>
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<PAGE> 15
In addition to the persons listed above, Kathryn Walker, age 47, was
appointed Controller of Navajo Refining Company in August 1993; prior thereto
she served from 1985 as Assistant Controller of Navajo.
All officers of the Company are elected annually to serve until their
successors have been elected. Mr. Norsworthy occupied the additional office of
President from 1988 to 1995. Mr. Clifton previously served as Senior Vice
President from 1991 to 1995. Mr. Cella has occupied the additional office of
Secretary since December 1994. Mr. Knorr is also President of one of the
partners of MRC and serves as the General Manager of MRC. Messrs. Blair and
White were elected to their respective positions in September 1994. Mr. Blair
has served as Marketing Manager of Asphalt and LPG of Navajo since 1989 and
previously held various marketing and supply positions. Mr. White has served as
Marketing Manager of Light Oils of Navajo since 1989 and previously held various
marketing and supply positions. Mr. Neville was elected Vice President, Finance
in January 1997 and previously was Vice President and Treasurer of Ultramar
Corporation (petroleum refining and marketing company) from 1993 to 1996 and
Vice President and Treasurer of Lone Star Industries (manufacturer of cement,
concrete and aggregate products) from 1986 to 1993. Messrs. Howes and Townsend
were elected to their respective positions in September 1997. Mr. Howes has
served as Manager of Technical Services of Navajo since 1991 and previously held
various engineering, operations and maintenance positions. Mr. Townsend has
served as Manager of Transportation of Navajo since 1995 and previously held
various transportation/pipeline positions.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock is traded on the American Stock Exchange under
the symbol "HOC". The following table sets forth the range of the daily high and
low sales prices per share of common stock, dividends paid per share and the
trading volume of common stock for the periods indicated:
<TABLE>
<CAPTION>
Total
Fiscal years ended July 31 High Low Dividends Volume
-------------------------- ---- --- --------- ------
<S> <C> <C> <C> <C>
1996
First Quarter................ $23 3/8 $21 1/2 $.10 820,200
Second Quarter............... 23 3/8 21 1/4 .10 374,100
Third Quarter................ 27 1/4 21 1/2 .10 655,700
Fourth Quarter............... 28 1/8 24 1/2 .12 442,600
1997
First Quarter................ $29 5/8 $24 3/4 $.12 286,700
Second Quarter............... 28 24 .12 621,500
Third Quarter................ 27 1/4 23 1/8 .12 338,600
Fourth Quarter............... 27 1/4 24 3/16 .15 1,314,900
</TABLE>
As of July 31, 1997, the Company had approximately 2,000 stockholders of
record.
On September 26, 1997, the Company's Board of Directors declared a regular
quarterly dividend in the amount of $.15 per share payable on October 24, 1997.
The Company intends to consider the declaration of a dividend on a quarterly
basis, although there is no assurance as to future dividends since they are
dependent upon future earnings, capital requirements, financial condition of the
Company and other factors. The Senior Notes and credit agreement limit the
payment of dividends. See Note 6 to the Consolidated Financial Statements.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table shows selected financial information for the Company as of
the dates or for the periods indicated. This table should be read in conjunction
with the consolidated financial statements of the Company and related notes
thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
($ in thousands, except per share amounts)
Years ended July 31, 1997 1996 1995 1994 1993
- - --------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
For the year
Revenues.................................... $721,346 $676,290 $614,830 $552,320 $630,621
Income before income taxes and
cumulative effect of
accounting change......................... $ 21,819 $ 31,788 $ 20,147 $ 35,002 $ 33,317
Income tax provision........................ 8,732 12,554 7,730 14,285 13,384
--------- --------- --------- --------- ---------
Income before cumulative effect
of accounting change..................... 13,087 19,234 12,417 20,717 19,933
Cumulative effect of
accounting change........................ - - 5,703 - (958)
--------- --------- --------- --------- ---------
Net income.................................. $ 13,087 $ 19,234 $ 18,120 $ 20,717 $ 18,975
========= ========= ========= ========= =========
Income per common share
Income before cumulative
effect of accounting
change................................ $ 1.59 $ 2.33 $ 1.51 $ 2.51 $ 2.42
Cumulative effect of
accounting change..................... - - .69 - (.12)
--------- --------- --------- --------- ---------
Net income............................... $ 1.59 $ 2.33 $ 2.20 $ 2.51 $ 2.30
========= ========= ========= ========= =========
Cash dividends per common
share.................................... $ .51 $ .42 $ .40 $ .35 $ .30
Average number of shares of
common stock outstanding................. 8,254,000 8,254,000 8,254,000 8,254,000 8,254,000
Net cash provided by
operating activities....................... $ 5,457 $ 44,452 $ 34,241 $ 27,684 $ 38,737
At end of year.................................
Working capital............................. $ 45,241 $ 66,649 $ 17,740 $ 18,236 $ 12,145
Total assets................................ $349,803 $351,271 $287,384 $281,814 $249,807
Long-term debt (including
current portion)......................... $ 86,291 $ 97,065 $ 68,840 $ 74,448 $ 80,056
Stockholders' equity........................ $105,121 $ 96,243 $ 80,043 $ 64,772 $ 46,478
</TABLE>
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1997 Compared To 1996
For the 1997 fiscal year, net income was $13.1 million as compared to $19.2
million, for fiscal 1996. The decrease in earnings for the fiscal year ended
July 31, 1997, was principally due to reductions in refining margins in the
fourth quarter of the current fiscal year, as compared to the prior year. The
Company's refining margins are greatly influenced by West Coast prices which
were low relative to other parts of the country. Since the end of the current
fiscal year, refinery margins have improved considerably. Fiscal 1998's first
quarter production levels, however, will be impacted by major maintenance (a
turnaround) at the Company's Navajo facilities. For the 1997 fiscal year,
revenues were higher due principally to overall increases in selling prices from
the prior year.
1996 Compared To 1995
Net income for the 1996 fiscal year was $19.2 million as compared to $18.1
million, which included a gain of $5.7 million for an accounting change, in
fiscal 1995.
The increase in net income for fiscal 1996 (excluding the effect of the
change in accounting for turnarounds in the first quarter of the prior year) was
principally due to improved refining margins, as compared to the prior year.
Refining margins for the 1996 fiscal year as a whole were better than the
margins of the prior year since product prices increased at a greater rate than
crude oil costs, particularly in the latter part of the fiscal year when
refining margins were very strong as refining capacity and gasoline inventories
tightened nationally. Adding to the improved results were improvements for
fiscal 1996 in the Company's oil and gas business. With two new offshore
properties commencing production during the second quarter of fiscal 1996,
sufficient revenues were generated to help reduce the operating loss from the
oil and gas division by 50% to $1.6 million. The increase in depreciation,
depletion and amortization in the 1996 fiscal year related primarily to oil and
gas properties. Interest expense, net of interest income, decreased slightly
from fiscal 1995 levels, as the additional interest expense due to the new
borrowings in November 1995 was more than offset by the increase in interest
income due to a higher level of investments. The 10% increase in revenues for
the year ended July 31, 1996 is primarily attributable to increases in selling
prices as sales volumes of refined products were fundamentally the same in both
years. Additionally, oil and gas revenues increased by $4.1 million to $5.4
million in fiscal 1996.
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<PAGE> 19
Effective August 1, 1994, the Company changed its method of accounting for
turnaround costs. Turnarounds consist of preventive maintenance on major
processing units, which requires the shutdown and restart of all units, and
generally are now scheduled at three to four year intervals. Previously, the
Company estimated the costs of the next scheduled turnaround and ratably accrued
the related expenses prior to the actual turnaround. To provide for a better
matching of turnaround costs with revenues, the Company changed its accounting
method for turnaround costs to one that results in the amortization of costs
incurred over the period until the next scheduled turnaround. The cumulative
effect of this accounting change through the 1994 fiscal year was an increase in
net income in the first quarter of fiscal 1995 of $5.7 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased during the year ended July 31, 1997 by
$43.9 million, as cash flows from operations were significantly less than
capital expenditures, debt payments and dividends paid. Working capital
decreased during fiscal 1997 by $21.4 million to $45.2 million. The Company's
long-term debt now represents 45.1% of total capitalization as compared to 50.2%
at July 31, 1996. In October 1997, the Company entered into a new credit
agreement which can be used for direct borrowings of up to $50 million. The
Company believes that these sources of funds, together with future cash flows
from operations, should provide sufficient resources, financial strength and
flexibility to enable the Company for the foreseeable future to satisfy its
liquidity needs, capital requirements, and debt service obligations while
continuing the payment of dividends.
Net cash provided by operating activities amounted to $5.5 million ($32.2
million before inclusion of items relating to the planned turnaround) in fiscal
1997, compared to $44.5 million in fiscal 1996 and $34.2 million in fiscal 1995.
The most important factor causing a reduction for 1997 in cash provided from
operations was a $19.6 million increase in inventories, which was part of the
preparation for the planned major maintenance turnaround of the Navajo Refinery
in the first quarter of fiscal 1998, which amount should substantially reverse
in fiscal 1998. In addition, preparations for the turnaround resulted in advance
expenditures of $7.1 million in the latter part of fiscal 1997 which also
reduced cash provided from operations. The timing of required income tax
payments also negatively impacted cash provided from operations, since in fiscal
1997 taxes paid were in excess of the current tax liability, while in fiscal
1996 taxes paid were significantly less than the liability incurred.
Additionally, the lower level of net income for fiscal 1997 as compared to
fiscal 1996 contributed to the reduced level of cash provided by operations for
fiscal 1997. The primary reason for the difference in cash provided from
operations in fiscal 1996 as compared to fiscal 1995 was the increase from 1995
to 1996 in cash generated by earnings.
Cash flows used for financing activities amounted to $15.0 million in
fiscal 1997 and $8.9 million in fiscal 1995, as compared to cash flows provided
by financing activities of $24.4 million in fiscal 1996. With the Company's
then-existing credit agreement (Credit Agreement) scheduled to mature in
November 1997, the Company in October 1997 entered into a new three-year credit
agreement with a different group of banks, some of which had also been included
in the previous Credit Agreement. The new credit agreement provides for a total
facility of $100 million, the full amount of which may be used to support
letters of credit and
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<PAGE> 20
$50 million of which may be used for direct borrowings. The other terms of the
new credit agreement are substantially similar to those of the previous Credit
Agreement. In November 1995, the Company completed the funding from a group of
insurance companies of a new private placement of Senior Notes in the amount of
$39 million and the extension of $21 million of previously outstanding Senior
Notes. This private placement was intended to enhance the Company's future
investment flexibility and financial strength. The company made principal
payments of $10.8 million on the Senior Notes in June 1997 and June 1996 and of
$5.6 million in June 1995, and a further $10.8 million principal payment on the
Senior Notes will be due in June 1998.
See Note 6 to the Consolidated Financial Statements for a summary of the
terms and conditions of the Senior Notes and of the Credit Agreement as in
effect for the 1997 fiscal year.
Cash flows used for investing activities totalled $67.9 million over the
last three years, $34.4 million in 1997, $18.3 million in 1996 and $15.2 million
in 1995. All of these amounts were expended on capital projects with the
exception of $4.1 million invested in fiscal 1997 in the pipeline joint venture
described below. The Company has adopted capital budgets totalling $23 million
for fiscal 1998. The components of this budget are $8 million for various
refinery improvements and environmental and safety enhancements, $12 million for
various pipeline and transportation projects and $3 million for oil and gas
exploration and production activities. In addition to these projects, the
Company plans to complete in the 1998 fiscal year certain major items, totalling
$21 million, that were approved in previous capital budgets. These include
projects involving upgrades at the Navajo Refinery to improve product yields,
certain environmental enhancements, and the construction of a connecting
pipeline and related product terminals that will be used in conjunction with the
leased pipeline to northwest New Mexico described below.
The Company believes the scheduled capital projects to upgrade the Navajo
Refinery will improve product yields and enhance refining profitability. A major
project expected to be operational by the second quarter of fiscal 1998 is the
planned state-of-the-art upgrade to the Navajo Refinery's fluid catalytic
cracking unit (FCC), which will improve high value product yields. The total
estimated remaining cost of this project and of the other refinery enhancements
that were included in prior capital budgets is $9 million.
The Company has entered into an agreement with Mid-America Pipeline Company
to lease more than 300 miles of 8" pipeline running from Chavez County to San
Juan County, New Mexico (the Leased Pipeline). The Company is in the process of
constructing a 12" pipeline, from the Navajo Refinery to the Leased Pipeline,
and related terminalling facilities. These facilities will allow the Company to
use the Leased Pipeline to transport refined products from the Navajo Refinery
to markets in northwest New Mexico. The Leased Pipeline and related facilities
are projected to be operational near the end of fiscal 1998. The estimated
remaining cost of this project is $14 million, of which $2 million is included
in the fiscal 1998 capital budget and the remainder was included in capital
budgets for prior years.
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<PAGE> 21
The Company has a 25% interest in a pipeline joint venture with Mid-America
Pipeline Company and Amoco Pipeline Company to transport liquid petroleum gases
to Mexico. Deliveries by the joint venture began in April 1997. For the Company,
the project involved the construction of a new 12" pipeline from Orla to El
Paso, Texas, which was completed in October 1996 and which replaced a portion of
an 8" pipeline previously used by Navajo that was transferred to the joint
venture. The Company's total net cash investment in these projects (in addition
to the contribution of the existing 8" pipeline to the joint venture) was $8
million, including a cash investment in the joint venture of $4.1 million.
Completion of the current pipeline and terminal to be used in connection
with the Leased Pipeline to northwest New Mexico together with recently expanded
pipeline capacity to El Paso should reduce the Company's pipeline operating
expenses at current throughputs and would give the Company increased flexibility
to expand shipments of refined products from the Navajo Refinery to existing and
new markets.
The Company announced in February 1997 the formation of an alliance with
FINA, Inc. to create a comprehensive supply network that can increase
substantially the supplies of gasoline and diesel in the West Texas, New Mexico,
and Arizona markets to meet expected increasing demand in coming years. When
fully operational, the system will have the capacity to provide up to 155,000
barrels of refined products per day to these Southwest and other markets. The
project will utilize existing assets. FINA's bi-directional Amdel Pipeline could
be converted, when needed, from the transportation of crude oil to transport up
to 50,000 barrels per day of refined products from FINA's Port Arthur Refinery
on the Gulf Coast while 45,000 barrels per day can be shipped from FINA's Big
Spring Refinery. In addition, the Navajo Refinery will continue to provide
60,000 barrels per day of refined products. FINA will construct a 50-mile
extension of its Amdel Pipeline from Wink, Texas to the Company's pipeline
station at Orla, Texas, from which FINA will be able to transport up to 20,000
barrels per day on the Company's recently completed 12" pipeline to El Paso
under the terms of a long-term agreement between FINA and the Company. In New
Mexico, the completion by the Company of the 12" inch pipeline from the Navajo
Refinery to the Leased Pipeline will then provide direct transportation service
to Albuquerque and northwest New Mexico. The alliance will provide product
supply along the full extent of this system, from Bloomfield in northwest New
Mexico, east to Duncan, Oklahoma, and south to El Paso. This pipeline system,
along with Ultramar Diamond Shamrock's recently completed El Paso area pipeline
expansion should provide sufficient supply to fully utilize all existing common
carrier pipelines which transport products from El Paso to New Mexico, Arizona
and Mexico. It is anticipated that this pipeline network should be fully
operational by August 1998, at which time the Company will begin to realize
pipeline and terminalling revenues from FINA under the terms of the agreement.
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, many of which are beyond the Company's
control, that could have adverse effects on profitability during any particular
period. Among these factors are the demand for crude oil and refined products,
which is largely driven by the conditions of local and worldwide economies as
well as by weather patterns and the taxation of these products relative to other
energy sources. Governmental regulations and policies, particularly in the areas
of taxation,
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<PAGE> 22
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
factors that are specific to the Company, such as the success of particular
marketing programs and the efficiency of the Company's refinery operations.
In addition, the Company's profitability depends largely on the spread
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
determined by market forces beyond the control of the Company. Additionally, due
to the seasonality of refined products markets 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 for crude oil generally results in
a corresponding increase or decrease in prices for refined products, there is
normally a time lag 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 the production and sale of quantities of
refined products at margins sufficient to cover operating costs, including any
increases in costs resulting from future inflationary pressures. The refining
business is characterized by high fixed costs resulting from the significant
capital outlays associated with refineries, terminals, pipelines and related
facilities. Furthermore, future regulatory requirements or competitive pressures
could result in additional capital expenditures, which may or may not produce
the results intended. 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.
Ultramar Diamond Shamrock Corporation, an independent refiner and marketer,
completed in November 1995 the construction of a 409-mile, 10" refined products
pipeline from its McKee refinery near Dumas, Texas to El Paso. The reported
current capacity of this pipeline is 45,000 BPD. Ultramar Diamond Shamrock has
stated its intention to use this pipeline to supply fuels to the El Paso, New
Mexico, Arizona and northern Mexico markets. This pipeline has increased and
could further increase the supply of products in the Company's principal
markets.
Phillips Petroleum Company announced that it plans to construct a new
pipeline and modify an existing pipeline to carry petroleum products from its
Borger, Texas refinery to markets in El Paso, Texas and Arizona. The project
involves reversing and converting an existing 8" natural gas liquids pipeline
that extends from Borger to Gaines, Texas, constructing a new 220-mile, 10"
pipeline from Gaines to El Paso and building a new terminal at El Paso.
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<PAGE> 23
Phillips announced that it expects to complete the project in late 1998. This
project could also increase the supply of products in the Company's principal
markets.
According to an October 1997 announcement by Longhorn Partners Pipeline,
L.P. (a partnership composed of affiliates of Exxon Pipeline Company, Amoco
Pipeline Company, Williams Energy Group, The Beacon Group Energy Investment
Fund, L.P. and Axis Gas Corporation), Longhorn will begin immediately the
construction of a pipeline for the transportation of petroleum products from
Gulf Coast refineries to El Paso. According to the announcement, the 18"-20"
pipeline from Houston to terminals in Midland and El Paso is scheduled to be
fully operational by late 1998 and is designed to have an ultimate capacity of
225,000 BPD. If the project is completed as described in the announcement, the
new pipeline will significantly increase the potential supply of products in the
Company's current principal markets that are served from El Paso.
In addition to the projects described above, other projects have been
explored from time to time by refiners and other entities, which projects, if
consummated, could result in a further increase in the supply of products to
some or all of the Company's markets.
Recently there have been several refining and marketing consolidations or
acquisitions between entities competing in the Company's geographic market.
While these transactions could increase the competitive pressures on the
Company, the specific ramifications of these or other potential consolidations
cannot presently be determined. In one such transaction, Tosco Corporation
recently purchased from Unocal all of the operating assets of 76 Products
Company, Unocal's West Coast refining and marketing division. In fiscal 1997,
the Company's combined sales to Tosco Corporation and its affiliates amounted to
approximately 22% of the Company's total sales.
At times in the past, the common carrier pipelines used by the Company to
serve the Tucson and Phoenix markets have been operated at or near their
capacity. In addition, the common carrier pipeline used by the Company to serve
the Albuquerque market currently is operating at or near capacity. The addition
of the Leased Pipeline to northwest New Mexico and related capital investments
by the Company are expected to alleviate by the end of the 1998 fiscal year the
pipeline constraint associated with the Albuquerque market. However, there is no
assurance that the Company will not experience future constraints on its ability
to deliver its products through common carrier pipelines or that any existing
constraints will not worsen. In particular, the flow of additional products into
El Paso for shipment to Arizona could result in the reoccurrence of such
constraints.
Effective January 1, 1995, certain cities in the country were required to
use only reformulated gasoline ("RFG"), a cleaner burning fuel. Phoenix is the
only principal market of the Company that currently requires RFG although this
requirement could be implemented in other markets over time. Phoenix is
presently considering implementing even more rigorous fuel specifications.
Further, other requirements of the Clean Air Act, or other presently existing or
future environmental regulations, could cause the Company to expend substantial
amounts at its refineries. The specifics and extent of these or other
regulations and their attendant costs are not presently determinable.
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<PAGE> 24
In July 1993, the United States Department of Justice (DOJ) on behalf of
the United States Environmental Protection Agency (EPA), filed a suit against
the Company's subsidiary, Navajo Refining Company (Navajo) alleging that,
beginning in September 1990 and continuing through the present, Navajo has
violated and continues to violate the Resource Conservation and Recovery Act
(RCRA) and implementing regulations of the EPA by treating, storing and
disposing of certain hazardous wastes in the refinery's wastewater treatment
system without compliance with regulatory requirements. In June 1995, Navajo and
the DOJ agreed in principle on a settlement that would have resolved this
pending litigation. Under this agreement, the Company would close the existing
evaporation ponds used in its wastewater treatment system pursuant to a closure
plan to be approved by the EPA and the State of New Mexico in accordance with
RCRA regulations. The costs of such a closure plan were estimated to be
substantially less than $l million. The agreement also contemplates that the
Company would utilize an alternative to the existing wastewater treatment system
at what was an estimated total cost of approximately $3.5 million (now estimated
to be possibly as low as $2.5 million). The costs to implement the alternative
treatment system would he capitalized and amortized over the future useful life
of the resulting asset in accordance with generally accepted accounting
principles. Finally, the agreement would also involve the payment of a civil
penalty of less than $2 million. In May 1997, EPA approved the Company's closure
plan and recommended that the State of New Mexico likewise approve the plan.
Although the DOJ previously represented that New Mexico would follow EPA's lead
and approve the closure plan, New Mexico authorities have declined to approve
the plan as presently formulated. The State's unanticipated position in this
regard has caused a reassessment of the terms of the settlement. The DOJ wants
to complete settlement under the terms as agreed, despite the new uncertainty
with respect to the closure plan. The Company has been trying to obtain greater
clarity as to the State's intentions and the types of burdens that may be
entailed in pursuing closure and post-closure care under the State's authority.
In light of these developments, the prospects for settlement are uncertain. If
settlement is not achieved, the matter may be scheduled for trial in 1998. In
the event of litigation, the DOJ may assert civil penalties in excess of the
previously agreed amount. Also, the costs of any such alternative closure plan
may exceed those of the plan agreed to with the DOJ. In fiscal 1993, the Company
recorded a $2 million reserve for this litigation.
The Company is aware of the issues associated with the year 2000
limitations of the programming code of many existing computer systems that may
cause computer systems not to recognize and properly handle date-sensitive
information. Systems that do not recognize and properly handle such information
could generate erroneous data or cause a system to fail. Key financial,
informational and operational systems have been identified within the Company
and plans are being developed to address any systems modifications required. The
financial impact of making the required year 2000 systems changes is not
expected to be material to the Company's financial position, results of
operations or cash flows.
-24-
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Report of Independent Auditors................................. 26
Consolidated Balance Sheet at July 31,
1997 and 1996................................................ 27
Consolidated Statement of Income for the
years ended July 31, 1997, 1996 and 1995..................... 28
Consolidated Statement of Cash Flows for
the years ended July 31,
1997, 1996 and 1995.......................................... 29
Consolidated Statement of Stockholders' Equity
for the years ended July 31, 1997, 1996
and 1995..................................................... 30
Notes to Consolidated Financial
Statements................................................... 31-45
</TABLE>
-25-
<PAGE> 26
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors
and Stockholders of Holly Corporation
We have audited the accompanying consolidated balance sheet of Holly
Corporation at July 31, 1997 and 1996, and the related consolidated statements
of income, cash flows and stockholders' equity for each of the three years in
the period ended July 31, 1997. 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
Holly Corporation at July 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
September 23, 1997
-26-
<PAGE> 27
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) July 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 6) .................... $ 20,042 $ 63,959
Accounts receivable (Notes 3 and 6) ................... 105,821 104,386
Inventories (Notes 4 and 6) ........................... 58,273 38,673
Income taxes receivable ............................... 1,319 --
Prepayments and other ................................. 9,273 10,008
--------- ---------
Total current assets ............................... 194,728 217,026
Properties, plants and equipment, net (Note 5) ........... 143,540 131,444
Investment in joint venture .............................. 5,235 734
Other assets ............................................. 6,300 2,067
--------- ---------
$ 349,803 $ 351,271
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable (Note 3) ............................. $ 124,585 $ 122,421
Accrued liabilities (Note 9 and 11) ................... 13,730 12,453
Income taxes payable .................................. 397 4,728
Current maturities of long-term debt (Note 6) ......... 10,775 10,775
--------- ---------
Total current liabilities .......................... 149,487 150,377
Deferred income taxes (Note 7) ........................... 19,679 18,361
Long-term debt, less current maturities (Note 6) ......... 75,516 86,290
Commitments and contingencies (Notes 10 and 11)
Stockholders' equity (Notes 6 and 8)
Preferred stock, $1.00 par value - 1,000,000
shares authorized; none issued ...................... -- --
Common stock, $.01 par value - 20,000,000 shares
authorized; 8,650,282 shares issued ................. 87 87
Additional capital .................................... 6,132 6,132
Retained earnings ..................................... 99,471 90,593
--------- ---------
105,690 96,812
Common stock held in treasury, at cost - 396,768 shares (569) (569)
--------- ---------
Total stockholders' equity ...................... 105,121 96,243
--------- ---------
$ 349,803 $ 351,271
========= =========
</TABLE>
See accompanying notes.
-27-
<PAGE> 28
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) Years Ended July 31,
------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Refined products (Note 12)............................................. $713,614 $670,094 $612,150
Oil and gas............................................................ 5,779 5,365 1,252
Miscellaneous.......................................................... 1,953 831 1,428
-------- -------- --------
721,346 676,290 614,830
COSTS AND EXPENSES
Cost of refined products............................................... 656,613 600,478 553,768
General and administrative............................................. 13,348 14,081 13,864
Depreciation, depletion and amortization............................... 20,153 19,315 15,796
Exploration expenses, including dry holes.............................. 3,732 4,018 3,923
-------- -------- --------
693,846 637,892 587,351
-------- -------- --------
Income from operations.................................................... 27,500 38,398 27,479
OTHER INCOME (EXPENSE)
Equity in earnings of joint venture.................................... 414 - -
Interest income........................................................ 3,244 3,024 1,020
Interest expense (Note 6).............................................. (9,339) (9,634) (8,352)
-------- -------- --------
(5,681) (6,610) (7,332)
-------- -------- --------
Income before income taxes and cumulative effect
of accounting change..................................................... 21,819 31,788 20,147
Income tax provision (benefit) (Note 7)
Current................................................................ 7,251 13,365 6,042
Deferred............................................................... 1,481 (811) 1,688
-------- -------- --------
8,732 12,554 7,730
-------- -------- --------
Income before cumulative effect of accounting
change................................................................. 13,087 19,234 12,417
Cumulative effect of accounting change
(Note 2)............................................................... - - 5,703
-------- -------- --------
Net income................................................................ $ 13,087 $ 19,234 $ 18,120
======== ======== ========
Income per common share
Income before cumulative effect of accounting
change................................................................. $ 1.59 $ 2.33 $ 1.51
Cumulative effect of accounting change................................... - - .69
-------- -------- --------
Net income............................................................... $ 1.59 $ 2.33 $ 2.20
======== ======== ========
Cash dividends paid per common share...................................... $ .51 $ .42 $ .40
======== ======== ========
Average number of shares of common
stock outstanding (in thousands)....................................... 8,254 8,254 8,254
======== ======== ========
</TABLE>
See accompanying notes.
-28-
<PAGE> 29
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
($ in thousands) Years ended July 31,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 13,087 $ 19,234 $ 18,120
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization........................... 20,153 19,315 15,796
Deferred income taxes.............................................. 1,481 (811) 1,688
Equity in earnings of joint venture................................ (414) - -
Dry hole costs and leasehold impairment............................ 1,760 1,976 903
Cumulative effect of accounting change............................. - - (5,703)
(Increase) decrease in operating assets
Accounts receivable.............................................. (1,435) (18,561) 8,455
Inventories...................................................... (19,600) 3,508 1,814
Income taxes receivable.......................................... (1,319) 1,540 (843)
Prepayments and other............................................ (360) 314 829
Increase (decrease) in operating liabilities
Accounts payable................................................. 2,164 15,604 (5,267)
Accrued liabilities.............................................. 1,277 (694) 1,298
Income taxes payable............................................. (4,331) 4,274 (218)
Turnaround expenditures............................................ (7,147) (1,858) (3,311)
Other, net......................................................... 141 611 680
-------- -------- --------
Net cash provided by operating activities...................... 5,457 44,452 34,241
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable.............................................. - 39,000 -
Payment of long-term debt.............................................. (10,774) (10,775) (5,608)
Debt issuance costs.................................................... - (403) -
Cash dividends......................................................... (4,209) (3,466) (3,301)
-------- -------- --------
Net cash provided by (used for)
financing activities.......................................... (14,983) 24,356 (8,909)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties, plants and equipment.......................... (30,304) (18,281) (15,197)
Investment in joint venture............................................ (4,087) - -
-------- -------- --------
Net cash used for investing activities......................... (34,391) (18,281) (15,197)
-------- -------- --------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year....................................... (43,917) 50,527 10,135
Beginning of year...................................................... 63,959 13,432 3,297
-------- -------- --------
End of year............................................................ $ 20,042 $ 63,959 $ 13,432
======== ======== ========
</TABLE>
See accompanying notes.
-29-
<PAGE> 30
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
($ in thousands)
<TABLE>
<CAPTION>
Amount Total
due stock-
Common Additional Retained Treasury from holders'
stock capital earnings stock ESOP equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1994 ............ $ 87 $ 6,132 $ 59,942 $ (569) $ (820) $ 64,772
Net income .......................... -- -- 18,120 -- -- 18,120
Dividends paid ...................... -- -- (3,301) -- -- (3,301)
Reduction in amount due from ESOP ... -- -- -- -- 410 410
Tax benefit of dividends paid to ESOP
on unallocated shares .............. -- -- 42 -- -- 42
--------- --------- --------- --------- --------- ---------
BALANCE AT JULY 31, 1995 ............ 87 6,132 74,803 (569) (410) 80,043
Net income .......................... -- -- 19,234 -- -- 19,234
Dividends paid ...................... -- -- (3,466) -- -- (3,466)
Reduction in amount due from ESOP ... -- -- -- -- 410 410
Tax benefit of dividends paid to ESOP
on unallocated shares .............. -- -- 22 -- -- 22
--------- --------- --------- --------- --------- ---------
BALANCE AT JULY 31, 1996 ............ 87 6,132 90,593 (569) -- 96,243
Net income .......................... -- -- 13,087 -- -- 13,087
Dividends paid ...................... -- -- (4,209) -- -- (4,209)
--------- --------- --------- --------- --------- ---------
BALANCE AT JULY 31, 1997 ............ $ 87 $ 6,132 $ 99,471 $ (569) $ -- $ 105,121
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
-30-
<PAGE> 31
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Holly Corporation, including its consolidated and wholly-owned
subsidiaries, herein referred to as the "Company" unless the context otherwise
indicates, is an independent refiner of petroleum and petroleum derivatives
which produces a high proportion of high value light products such as gasoline,
diesel fuel and jet fuel for sale primarily in the southwestern United States
and northern Mexico. Navajo Refining Company (Navajo), one of the wholly-owned
subsidiaries, owns a high-conversion petroleum refinery in Artesia, New Mexico,
which it operates in conjunction with crude, vacuum distillation and other
facilities situated 65 miles away in Lovington, New Mexico (collectively, the
Navajo Refinery). The Navajo Refinery has a crude capacity of 60,000
barrels-per-day (BPD) and can process a variety of high sulphur sour crude oils.
The Company also owns Montana Refining Company, a Partnership (MRC), which owns
a 7,000 BPD petroleum refinery near Great Falls, Montana, which can process a
range of crude oils and which serves primarily the State of Montana.
In addition to its refining operations, the Company also conducts a
small-scale oil and gas exploration and production program, which activities do
not represent a significant segment of the Company's assets or operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its subsidiaries and MRC. All significant intercompany transactions and balances
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
-31-
<PAGE> 32
INVENTORIES
Inventories are stated at the lower of cost, using the last-in, first-out
(LIFO) method for crude oil and refined products and the average cost method for
materials and supplies, or market.
INVESTMENT IN JOINT VENTURE
The Company has entered into a joint venture to transport liquid petroleum
gas to Mexico. The Company has a 25% interest in the joint venture and accounts
for earnings using the equity method. In fiscal 1996, the Company contributed to
the joint venture property which had a net book value of $734,000.
REVENUE RECOGNITION
Sales and related cost of sales are recognized when products are shipped to
customers and title passes. Sales are reported exclusive of excise taxes.
Intercompany oil and gas sales of $913,000 in 1997, $885,000 in 1996 and
$333,000 in 1995 have been eliminated.
DEPRECIATION
Depreciation is provided by the straight-line method over the estimated
useful lives of the assets, primarily 10 to 16 years for refining and pipeline
facilities and 3 to 10 years for corporate and other assets.
ENVIRONMENTAL COSTS
Environmental costs are expensed if they relate to an existing condition
caused by past operations and do not contribute to current or future revenue
generation. Liabilities are recorded when site restoration and environmental
remediation and cleanup obligations are either known or considered probable and
can be reasonably estimated. Recoveries of environmental costs through
insurance, indemnification arrangements or other sources are included in other
assets to the extent such recoveries are considered probable.
-32-
<PAGE> 33
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
OIL AND GAS EXPLORATION AND DEVELOPMENT
The Company accounts for the acquisition, exploration, development and
production costs of its oil and gas activities using the successful efforts
method of accounting. Lease acquisition costs are capitalized; undeveloped
leases are written down when determined to be impaired and written off upon
expiration or surrender. Geological and geophysical costs and delay rentals are
expensed as incurred. Exploratory well costs are initially capitalized, but if
the effort is unsuccessful, the costs are charged against earnings. Development
costs, whether or not successful, are capitalized. Productive properties are
stated at the lower of amortized cost or estimated realizable value of
underlying proved oil and gas reserves. Depreciation, depletion and amortization
of such properties is computed by the unit-of-production method. At July 31,
1997, the Company had not discovered a material amount of proven reserves.
INCOME TAXES
Provisions for income taxes include deferred taxes resulting from temporary
differences in income for financial and tax purposes, using the liability method
of accounting for income taxes. The liability method requires the effect of tax
rate changes on current and accumulated deferred income taxes to be reflected in
the period in which the rate change was enacted. The liability method also
requires that deferred tax assets be reduced by a valuation allowance unless it
is more likely than not that the assets will be realized.
EARNINGS PER SHARE
Earnings per share amounts are based upon the weighted average number of
common shares outstanding during each period.
DERIVATIVE INSTRUMENTS
The Company utilizes petroleum commodity future contracts, at times, to
minimize a portion of its exposure to the price fluctuations associated with
crude oil and refined products. Such contracts are used principally to help
manage the price risk inherent in purchasing crude oil in advance of the
delivery date and as a hedge for fixed-price sales contracts of refined
products. Gains and losses on contracts are deferred and recognized in cost of
refined products when the related inventory is sold or the hedged transaction is
consummated.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to current classifications.
-33-
<PAGE> 34
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128, which establishes standards for computing and presenting
earnings per share, is effective for interim and annual periods ending after
December 15, 1997 and requires restatement of earnings per share data presented
in prior periods. Early adoption is not permitted. The adoption of SFAS No. 128
is not expected to have an impact on reported earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Both Statements become effective for fiscal years
beginning after December 15, 1997 with early adoption permitted. The Company is
evaluating the effects these Statements will have on its financial reporting and
disclosures. The Statements will have no effect on the Company's results of
operations, financial position, capital resources or liquidity.
2. ACCOUNTING CHANGE
Effective August 1, 1994, the Company changed its method of accounting for
turnaround costs. Turnarounds consist of preventive maintenance on major
processing units as well as the shutdown and restart of all units, and generally
are now scheduled at three to four year intervals. Previously, the Company
estimated the costs of the next scheduled turnaround and ratably accrued the
related expenses prior to the actual turnaround. To provide for a better
matching of turnaround costs with revenues, the Company changed its accounting
method for turnaround costs to one that results in the amortization of costs
incurred over the period until the next scheduled turnaround. The cumulative
effect of this accounting change through the 1994 fiscal year was an increase in
net income in the first quarter of the 1995 fiscal year of $5,703,000 (net of
deferred taxes of $3,865,000), or $.69 per common share. Excluding the
cumulative effect, the change increased net income for fiscal 1995 by $886,000
or $.11 per common share.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
-------- --------
<S> <C> <C>
Product ...................... $45,608 $43,642
Crude oil resales ............ 60,213 54,456
Note receivable .............. -- 6,288
-------- --------
$105,821 $104,386
======== ========
</TABLE>
-34-
<PAGE> 35
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
Crude oil resales accounts receivable principally represent the sell side
of reciprocal crude oil buy/sell exchange arrangements involved in supplying
crude oil to the refineries, with an approximate like amount reflected in
accounts payable. The net differential of these crude oil buy/sell exchanges is
reflected in cost of sales. The exchange differentials result principally from
crude oil type and location differences.
The majority of the Company's accounts receivable are due from companies in
the petroleum industry. Credit is extended based on evaluation of the customer's
financial condition and, in certain circumstances, collateral is required, such
as letters of credit or guaranties.
Credit losses are provided for in the financial statements and consistently
have been minimal.
4. INVENTORIES
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
------- -------
<S> <C> <C>
Crude oil and refined products... $49,429 $32,090
Materials and supplies .......... 8,844 6,583
------- -------
$58,273 $38,673
======= =======
</TABLE>
The excess of current cost over the LIFO value of inventory was $11,260,000
and $15,509,000 at July 31, 1997 and 1996, respectively.
5. PROPERTIES, PLANTS AND EQUIPMENT
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
-------- --------
<S> <C> <C>
Properties, plants and equipment, at cost
Refining and pipeline facilities ...... $254,486 $244,102
Oil and gas exploration
and development ..................... 23,095 16,450
Corporate and other ................... 1,126 1,069
-------- --------
278,707 261,621
Accumulated depreciation, depletion and
amortization .......................... 135,167 130,177
-------- --------
$143,540 $131,444
======== ========
</TABLE>
-35-
<PAGE> 36
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
Refining and pipeline facilities at July 31, 1997 and 1996 include
$12,833,000 and $9,561,000, respectively, of construction in progress which was
not being depreciated at those dates, pending completion of the construction
projects.
6. DEBT
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
------- -------
<S> <C> <C>
Senior Notes
Series A ................................ $ 5,600 $11,200
Series B ................................ 20,667 25,833
Series C ................................ 39,000 39,000
Series D ................................ 21,000 21,000
Other ..................................... 24 32
------- -------
86,291 97,065
Less current maturities of long-
term debt ............................... 10,775 10,775
------- -------
$75,516 $86,290
======= =======
</TABLE>
SENIOR NOTES
In June 1991, the Company sold $80 million of Senior Notes to a group of
insurance companies. The Series A Notes which were issued in the principal
amount of $28 million, have a 7-year life, require equal annual principal
payments beginning June 15, 1994 and bear interest at 9.72%. The Series B Notes
which were issued in the principal amount of $52 million, have a 10-year life,
require equal annual principal payments beginning June 15, 1996 and bear
interest at 10.16%. In November 1995, the Company completed the funding from a
group of insurance companies of a new private placement of Senior Notes in the
amount of $39 million and the extension of $21 million of previously outstanding
Senior Notes. The new $39 million Series C Notes have a 10-year life, require
equal annual principal payments beginning December 15, 1999, and bear interest
at 7.62%. The new $21 million Series D Notes, for which previously issued Series
B Notes were exchanged, have a 10-year life, require equal annual principal
payments beginning December 15, 1999, and bear interest at an initial rate of
10.16%, with reductions to 7.82% for the periods subsequent to the original
maturity dates of the exchanged Series B Notes. The Senior Notes are unsecured
and the note agreements impose certain restrictive covenants, including
limitations on liens, additional indebtedness, sales of assets, investments,
business combinations and dividends, which collectively are less restrictive
than the terms of the bank Credit Agreement.
-36-
<PAGE> 37
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
CREDIT AGREEMENT
In May 1997, the Company and certain of its subsidiaries amended its bank
Credit Agreement (Credit Agreement) extending the term to November 1997. The
Credit Agreement provides a $100 million facility for letters of credit, or for
direct borrowings of up to $25 million, with such borrowings being subject to an
annual 20-day cleanup period. Interest on borrowings is based upon, at the
Company's option, (i) the agent bank's prime rate plus 1/2% per annum; (ii)
various Eurodollar related rates; and (iii) various certificate of deposit
related rates. A fee of 1% per annum is payable quarterly on the outstanding
balance of all letters of credit and a commitment fee of 3/8 of 1% per annum is
payable on the unused portion of the facility. The borrowing base for the
facility consists of cash, cash equivalents, accounts receivable and inventory,
all of which secure the facility. The Credit Agreement imposes certain
restrictions, including: (i) a prohibition of other indebtedness in excess of $3
million with exceptions for, among other things, indebtedness under the
Company's Senior Notes and certain nonrecourse debt; (ii) maintenance of certain
levels of net worth, working capital and interest coverage; (iii) limitations on
investments and dividends; and (iv) a prohibition of incursions on controlling
ownership, material changes in senior management and business combinations with
unaffiliated entities.
While the Credit Agreement is scheduled to mature in November 1997, the
Company is in the process and expects to enter into a new credit agreement with
a new group of banks, some of which are included in the current Credit
Agreement. It is expected that the new credit agreement will have terms
substantially similar to those presently in effect in the Credit Agreement.
At July 31, 1997, the Company had outstanding letters of credit totalling
$20,480,000 and no borrowings. The unused commitment under the Credit Agreement
at July 31, 1997 was $79,520,000, of which up to $25,000,000 may be used for
additional direct borrowings.
No borrowings under the Company's Credit Agreement were outstanding during
fiscal 1995-1997.
The Senior Notes and Credit Agreement restrict investments and
distributions, including dividends, to an amount in the aggregate not to exceed
75% of cumulative consolidated net income (as defined). Under the most
restrictive of these covenants, at July 31, 1997 approximately $30.7 million was
available for the payment of dividends.
Maturities of long-term debt for the next five fiscal years are as follows:
1998 -- $10,775,000; 1999 -- $5,175,000; 2000 -- $13,746,000; 2001 --
$13,738,000 and 2002 - $8,571,000.
-37-
<PAGE> 38
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
The Company made interest payments of $9,209,000 in 1997, $9,409,000 in
1996 and $8,183,000 in 1995.
Based on the borrowing rates that the Company believes would be available
for replacement loans with similar terms and maturities of the debt of the
Company now outstanding, the Company estimates fair value of long-term debt
including current maturities to be $89.0 million at July 31, 1997.
7. INCOME TAXES
The statutory federal income tax rate applied to pre-tax book income
reconciles to income tax expense as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tax computed at
statutory rate ................... $ 7,637 $ 11,126 $ 7,051
State income taxes, net of federal
tax benefit ...................... 1,064 1,550 982
Other .............................. 31 (122) (303)
-------- -------- --------
$ 8,732 $ 12,554 $ 7,730
======== ======== ========
</TABLE>
Operations of the corporation that was the sole limited partner of MRC
prior to the acquisition of such corporation by the Company resulted in unused
net operating loss carryforwards of approximately $9,000,000, which are expected
to be available to the Company to a limited extent each year through 2006 based
on the income of such corporation. As of July 31, 1997, approximately $4,800,000
of these net operating loss carryforwards remain available to offset future
income. For financial reporting purposes, the benefit of these net operating
loss carryforwards is being offset against contingent future payments of up to
$95,000 per year through 2005 relating to the acquisition of such corporation.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The Company's deferred
income tax assets and liabilities as of July 31, 1997 and 1996 are as follows:
-38-
<PAGE> 39
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
($ in thousands)
1997
----
Assets Liabilities Total
-------- ----------- --------
<S> <C> <C> <C>
Deferred taxes
Accrued employee benefits ...................... $ 1,844 $ -- $ 1,844
Deferred turnaround costs ...................... -- (436) (436)
Prepayments and other .......................... 1,373 (1,832) (459)
-------- -------- --------
Total current .................................... 3,217 (2,268) 949
Properties, plants and equipment
(due primarily to tax in excess
of book depreciation) ......................... -- (19,569) (19,569)
Intangible drilling costs ...................... -- (1,498) (1,498)
Nondeductible oil and gas costs ................ 2,040 -- 2,040
Deferred turnaround costs ...................... -- (388) (388)
Other .......................................... 150 (414) (264)
-------- -------- --------
Total noncurrent ................................. 2,190 (21,869) (19,679)
-------- -------- --------
5,407 (24,137) (18,730)
Valuation allowance .............................. -- -- --
-------- -------- --------
Total............................................. $5,407 $(24,137) $(18,730)
======== ======== ========
1996
----
Assets Liabilities Total
-------- ----------- --------
Deferred taxes
Accrued employee benefits ...................... $ 2,084 $ -- $ 2,084
Deferred turnaround costs ...................... -- (1,122) (1,122)
Prepayments and other .......................... 1,263 (1,113) 150
-------- -------- --------
Total current .................................... 3,347 (2,235) 1,112
Properties, plants and equipment
(due primarily to tax in excess
of book depreciation) ......................... -- (18,871) (18,871)
Intangible drilling costs ...................... -- (1,031) (1,031)
Nondeductible oil and gas costs ................ 1,862 -- 1,862
Deferred turnaround costs ...................... -- (362) (362)
Other .......................................... 150 (109) 41
-------- -------- --------
Total noncurrent ................................. 2,012 (20,373) (18,361)
-------- -------- --------
5,359 (22,608) (17,249)
Valuation allowance .............................. -- -- --
-------- -------- --------
Total............................................. $5,359 $(22,608) $(17,249)
======== ======== ========
</TABLE>
-39-
<PAGE> 40
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
The Company made income tax payments of $9,679,000 in 1997, $7,177,000 in
1996 and $7,144,000 in 1995.
The Company's federal income tax returns have been examined by the Internal
Revenue Service through 1990.
8. STOCKHOLDERS' EQUITY
At July 31, 1997 and 1996, 751,500 shares of common stock were reserved for
issuance under the Company's stock option plan, of which during fiscal 1997
25,000 stock options were awarded.
9. PENSION PLANS
RETIREMENT PLAN
The Company has a non-contributory defined benefit retirement plan that
covers substantially all employees. The Company's policy is to make
contributions annually of not less than the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. Benefits are based on the
employee's years of service and compensation.
Pension expense includes the following components:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned
during the year ...................... $ 1,170 $ 1,125 $ 1,131
Interest cost on projected benefit
obligations .......................... 2,087 1,993 1,830
Actual return on plan assets ........... (7,950) (2,710) (3,421)
Net amortization and deferral .......... 5,358 278 1,296
------- ------- -------
Pension expense ........................ $ 665 $ 686 $ 836
======= ======= =======
</TABLE>
The following table sets forth the funded status of the retirement plan and
amounts recognized in the consolidated balance sheet:
-40-
<PAGE> 41
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
-------- --------
<S> <C> <C>
Plan assets at fair value .......... $ 35,807 $ 28,958
Actuarial present value of projected
benefit obligations
Accumulated benefit obligations
Vested ......................... 19,313 17,733
Unvested ....................... 2,223 365
Provision for future salary
increases ..................... 7,819 9,861
-------- --------
Projected benefit obligations ...... 29,355 27,959
-------- --------
Plan assets greater than projected
benefit obligations .............. 6,452 999
Unrecognized net gain .............. (8,225) (1,930)
Unrecognized prior service
cost ........................... -- 36
Unrecognized transition net
asset .......................... (797) (1,010)
-------- --------
Accrued pension liability
recognized in the consolidated
balance sheet .................... $ (2,570) $ (1,905)
======== ========
</TABLE>
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate ................... 7.5% 7.5% 7.5%
Rate of future compensation
increases ..................... 5% 5% 5%
Expected long-term rate of return
on assets ..................... 8.5% 8.5% 8.5%
</TABLE>
Pension costs are determined using the assumptions as of the beginning of
the year. The funded status is determined using the assumptions as of the end of
the year.
Approximately 64% of plan assets is invested in equity securities and 36%
is invested in fixed income securities and other instruments at July 31, 1997.
-41-
<PAGE> 42
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
RETIREMENT RESTORATION PLAN
The Company has adopted a retirement restoration plan that provides for
additional payments from the Company so that total retirement plan benefits for
executives will be maintained at the levels provided in the retirement plan
before the application of Internal Revenue Code limitations. The Company accrued
in connection with this plan $265,000 in 1997, $252,000 in 1996 and $237,000 in
1995.
10. LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating leases,
most of which contain renewal options. In addition, the Company has entered into
an operating lease which began in fiscal 1997 and involves leasing more than 300
miles of 8" pipeline. The lease has an initial term of ten years with a renewal
option for an additional ten years, and provides for future escalation of lease
payments. At July 31, 1997, the minimum future rental commitments under
operating leases having noncancellable lease terms in excess of one year total
in the aggregate $52,780,000, of which the following amounts are payable over
the next five years: 1998 -- $4,969,000; 1999 -- $5,151,000; 2000 -- $5,374,000;
2001 -- $5,537,000 and 2002 -- $5,564,000. Rental expense charged to operations
was not significant for the periods covered in the accompanying financial
statements.
11. CONTINGENCIES
In July 1993, the United States Department of Justice (DOJ), on behalf of
the United States Environmental Protection Agency (EPA), filed a suit against
the Company's subsidiary, Navajo alleging that, beginning in September 1990 and
continuing through the present, Navajo has violated and continues to violate the
Resource Conservation and Recovery Act (RCRA) and implementing regulations of
the EPA by treating, storing and disposing of certain hazardous wastes in the
refinery's wastewater treatment system without compliance with regulatory
requirements.
In June 1995, Navajo and the DOJ agreed in principle on a settlement that
would have resolved this pending litigation. Under this agreement, the Company
would close the existing evaporation ponds of its wastewater treatment system
pursuant to a closure plan to be approved by the EPA and the State of New Mexico
in accordance with RCRA regulations. The costs estimated of such a closure plan
would be substantially less than $1 million. The agreement also contemplates
that the Company would utilize an alternative to the existing wastewater
treatment system at what was an estimated total cost of approximately $3.5
million (now estimated to be possibly as low as $2.5 million). The costs to
implement an alternative wastewater treatment system would be capitalized and
amortized over the future useful life of the resulting asset in accordance with
generally accepted accounting principles. Finally, the agreement would also
involve the payment of a civil penalty of less than $2 million.
-42-
<PAGE> 43
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
In May 1997, EPA approved the Company's closure plan and recommended that
the State of New Mexico likewise approve the plan. Although the DOJ previously
represented that New Mexico would follow EPA's lead and approve the closure
plan, New Mexico authorities have declined to approve the plan as presently
formulated. The State's unanticipated position in this regard has caused a
reassessment of the terms of settlement. The DOJ wants to complete settlement
under the terms as agreed, despite the new uncertainty attendant to the closure
plan. The Company has been trying to obtain greater clarity as to the State's
intentions and the types of burdens that may be entailed in pursuing closure and
post-closure care under the State's authority.
In light of these developments, the prospects for settlement are uncertain.
If settlement is not achieved, the matter may be scheduled for trial in 1998. In
the event of litigation, the DOJ may assert civil penalties in excess of the
previously agreed amount. Also, the costs of any such alternative closure plan
may exceed those of the plan agreed to with the DOJ. In fiscal 1993, the Company
recorded a $2 million reserve for this litigation.
The Company is a party to various other litigation and proceedings which it
believes, based on advice of counsel, will not have a materially adverse impact
on its financial condition or results of operations.
12. SIGNIFICANT CUSTOMERS
All revenues were domestic revenues, except for sales of gasoline and
diesel fuel for export into Mexico. The export sales were to an affiliate of
PEMEX (the government-owned energy company of Mexico) and accounted for
approximately $71,000,000 (10%) of the Company's revenues for fiscal 1997,
$40,000,000 (6%) of revenues for fiscal 1996 and $41,000,000 (7%) of revenues
for fiscal 1995. Sales of military jet fuel to the United States Government
accounted for approximately $74,000,000 (10%) of the Company's revenues for
fiscal 1997, $70,000,000 (10%) of revenues for fiscal 1996 and $74,000,000 (12%)
of revenues for fiscal 1995. In addition to the United States Government and
PEMEX, another refiner, which is a purchaser of gasoline and diesel fuel for
resale to retail customers, accounted for approximately $156,000,000 (22%) of
the Company's revenues for fiscal 1997 and $131,000,000 (19%) of the revenues in
fiscal 1996. While a loss of, or reduction in amounts purchased by, major
purchasers that resell to retail customers could have an adverse effect on the
Company, the Company believes that the impact of such a loss on the Company's
results of operations should be limited because the Company's sales volume with
respect to products whose end- users are retail customers is more dependent on
general retail demand in the Company's primary markets than on sales to any
specific customer.
-43-
<PAGE> 44
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Financial Data Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1997
Revenues ............................ $ 186,946 $ 183,901 $ 180,081 $ 170,418 $ 721,346
Refining operating margin ........... $ 14,189 $ 5,582 $ 21,753 $ 14,564 $ 56,088
Income (loss) before
income taxes ..................... $ 5,358 $ (2,530) $ 13,122 $ 5,869 $ 21,819
Net income (loss) ................... $ 3,208 $ (1,514) $ 7,855 $ 3,538 $ 13,087
Income (loss) per
common share ..................... $ .39 $ (.18) $ .95 $ .43 $ 1.59
Dividends per common share .......... $ .12 $ .12 $ .12 $ .15 $ .51
Average number of shares of
common stock outstanding
(in thousands) ................... 8,254 8,254 8,254 8,254 8,254
1996
Revenues ............................ $ 164,838 $ 151,778 $ 168,472 $ 191,202 $ 676,290
Refining operating margin ........... $ 19,532 $ 10,966 $ 14,774 $ 23,459 $ 68,731
Income before income taxes .......... $ 10,211 $ 2,302 $ 5,830 $ 13,445 $ 31,788
Net income .......................... $ 6,103 $ 1,376 $ 3,503 $ 8,252 $ 19,234
Income per common share ............. $ .74 $ .17 $ .42 $ 1.00 $ 2.33
Dividends per common share .......... $ .10 $ .10 $ .10 $ .12 $ .42
Average number of shares of
common stock outstanding
(in thousands) ................... 8,254 8,254 8,254 8,254 8,254
</TABLE>
-44-
<PAGE> 45
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
First Second Third Fourth
Operating Data Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(barrels-per-day)
<S> <C> <C> <C> <C> <C>
1997
Sales of
refined products ......... 70,900 66,800 68,200 71,200 69,300
Refinery production ........ 69,300 68,900 66,900 69,100 68,600
1996
Sales of
refined products ......... 74,400 67,500 67,000 72,200 70,300
Refinery production ........ 70,400 69,100 65,200 68,800 68,400
</TABLE>
-45-
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no change in, or disagreement with, its independent
certified public accountants on matters involving accounting and financial
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information regarding the directors of the Company is
incorporated herein by this reference to information set forth under the caption
"Election of Directors" in the Company's Proxy Statement for its Annual Meeting
of Stockholders to be held in December 1997 which will be filed within 120 days
of July 31, 1997 (the "Proxy Statement").
The required information regarding the executive officers of the Company
is included herein in Part I, Item 4.
Required information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by this reference to
information set forth under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
this reference to information set forth under the captions "Executive
Compensation and Other Information" and "Compensation Committee Report on
Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by this reference to information set forth
under the captions "Principal Stockholders" and "Election of Directors" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by this reference to information set forth under the caption
"Election of Directors" in the Proxy Statement.
-46-
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Index to Consolidated Financial Statements
Page in
Form 10-K
---------
Report of Independent Auditors .................................. 26
Consolidated Balance Sheet at
July 31, 1997 and 1996 ....................................... 27
Consolidated Statement of Income for
the years ended July 31, 1997,
1996, and 1995 ................................................ 28
Consolidated Statement of Cash Flows
for the years ended July 31, 1997,
1996, and 1995 ............................................... 29
Consolidated Statement of Stockholders'
Equity for the years ended July 31,
1997, 1996 and 1995 .......................................... 30
Notes to Consolidated Financial
Statements ................................................... 31-45
(2) Index to Consolidated Financial Statement Schedules
All schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
See Index to Exhibits on pages 50 to 57.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's fourth quarter that
ended July 31, 1997.
-47-
<PAGE> 48
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.
HOLLY CORPORATION
(Registrant)
/s/ Lamar Norsworthy
---------------------------
Lamar Norsworthy
Chairman of the Board
and Chief Executive Officer
Date: October 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Lamar Norsworthy Chairman of Board of Directors October 28, 1997
- - ---------------------------- and Chief Executive Officer
Lamar Norsworthy of the Company
/s/ Matthew P. Clifton President and Director October 28, 1997
- - ----------------------------
Matthew P. Clifton
/s/ Jack P. Reid Executive Vice President, October 28, 1997
- - ---------------------------- Refining and Director
Jack P. Reid
/s/ Henry A. Teichholz Vice President, Treasurer and October 28, 1997
- - ---------------------------- Controller (Principal Financial
Henry A. Teichholz and Accounting Officer)
</TABLE>
-48-
<PAGE> 49
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ William J. Gray Senior Vice President, Marketing October 28, 1997
- - ---------------------------- and Supply and Director
William J. Gray
/s/ Marcus R. Hickerson Director October 28, 1997
- - ----------------------------
Marcus R. Hickerson
/s/ A. J. Losee Director October 28, 1997
- - ----------------------------
A. J. Losee
/s/ Robert G. McKenzie Director October 28, 1997
- - ----------------------------
Robert G. McKenzie
/s/ Thomas K. Matthews, II Director October 28, 1997
- - ----------------------------
Thomas K. Matthews, II
</TABLE>
-49-
<PAGE> 50
HOLLY CORPORATION
INDEX TO EXHIBITS
(Exhibits are numbered to correspond to the exhibit table in Item 601 of
Regulation S-K)
Exhibit
Number Description
- - ------ -----------
3.1 - Restated Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3(a), of Amendment No. 1 dated
December 13, 1988 to Registrant's Annual Report on Form 10-K for its
fiscal year ended July 31, 1988, File No. 1-3876).
3.2 - Bylaws of the Registrant, as amended (incorporated by reference to
Exhibit 3(b) of Registrant's Annual Report on Form 10-K for its fiscal
year ended July 31, 1993, File No. 1-3876).
4.1 - 9.72% Series A Senior Note of Holly Corporation, dated as of June
26, 1991, to Hartnat & Co. with schedule attached thereto of four
other substantially identical Notes which differ only in the respects
set forth in such schedule (incorporated by reference to Exhibit 4.1
of Registrant's Form 8-K dated June 26, 1991, File No. 1-3876).
4.2 - 10.16% Series B Senior Note of Holly Corporation, dated as of June
26, 1991, to New York Life Insurance Company with schedule attached
thereto of seven other substantially identical Notes which differ only
in the respects set forth in such schedule (incorporated by reference
to Exhibit 4.2 of Registrant's Form 8-K dated June 26, 1991, File No.
1-3876).
4.3 - 7.62% Series C Senior Note of Holly Corporation, dated as of
November 21, 1995, to John Hancock Mutual Life Insurance Company, with
schedule attached thereto of five other substantially identical Notes
which differ only in the respects set forth in such schedule
(incorporated by reference to Exhibit 4.4 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended October 31, 1995,
File No. 1-3876).
4.4 - Series D Senior Note of Holly Corporation, dated as of November 21,
1995, to John Hancock Mutual Life Insurance Company, with schedule
attached thereto of three other substantially identical Notes which
differ only in the respects set forth in such schedule (incorporated
by reference to Exhibit 4.5 of Registrant's Quarterly Report on Form
10-Q for the quarterly period ended October 31, 1995, File No.
1-3876).
-50-
<PAGE> 51
Exhibit
Number Description
- - ------- -----------
4.5 - Note Agreement of Holly Corporation, dated as of June 15, 1991, to
John Hancock Mutual Life Insurance Company, with schedule attached
thereto of eleven other substantially identical Note Agreements which
differ only in the respects set forth in such schedule (incorporated
by reference to Exhibit 4.8 of Registrant's Form 8-K dated June 26,
1991, File No. 1-3876).
4.6 - Note Agreement of Holly Corporation, dated as of November 15, 1995,
to John Hancock Mutual Life Insurance Company, with schedule attached
thereto of five other substantially identical Note Agreements which
differ only in the respects set forth in such schedule (incorporated
by reference to Exhibit 4.6 of Registrant's Quarterly Report on Form
10-Q for the quarterly period ended October 31, 1995, File No.
1-3876).
4.7 - Guaranty, dated as of June 15, 1991, of Navajo Refining Company,
Navajo Pipeline Co., Midland-Lea, Inc., and Lea Refining Company in
favor of Kentucky Central Life Insurance Company, Pan-American Life
Insurance Company, American International Life Assurance Company of
New York, Safeco Life Insurance Company, The Manhattan Life Insurance
Company, The Union Central Life Insurance Company, The Penn Insurance
and Annuity Company, The Penn Mutual Life Insurance Company,
Confederation Life Insurance Company, John Hancock Mutual Life
Insurance Company, John Hancock Variable Life Insurance Company, and
New York Life Insurance Company (incorporated by reference to Exhibit
4.3 of Registrant's Form 8-K dated June 26, 1991, File No. 1-3876).
4.8 - Guaranty, dated as of November 1, 1995, of Navajo Crude Oil
Marketing and Navajo Western Asphalt Company in favor of New York Life
Insurance, John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company, Confederation Life Insurance Company,
The Penn Insurance and Annuity Company, The Penn Mutual Life Insurance
Company, The Manhattan Life Insurance Company, The Union Central Life
Insurance Company, Safeco Life Insurance Company, American
International Life Assurance Company of New York, Pan-American Life
Insurance Company and Jefferson-Pilot Life Insurance Company
(incorporated by reference to Exhibit 4.2 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended October 31, 1995,
File No. 1-3876).
-51-
<PAGE> 52
Exhibit
Number Description
- - ------- -----------
4.9 - Guaranty, dated as of November 15, 1995, of Navajo Refining Company,
Navajo Pipeline Company, Lea Refining Company, Navajo Holdings, Inc.,
Navajo Western Asphalt Company and Navajo Crude Oil Marketing Company
in favor of John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company, Alexander Hamilton Life Insurance
Company of America, The Penn Mutual Life Insurance Company, AIG Life
Insurance Company and Pan-American Life Insurance Company
(incorporated by reference to Exhibit 4.7 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended October 31, 1995,
File No. 1-3876).
4.10 - Letter of Consent, Waiver and Amendment, dated as of November 15,
1995, among Holly Corporation, and New York Life Insurance Company,
John Hancock Mutual Life Insurance Company, John Hancock Variable Life
Insurance Company, Confederation Life Insurance Company, The Penn
Insurance and Annuity Company, The Penn Mutual Life Insurance Company,
The Manhattan Life Insurance Company, The Union Central Life Insurance
Company, Safeco Life Insurance Company, American International Life
Assurance Company of New York, Pan-American Life Insurance Company and
Jefferson-Pilot Life Insurance Company (incorporated by reference to
Exhibit 4.3 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended October 31, 1995, File No. 1-3876).
4.11 - First Amended and Restated Credit Agreement, dated as of July 23,
1993, among Holly Corporation, Navajo Refining Company, Navajo
Holdings, Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea
Refining Company, Navajo Western Asphalt Company, Montana Refining
Company, A Partnership and NationsBank of Texas, N.A., Banque Paribas,
The First National Bank of Boston, The Bank of Nova Scotia and
NationsBank of Texas, N.A. as the agent (incorporated by reference to
Exhibit 4(e) of Registrant's Annual Report on Form 10-K for its fiscal
year ended July 31, 1993, File No. 1-3876).
-52-
<PAGE> 53
Exhibit
Number Description
- - ------- -----------
4.12 - First Amendment to First Amended and Restated Credit Agreement,
dated as of April 7, 1994, among Holly Corporation, Navajo Refining
Company, Holly Petroleum, Inc., Navajo Pipeline Co., Navajo Holdings,
Inc., Lea Refining Company, Navajo Western Asphalt Company, Montana
Refining Company, A Partnership and Navajo Crude Oil Marketing
Company, and NationsBank of Texas, N.A., as Agent, and NationsBank of
Texas, N.A., Banque Paribas, The First National Bank of Boston, and
The Bank of Nova Scotia (incorporated by reference to Exhibit 4(f) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1994, File No. 1-3876).
4.13 - Second Amendment to First Amended and Restated Credit Agreement,
dated as of June 13, 1995, among Holly Corporation, Navajo Refining
Company, Holly Petroleum, Inc., Navajo Pipeline Co., Navajo Holdings,
Inc., Lea Refining Company, Navajo Western Asphalt Company, Montana
Refining Company, A Partnership and Navajo Crude Oil Marketing
Company, and NationsBank of Texas, N.A., as Agent, and NationsBank of
Texas, N.A., Banque Paribas, The First National Bank of Boston, and
The Bank of Nova Scotia (incorporated by reference to Exhibit 4(g) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1995, File No. 1-3876).
4.14 - Third Amendment to First Amended and Restated Credit Agreement,
dated as of November 15, 1995, among Holly Corporation, Navajo
Refining Company, Holly Petroleum, Inc., Navajo Pipeline Co., Navajo
Holdings, Inc., Lea Refining Company, Navajo Western Asphalt Company,
Montana Refining Company, a Partnership and Navajo Crude Oil Marketing
Company, NationsBank of Texas, N.A., as Agent, and NationsBank of
Texas, N.A., Banque Paribas, The First National Bank of Boston, and
The Bank of Nova Scotia (incorporated by reference to Exhibit 4.1 of
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended October 31, 1995, File No. 1-3876).
4.15 - Fourth Amendment to First Amended and Restated Credit Agreement,
dated as of May 14, 1997, among Holly Corporation, Navajo Refining
Company, Holly Petroleum, Inc., Navajo Pipeline Co., Navajo Holdings,
Inc., Lea Refining Company, Navajo Western Asphalt Company, Montana
Refining Company, a Partnership and Navajo Crude Oil Marketing
Company, NationsBank of Texas, N.A., as Agent, and NationsBank of
Texas, N.A., Banque Paribas, The First National Bank of Boston, and
The Bank of Nova Scotia.
-53-
<PAGE> 54
Exhibit
Number Description
- - ------- -----------
4.16 - Promissory Note of Holly Corporation, dated as of July 23, 1993, to
NationsBank of Texas, N.A. with schedule attached thereto of three
other substantially identical Notes which differ only in the respects
set forth in such schedule (incorporated by reference to Exhibit 4(f)
of Registrant's Annual Report on Form 10-K for its fiscal year ended
July 31, 1993, File No. 1-3876).
4.17 - Guaranty, dated as of July 30, 1991, of Navajo Refining Company,
Holly Petroleum, Inc., Navajo Pipeline Co., and Midland-Lea, Inc. in
favor of NCNB Texas National Bank, Banque Paribas, The First National
Bank of Boston, The Bank of Nova Scotia and NCNB Texas National Bank
as agent for itself and the other banks (incorporated by reference to
Exhibit 4.2 of Registrant's Form 8-K dated July 30, 1991, File No.
1-3876).
4.18 - First Supplement, executed as of February 20, 1992, to Guaranty,
dated as of July 30, 1991, among Navajo Refining Company, Holly
Petroleum, Inc., Navajo Holdings, Inc., Navajo Pipeline Co., Lea
Refining Company and Navajo Western Asphalt Company in favor of NCNB
Texas National Bank, Banque Paribas, The First National Bank of
Boston, and The Bank of Nova Scotia and NCNB Texas National Bank as
agent for the banks (incorporated by reference to Exhibit 4.4 of
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ending January 31, 1992, File No. 1-3876).
4.19 - Confirmation of Guaranty, executed as of July 23, 1993 by Navajo
Refining Company, Holly Petroleum, Inc., Navajo Pipeline Co., Navajo
Holdings, Inc., Navajo Western Asphalt Company and Lea Refining
Company which confirms the Guaranty (Exhibit 4(i) of this Form 10-K)
and First Supplement to the Guaranty (Exhibit 4(j) of this Form 10-K)
(incorporated by reference to Exhibit 4(i) of Registrant's Annual
Report on Form 10-K for its fiscal year ended July 31, 1993, File No.
1-3876).
4.20 - Second Supplement to Guaranty, executed as of April 7, 1994, by
Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc.,
Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt
Company and Navajo Crude Oil Marketing Company, in favor of
NationsBank of Texas, N.A., Banque Paribas, The First National Bank of
Boston, The Bank of Nova Scotia, and NationsBank of Texas, N.A., as
agent for the banks (incorporated by reference to Exhibit 4(k) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1994, File No. 1-3876).
-54-
<PAGE> 55
Exhibit
Number Description
- - ------ -----------
4.21 - Security Agreement, dated as of July 30, 1991, among Holly
Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo
Pipeline Co., Midland-Lea, Inc., Lea Refining Company, Navajo Western
Asphalt Company and NCNB Texas National Bank as agent for itself,
Banque Paribas, The First National Bank of Boston and The Bank of Nova
Scotia (incorporated by reference to Exhibit 4.3 of Registrant's Form
8-K dated July 30, 1991, File No. 1-3876).
4.22 - First Supplement, executed as of February 20, 1992, to the Security
Agreement, dated as of July 30, 1991, among Holly Corporation, Navajo
Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc., Navajo
Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company and
NCNB Texas National Bank as agent for itself, Banque Paribas, The
First National Bank of Boston and The Bank of Nova Scotia
(incorporated by reference to Exhibit 4.3 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ending January 31, 1992,
File No. 1-3876).
4.23 - Confirmation of Security Agreement, executed as of July 23, 1993 by
Holly Corporation, Navajo Pipeline Co., Navajo Refining Company, Holly
Petroleum, Inc., Navajo Holdings, Inc., Lea Refining Company and
Navajo Western Asphalt Company which confirms the Security Agreement
(Exhibit 4(m) of this Form 10-K) and First Supplement to the Security
Agreement (Exhibit 4(n) of this Form 10-K) (incorporated by reference
to Exhibit 4(l) of Registrant's Annual Report on Form 10-K for its
fiscal year ended July 31, 1993, File No. 1-3876).
4.24 - Security Agreement, dated as of July 23, 1993, between Montana
Refining Company, A Partnership, and NationsBank of Texas, N.A. as
agent for itself, Banque Paribas, The First National Bank of Boston
and The Bank of Nova Scotia (incorporated by reference to Exhibit 4(m)
of Registrant's Annual Report on Form 10-K for its fiscal year ended
July 31, 1993, File No. 1-3876).
4.25 - Second Supplement to Security Agreement, executed as of April 7,
1994, by and among Holly Corporation, Navajo Refining Company, Holly
Petroleum, Inc., Navajo Holdings, Inc., Navajo Pipeline Co., Lea
Refining Company, Navajo Western Asphalt Company and Navajo Crude Oil
Marketing Company, and NationsBank of Texas, N.A., as agent, Banque
Paribas, The First National Bank of Boston and The Bank of Nova Scotia
(incorporated by reference to Exhibit 4(p) of Registrant's Annual
Report on Form 10-K for its fiscal year ended July 31, 1994, File No.
1-3876).
-55-
<PAGE> 56
Exhibit
Number Description
- - ------ -----------
4.26 - Holly Corporation Stock Option Plan - As adopted at the Annual
Meeting of Stockholders of Holly Corporation on December 13, 1990
(incorporated by reference to Exhibit 4(i) of Registrant's Annual
Report on Form 10-K for its fiscal year ended July 31, 1991, File No.
1-3876).
4.27 - $100,000,000 Credit and Reimbursement Agreement, dated as of October
14, 1997, among Holly Corporation, Navajo Refining Company, Black
Eagle, Inc., Navajo Corp., Navajo Southern, Inc., Navajo Northern,
Inc., Lorefco, Inc., Navajo Crude Oil Purchasing, Inc., Navajo
Holdings, Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea
Refining Company, Navajo Western Asphalt Company and Montana Refining
Company, A Partnership, as Borrowers and Guarantors, the Banks listed
herein, Canadian Imperial Bank of Commerce, as Administrative Agent,
CIBC Inc., as Collateral Agent and Morgan Guaranty Trust Company of
New York, as Documentation Agent, with schedules and exhibits.
4.28 - Guaranty, dated as of October 10, 1997, of Navajo Corp., Navajo
Southern, Inc., Navajo Crude Oil Purchasing, Inc. and Lorefco, Inc in
favor of the Holders to the Note Agreements dated as of June 15, 1991.
4.29 - Guaranty, dated as of October 10, 1997, of Navajo Corp., Navajo
Southern, Inc., Navajo Crude Oil Purchasing, Inc. and Lorefco, Inc in
favor of the Holders to the Note Agreements dated as of November 15,
1995.
10.1 - Supplemental Payment Agreement, dated as of July 8, 1993, between
Lamar Norsworthy and Holly Corporation (incorporated by reference to
Exhibit 10(a) of Registrant's Annual Report on Form 10-K for its
fiscal year ended July 31, 1993, File No. 1-3876).
10.2 - Supplemental Payment Agreement, dated as of July 8, 1993, between
Jack P. Reid and Holly Corporation (incorporated by reference to
Exhibit 10(b) of Registrant's Annual Report on Form 10-K for its
fiscal year ended July 31, 1993, File No. 1-3876).
21 - Subsidiaries of Registrant
23 - Consent of Independent Auditors
-56-
<PAGE> 57
Exhibit
Number Description
- - ------ -----------
27 - Financial Data Schedule
99 - Copy of civil action against the Company's subsidiary, Navajo
Refining Company, filed on July 16, 1993 by the United States, in the
United States District Court for the District of New Mexico, seeking
civil penalties and other compliance measures under the Resource
Conservation and Recovery Act and implementing regulations of the
Environmental Protection Agency (incorporated by reference to Exhibit
28 of Registrant's Form 8-K dated July 16, 1993, File No. 1-3876).
-57-
<PAGE> 1
EXHIBIT 4.15
FOURTH AMENDMENT TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
Reference is made to that certain First Amended and Restated Credit
Agreement dated as of July 23, 1993, as amended by the First Amendment to First
Amended and Restated Credit Agreement dated as of April 7, 1994, the Second
Amendment to First Amended and Restated Credit Agreement dated as of June 13,
1995 and the Third Amendment to First Amended and Restated Credit Agreement
dated as of November 15, 1995 (as so amended, the "Credit Agreement"), by and
among Holly Corporation ("Borrower"), Navajo Refining Company ("Navajo"), Holly
Petroleum, Inc. ("Holly Petroleum"), Navajo Pipeline Co. ("Navajo Pipeline"),
Navajo Holdings, Inc. "Navajo Holdings"), Lea Refining Company ("Lea, Navajo
Western Asphalt Company ("Navajo Western"), Montana Refining Company, a
Partnership ("Montana") and Navajo Crude Oil Marketing Company ("Navajo
Crude") (Navajo, Holly Petroleum, Navajo Pipeline, Navajo Holdings, Lea, Navajo
Western and Navajo Crude collectively referred to herein as "Guarantors"),
NationsBank of Texas,. N.A., as Agent ("Agent"), and NationsBank of Texas,
N.A., Banque Paribas, The First National Bank of Boston, and The Bank of Nova
Scotia (collectively, "Lenders"). Capitalized terms used herein shall have the
meanings given them in the Credit Agreement.
The parties hereto desire to amend the Credit Agreement for the purposes
expressed herein.
In consideration of the mutual covenants and agreements contained herein
and in the Credit Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. The definition of "Maturity Date" in Section 1.1 of
the Credit Agreement is hereby amended in its entirety to read as follows:
"Maturity Date. November 1, 1997."
2. Representations and Warranties of Related Persons. In order to
induce each Lender to enter into this Amendment, Borrower represents and
warrants as to itself and each other Related Person, and each other Related
Person represents and warrants as to itself, to each Lender that:
a. The representations and warranties contained in Section
5.1 of the Credit Agreement are true and correct at and as of the time
of the effectiveness hereof.
b. Each of Borrower, each Guarantor and Montana is duly
authorized to execute and deliver this Amendment, and Borrower is and
will continue to be duly authorized to borrow monies and to perform its
obligations under the Credit Agreement. Each of Borrower, each Guarantor
and Montana has duly taken all corporate or partnership action necessary
to authorize the execution and delivery of this Amendment and to
authorize the performance of its obligation hereunder.
<PAGE> 2
c. The execution and delivery by each of Borrower, each
Guarantor and Montana of this Amendment does not and will not conflict
with any provision of law, statute, rule or regulation or of any of its
organizational documents, or of any material agreement, judgment,
license, order or permit applicable to or binding upon it, or result in
the creation of any lien, charge or encumbrance upon any assets or
properties or any of its assets. Except for those which have been
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by any of Borrower, any Guarantor or Montana of
this Amendment.
d. When duly executed and delivered, this Amendment will be
a legal and binding obligation of Borrower, Guarantors and Montana
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or similar laws of general application relating
to the enforcement of creditors' rights and by equitable principles of
general application.
3. Ratification of Documents. The Credit Agreement as hereby
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to refer to this
Amendment also. The execution. delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lenders under the Credit Agreement, the Notes or any
other Loan Document nor constitute a waiver of any provision of the Credit
Agreement, the Notes or any other Loan Document. Each Guarantor hereby consents
to the provisions of this Amendment, and hereby ratifies and confirms the
Guaranty, and agrees that its obligations and covenants thereunder are
unimpaired hereby and shall remain in full force and effect.
4. Loan Documents. This Amendment is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.
6. Counterparts. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment to be
effective as May 14, 1997.
HOLLY CORPORATION,
a Delaware corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
NAME: Henry A. Teichholz
Title: Vice President, Treasurer
and Controller
NAVAJO REFINING COMPANY,
a Delaware corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
NAME: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO PIPELINE CO.,
a Delaware corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
NAME: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO HOLDINGS, INC.,
a New Mexico corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
NAME: Henry A. Teichholz
Title: Vice President and Treasurer
3
<PAGE> 4
HOLLY PETROLEUM, INC.,
A Delaware corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
LEA REFINING COMPANY,
a Delaware corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO WESTERN ASPHALT COMPANY,
a New Mexico corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
MONTANA REFINING COMPANY, A PARTNERSHIP,
a Montana general partnership
By: Navajo Northern, Inc., its General
Partner and a Nevada corporation
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
4
<PAGE> 5
By:
--------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ DALE T. WILSON
--------------------------
Name: Dale T. Wilson
Title: Vice President
BANQUE PARIBAS
By: /s/ MARIAN LIVINGSTON
--------------------------
Name: Marian Livingston
Title: Vice President
By: /s/ BARTON D. SCHOUEST
--------------------------
Name: Barton D. Schouest
Title: Group Vice President
Bank Boston N.A. F/K/A
THE FIRST NATIONAL BANK OF
BOSTON
By: /s/ J. R. VAUGHAN, JR.
--------------------------
Name: J. R. Vaughan, Jr.
Title: Director
Energy & Utilities
5
<PAGE> 6
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
----------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
NATIONSBANK OF TEXAS, N.A.
By: /s/ DALE T. WILSON
------------------
Name: Dale T. Wilson
Title: Vice President
<PAGE> 1
EXHIBIT 4.27
[EXECUTION COPY]
$100,000,000
CREDIT AND REIMBURSEMENT AGREEMENT
dated as of
October 14, 1997
among
Holly Corporation
Navajo Refining Company
Black Eagle, Inc.
Navajo Corp.
Navajo Southern, Inc.
Navajo Northern, Inc.
Lorefco, Inc.
Navajo Crude Oil Purchasing, Inc.
Navajo Holdings, Inc.
Holly Petroleum, Inc.
Navajo Pipeline Co.
Lea Refining Company
Navajo Western Asphalt Company
and Montana Refining Company, A Partnership,
as Borrowers and Guarantors
The Banks Listed Herein
Canadian Imperial Bank of Commerce,
as Administrative Agent
CIBC Inc.,
as Collateral Agent
and
Morgan Guaranty Trust Company of New York,
as Documentation Agent
<PAGE> 2
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
DEFINITIONS
<S> <C>
SECTION 1.01. Definitions......................................................................1
SECTION 1.02. Accounting Terms and Determinations.............................................21
SECTION 1.03. Types of Borrowings.............................................................21
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend.............................................................22
SECTION 2.02. Method of Borrowing.............................................................22
SECTION 2.03. Letters of Credit...............................................................23
SECTION 2.04. Notes...........................................................................27
SECTION 2.05. Maturity of Loans...............................................................28
SECTION 2.06. Interest Rates..................................................................28
SECTION 2.07. Commitment Fees.................................................................29
SECTION 2.08. Optional Termination or Reduction of the Commitments............................30
SECTION 2.09. Mandatory Termination of Commitments............................................30
SECTION 2.10. Optional Prepayments............................................................30
SECTION 2.11. General Provisions as to Payments...............................................30
SECTION 2.12. Funding Losses..................................................................31
SECTION 2.13. Computation of Interest and Fees................................................32
SECTION 2.14. Deficiencies in the Borrowing Base..............................................32
SECTION 2.15. Method of Electing Interest Rates...............................................32
SECTION 2.16. Regulation D Compensation.......................................................33
SECTION 2.17. Register........................................................................34
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness...................................................................35
SECTION 3.02. All Credit Events...............................................................37
SECTION 3.03. Termination of Prior Credit Agreement...........................................37
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
SECTION 4.01. Corporate Existence and Power...................................................38
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention.................................................................38
SECTION 4.03. Binding Effect..................................................................39
SECTION 4.04. Lien Enforceable................................................................39
SECTION 4.05. Assignments Valid...............................................................39
SECTION 4.06. Financial Information...........................................................39
SECTION 4.07. Litigation......................................................................40
SECTION 4.08. Compliance with ERISA...........................................................40
SECTION 4.09. Environmental Matters...........................................................40
SECTION 4.10. Taxes...........................................................................41
SECTION 4.11. Restricted Subsidiaries.........................................................41
SECTION 4.12. Full Disclosure.................................................................41
SECTION 4.13. Compliance with Margin Regulations..............................................41
ARTICLE 5
COVENANTS
SECTION 5.01. Information.....................................................................42
SECTION 5.02. Payment of Obligations..........................................................45
SECTION 5.03. Maintenance of Property; Insurance..............................................45
SECTION 5.04. Conduct of Business and Maintenance of Existence................................45
SECTION 5.05. Compliance with Laws............................................................45
SECTION 5.06. Inspection of Property, Books and Records.......................................45
SECTION 5.07. Investments.....................................................................46
SECTION 5.08. Minimum Consolidated Tangible Net Worth.........................................46
SECTION 5.09. Leverage Ratio..................................................................47
SECTION 5.10. Working Capital.................................................................47
SECTION 5.11. Negative Pledge.................................................................47
SECTION 5.12. Consolidation, Mergers and Sales of Assets......................................48
SECTION 5.13. Use of Proceeds.................................................................49
SECTION 5.14. Other Debt......................................................................49
SECTION 5.15. Restricted Payments and Restricted Investments..................................50
SECTION 5.16. Transactions with Affiliates....................................................50
SECTION 5.17. Designation of Subsidiaries; Restricted Subsidiaries;
Additional Guarantors.........................................................51
SECTION 5.18. Consolidated Capital Expenditures...............................................52
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default...............................................................53
SECTION 6.02. Notice of Default...............................................................56
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization...................................................56
SECTION 7.02. Agents and Affiliates...........................................................56
SECTION 7.03. Action by Agents................................................................57
SECTION 7.04. Consultation with Experts.......................................................57
SECTION 7.05. Liability of Agents.............................................................57
SECTION 7.06. Indemnification.................................................................57
SECTION 7.07. Credit Decision.................................................................58
SECTION 7.08. Successor Agents................................................................58
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................58
SECTION 8.02. Illegality......................................................................59
SECTION 8.03. Increased Cost and Reduced Return...............................................60
SECTION 8.04. Taxes...........................................................................61
SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar
Loans.........................................................................63
SECTION 8.06. Substitution of Bank............................................................63
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices.........................................................................63
SECTION 9.02. No Waiver.......................................................................64
SECTION 9.03. Expenses; Indemnification.......................................................64
SECTION 9.04. Sharing of Set-Offs.............................................................65
SECTION 9.05. Amendments and Waivers..........................................................66
SECTION 9.06. Successors and Assigns..........................................................66
SECTION 9.07. Collateral......................................................................68
SECTION 9.08. Proprietary Information.........................................................68
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 9.09. Governing Law; Submission to Jurisdiction.......................................68
SECTION 9.10. Counterparts; Integration.......................................................68
SECTION 9.11. Severability....................................................................69
SECTION 9.12. WAIVER OF JURY TRIAL............................................................69
PRICING SCHEDULE...............................................................................75
</TABLE>
SCHEDULE I- Liens Existing on and as of the Date Hereof
SCHEDULE II- Existing Letters of Credit
EXHIBIT A- Note
EXHIBIT B-1 Opinion of Baker & Botts L.L.P., Special Counsel
for the Obligors
EXHIBIT B-2 Opinion of Christopher Cella, General Counsel of the
Obligors
EXHIBIT C- Opinion of Davis Polk & Wardwell, Special Counsel for the
Agents
EXHIBIT D- Form of Subsidiary Security Agreement
EXHIBIT E- Form of Company Security Agreement
EXHIBIT F- Form of Assignment and Assumption Agreement
EXHIBIT G-1- Government Contracts
EXHIBIT G-2- Form of Assignment
EXHIBIT G-3- Form of Notice of Assignment
EXHIBIT H- Form of Guarantee Agreement
EXHIBIT I- Designated Customers
iv
<PAGE> 6
CREDIT AND REIMBURSEMENT AGREEMENT
AGREEMENT dated as of October 10, 1997 among HOLLY CORPORATION, NAVAJO
REFINING COMPANY, BLACK EAGLE, INC., NAVAJO CORP., NAVAJO SOUTHERN, INC.,
NAVAJO NORTHERN, INC., LOREFCO, INC., NAVAJO CRUDE OIL PURCHASING, INC., NAVAJO
HOLDINGS, INC., HOLLY PETROLEUM, INC., NAVAJO PIPELINE CO., LEA REFINING
COMPANY, NAVAJO WESTERN ASPHALT COMPANY, and MONTANA REFINING COMPANY, A
PARTNERSHIP, as Borrowers and Guarantors, the BANKS listed on the signature
pages hereof, CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent, CIBC
INC. as Collateral Agent and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Documentation Agent.
W I T N E S S E T H :
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"ACCOUNT DEBTOR" means, with respect to any Receivable, the Person or
Persons obligated to make payments with respect to such Receivable, including
any guarantor thereof.
"ADMINISTRATIVE AGENT" means Canadian Imperial Bank of Commerce in its
capacity as administrative agent for the Banks hereunder, and its successors in
such capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Company) duly
completed by such Bank.
"AFFILIATE" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Company (a "CONTROLLING PERSON") or (ii)
any Person (other than the Company or a Restricted Subsidiary) which is
controlled by or is under common control with a Controlling Person. As used
herein, the
<PAGE> 7
term "control" means possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"AGENT" means the Administrative Agent, the Documentation Agent or the
Collateral Agent, as the context may require, and "AGENTS" means any
combination of them.
"AGGREGATE LC AMOUNT" has the meaning set forth in Section 6.01.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"ASSET SALE" means any sale, lease, license or other disposition
(including any such transaction effected by way of merger or consolidation) by
a Borrower or any Restricted Subsidiary to any Person other than a Borrower or
a Restricted Subsidiary of any asset, including without limitation any
sale-lease-back transaction, whether or not involving a capital lease, but
excluding (i) dispositions of cash, First Tier Cash Investments, Second Tier
Cash Investments or Third Tier Cash Investments in the ordinary course of
business, (ii) dispositions of inventory in the ordinary course of business and
(iii) dispositions of obsolete, unused or unnecessary equipment or undeveloped
real estate.
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"ASSIGNMENT OF CLAIMS ACT" means the Assignment of Claims Act of 1940, as
amended, or any successor statute.
"BANK" means each bank listed on the signature pages hereof, each Assignee
which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means a Loan which bears interest at the Base Rate
pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or the provisions of Article 8.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA that is not a Plan or a
2
<PAGE> 8
Multiemployer Plan and that is maintained or otherwise contributed to by any
member of the ERISA Group.
"BOARD OF DIRECTORS" means, at any time, the board of directors of the
Company or any committee thereof which, at the relevant time, shall have the
lawful power to exercise the power and authority of such board of directors.
"BORROWERS" means the Company and each of the Borrower Subsidiaries, and
"BORROWER" means any one of them. When used in the context of a Loan or Letter
of Credit, references to "the Borrower" are to the Borrower to which such Loan
is or is to be made or upon whose request such Letter of Credit is or is to be
issued.
"BORROWER SALE" has the meaning set forth in Section 5.12(c).
"BORROWER SUBSIDIARIES" means Navajo Refining Company, Navajo Holdings,
Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea Refining Company, Navajo
Western Asphalt Company and Montana Refining Company, A Partnership and
"BORROWER SUBSIDIARY" means any one of them.
"BORROWING BASE" means as of the date of the most recent Borrowing Base
Certificate delivered to the Collateral Agent by the Company, an amount equal
to the sum (without duplication) of (i) 85% of the outstanding balance of
Eligible Commercial Receivables; (ii) 95% of the outstanding balance of
Eligible Government Receivables; (iii) 80% of Eligible Inventory; (iv) 80%
Eligible Product In Transit; (v) 85% of Eligible Back-to-Back Transactions;
(vi) 95% of Designated Eligible Back-to-Back Transactions, (vii) at the option
of the Company, 100% of Pledged Cash, (viii) at the option of the Company, 100%
of the fair market value of First Tier Cash Equivalents, (ix) at the option of
the Company, 90% of the fair market value of Second Tier Cash Equivalents and
(x) at the option of the Company, 80% of the fair market value of Third Tier
Cash Equivalents; provided that (1) amounts included in the Borrowing Base
pursuant to clause (iii) above shall not exceed 60% of the Borrowing Base and
(2) the aggregate amount of all Eligible Receivables included in the Borrowing
Base and due from all Pemex Account Debtors shall not exceed $8,000,000. The
Borrowing Base as set forth in the Borrowing Base Certificate most recently
delivered to the Collateral Agent by the Company hereunder shall constitute the
"Borrowing Base" for all purposes hereunder.
"BORROWING BASE CERTIFICATE" means a certificate executed by the chief
financial officer, treasurer or the controller of the Company, in a form
mutually agreed to by the Company and the Administrative Agent.
3
<PAGE> 9
"COLLATERAL" means all of the collateral in which a security interest is
granted to the Collateral Agent on behalf of the Banks in the Security
Agreements.
"COLLATERAL ACCOUNT" has the meaning set forth in the Company Security
Agreement.
"COLLATERAL AGENT" means CIBC Inc. in its capacity as collateral agent for
the Secured Parties hereunder and under each Security Agreement and its
successors in such capacity.
"COMMITMENT" means (i) with respect to each Bank listed on the signature
pages hereof, the amount set forth opposite the name of such Bank on the
signature pages hereof and (ii) with respect to each Assignee that becomes a
Bank pursuant to Section 9.06(c), the amount of the Commitment thereby assumed
by it, in each case as such amount may be increased or reduced from time to
time pursuant to Section 2.08 or 9.06(c).
"COMMITMENT FEE RATE" means a rate per annum determined daily in
accordance with the Pricing Schedule.
"COMMITMENT PERCENTAGE" means, with respect to each Bank, at any time, the
percentage that such Bank's Commitment constitutes of the aggregate amount of
the Commitments at such time.
"COMPANY" means Holly Corporation, a Delaware corporation, and its
successors.
"COMPANY SECURITY AGREEMENT" means a Security Agreement substantially in
the form of Exhibit E between the Company and the Collateral Agent, as amended
from time to time.
"COMPANY'S 1996 FORM 10-K" means the Company's annual report on Form 10-K
for the fiscal year ended July 31, 1996, as filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the additions
to property, plant and equipment and other capital expenditures of the Company
and the Restricted Subsidiaries for such period, as the same are or would be
set forth in a consolidated statement of cash flows of the Company and the
Restricted Subsidiaries for such period.
4
<PAGE> 10
"CONSOLIDATED CURRENT ASSETS" means at any date the consolidated amount of
assets of the Company and the Restricted Subsidiaries which are properly
classified as current assets, provided that, in determining Consolidated
Current Assets, all inventory shall be valued on a FIFO basis.
"CONSOLIDATED CURRENT LIABILITIES" means at any date the consolidated
amount of liabilities of the Company and the Restricted Subsidiaries maturing
on demand or within one year from the date as of which current liabilities are
to be determined and such other liabilities as may properly be classified as
current liabilities.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net
income of the Company and the Restricted Subsidiaries for such period.
"CONSOLIDATED OPERATING CASH FLOW" means for any period (i) Consolidated
Net Income for such period plus (ii) to the extent deducted in determining
Consolidated Net Income for such period, the sum of depreciation, amortization
and dry hole and leasehold costs plus (iii) any increase (or minus any
decrease) during such period in the consolidated deferred income taxes of the
Company and the Restricted Subsidiaries.
"CONSOLIDATED SUBSIDIARY" means, at any date with respect to any Person,
any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such
statements were prepared as of such date.
"CONSOLIDATED TANGIBLE NET WORTH" means, at any date, the consolidated
stockholders' equity of the Company and the Restricted Subsidiaries less their
consolidated Intangible Assets, all determined as of such date. For purposes of
this definition "INTANGIBLE ASSETS" means the amount (to the extent reflected
in determining such consolidated stockholders' equity) of (i) all write-ups
(other than write-ups resulting from foreign currency translations and
write-ups of assets of a going concern business made within twelve months after
the acquisition of such business) subsequent to July 31, 1996 in the book value
of any asset owned by the Company or a Restricted Subsidiary, (ii) all
investments in Unrestricted Subsidiaries and all equity investments in Persons
which are not Subsidiaries and (iii) all goodwill, patents, trademarks, service
marks, trade names, anticipated future benefit of tax loss carry-forwards not
fully reserved, copyrights, organization or developmental expenses and other
intangible assets.
"CONTROLLING PERSON" has the meaning assigned to such term in the
definition of "Affiliate".
5
<PAGE> 11
"CREDIT EVENT" means the making of a Loan or the issuance, extension or
renewal of a Letter of Credit.
"CREDIT EXPOSURE" means, with respect to each Bank at any time, an amount
equal to the sum of (i) such Bank's Loan Exposure at such time and (ii) such
Bank's LC Exposure at such time.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles, (v)
all obligations of such Person (whether fixed or contingent) to reimburse any
bank or other Person in respect of amounts paid or payable under a letter of
credit or similar instrument, (vi) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person (such
Debt to have a principal amount, for purposes of determinations under this
Agreement, not exceeding the greater of (x) the net unencumbered carrying value
of such asset under generally accepted accounting principles and (y) the fair
market value of such asset as of the date the principal amount of such Debt is
determined), and (vii) all Debt of others Guaranteed by such Person; provided
that the principal amount of any Joint Venture Debt which is included in this
definition shall be (1) the principal amount of such Joint Venture Debt times
(2) the equity percentage held directly or indirectly by the Company in the
Joint Venture which has incurred such Joint Venture Debt.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of the foregoing transactions) or any combination of the foregoing
transactions.
"DESIGNATED CUSTOMER" means a Person set forth in Exhibit I or any
supplement to Exhibit I delivered by the Company to the Collateral Agent;
provided that such Person must be approved by the Collateral Agent, acting in
its
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<PAGE> 12
sole discretion after consultation with the Banks, which approval may be
revoked by the Collateral Agent, acting in its sole discretion after
consultation with the Banks, at any time. The revocation by the Collateral
Agent of its approval of any Designated Customer shall be effective
prospectively and shall not affect any Eligible Receivables with respect to
which such Designated Customer is the Account Debtor included in the Borrowing
Base at the time such revocation is effective, subject to the last sentence of
the definition of "Eligible Receivable".
"DESIGNATED ELIGIBLE BACK-TO-BACK TRANSACTION" means an Eligible
Back-to-Back Transaction as to which a Designated Customer is a party.
"DOCUMENTATION AGENT" means Morgan Guaranty Trust Company of New York in
its capacity as documentation agent for the Banks hereunder, and its successors
in such capacity.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City or Houston, Texas are authorized
or required by law to close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Company and the Administrative Agent.
"ELIGIBLE BACK-TO-BACK TRANSACTION" means the sales price of back-to-back
shipments of crude oil en route to any of the Borrowers or customer of such
Borrower (whether or not constituting inventory of such Borrower) as to which
shipments (i) such Borrower's obligation to pay for such crude oil is supported
by a Letter of Credit issued hereunder and (ii) such Borrower holds title to
such crude oil.
"ELIGIBLE COMMERCIAL RECEIVABLE" means, at any date of determination
thereof, any Eligible Receivable which is identified as a "trade receivable"
(and not as a "crude oil receivable") on the balance sheet of the Company and
its Consolidated Subsidiaries at such date (or would be so identified if such
balance sheet were prepared at such date).
"ELIGIBLE GOVERNMENT CONTRACT" means a contract between any Obligor and
the Government; provided that if such contract calls for total payments by the
Government in excess of $1,000,000, then such contract shall only be an
Eligible Government Contract if such contract:
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<PAGE> 13
(a) is set forth in Exhibit G-1 hereto (or in a supplement to Exhibit
G-1 delivered by the Company to the Collateral Agent on behalf of the
Banks not less than three (3) Domestic Business Days prior to any delivery
of a Borrowing Base Certificate in which such contract is sought to be
included);
(b) does not include a provision, substantially to the effect of
Federal Acquisition Regulation 52.232-24, prohibiting assignment of
amounts due from the Government under such contract; and
(c) is the subject of an instrument of assignment duly completed and
executed by the Obligor party to such contract substantially in the form
of Exhibit G-2 and a notice of assignment duly completed and executed by
the Collateral Agent, substantially in the form of Exhibit G-3, in each
case and for each such notice, delivered either (i) to the Government for
acknowledgment by the Government, not less than three (3) Domestic
Business Days prior to any delivery of a Borrowing Base Certificate in
which such contract is sought to be included or (ii) to the Collateral
Agent, not less than three (3) Domestic Business Days prior to any
delivery of a Borrowing Base Certificate in which such contract is sought
to be included, to be held by the Collateral Agent (x) to be delivered to
such Obligor, at the request of such Obligor, for delivery to the
Government and acknowledgment by the Government or (y) so long as either a
Security Event or a Default has occurred and is continuing, for delivery
to the Government and acknowledgment by the Government at the sole
discretion of the Collateral Agent after consultation with the Banks. Each
such instrument and each such notice shall contain such modifications as
the Collateral Agent shall reasonably determine to be necessary or
advisable in order to comply with any law applicable to transactions with
the related Account Debtor.
"ELIGIBLE GOVERNMENT RECEIVABLE" means, at any date of determination
thereof, any Eligible Receivable created pursuant to an Eligible Government
Contract.
"ELIGIBLE INVENTORY" means an amount equal to the lower of (i) the sum of
the net values of the inventory determined on a FIFO basis or (ii) the Market
Value of petroleum products, as to which an Obligor has title, as to which the
Banks have a valid and perfected first priority security interest and as to
which the Company has furnished to the Banks reasonably detailed information in
a Borrowing Base Certificate, determined after taking into account all charges
and liens (other than those of the Banks or those of producers arising under
the New Mexico Oil and Gas Products Lien Act or any similar statute in any
other
8
<PAGE> 14
jurisdiction or under section 9-319 of the Uniform Commercial Code in effect in
the States of Texas, Kansas and Wyoming or any other applicable jurisdiction,
held in suspense or in existence less than 120 days from the date of creation
thereof, in either case in respect of obligations of the Obligors not overdue),
of all kinds against such inventory, reductions in market value thereof, and
transportation, processing and other handling charges affecting the value
thereof, all as determined by the Collateral Agent in its sole discretion,
which, absent manifest error, shall be final and binding upon the Borrowers.
"ELIGIBLE PRODUCT IN TRANSIT" means petroleum products which any Person is
obligated under contract to supply to an Obligor, the payment for which is
backed by a Letter of Credit issued hereunder, valued at the lower of (i) the
contract price on a FIFO basis or (ii) Market Value, as if such products were
inventory of such Obligor, as to which the Banks have a valid and perfected
first priority security interest in the related contract or other rights of
such Obligor and as to which the Company has furnished to the Banks reasonably
detailed information in a Borrowing Base Certificate, determined after taking
into account all charges and liens (other than those of the Banks or those of
producers arising under the New Mexico Oil and Gas Products Lien Act or any
similar statute in any other jurisdiction or under section 9-319 of the Uniform
Commercial Code in effect in the States of Texas, Kansas and Wyoming or any
other applicable jurisdiction, held in suspense or in existence less than 120
days from the date of creation thereof, in either case in respect of
obligations of the Obligors not overdue) of all kinds against such products,
reductions in market value thereof, and transportation, processing and other
handling charges affecting the value thereof, all as determined by the
Collateral Agent in its sole discretion, which absent manifest error, shall be
final and binding upon the Borrowers.
"ELIGIBLE RECEIVABLE" means, at any date of determination thereof, any
Receivable other than the following:
(a) solely in the case of a Receivable created pursuant to an
Eligible Government Contract, any such Receivable for which all
necessary government funding has not been appropriated at the time
such Receivable is invoiced;
(b) any Receivable that is not invoiced and payable by the
Account Debtor in United States dollars unless the currency exchange
risk in respect of such Receivable has been hedged to the reasonable
satisfaction of the Required Banks;
(c) any Receivable due from an Account Debtor (i) organized
under the laws of any jurisdiction other than a
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<PAGE> 15
jurisdiction located in the United States of America or Canada or
(ii) whose principal place of business is located in any jurisdiction
other than a jurisdiction located in the United States of America or
Canada, unless in either case (x) such Account Debtor is Pemex or any
of its affiliates organized under the laws of Mexico (any such
Account Debtor, a "Pemex Account Debtor") or whose principal place of
business is in Mexico or (y) such Receivable is invoiced to and paid
from an office of such Person located within the United States of
America;
(d) any Receivable that does not comply with all applicable
legal requirements, including, without limitation, all laws, rules,
regulations and orders of any governmental or judicial authority;
(e) any Receivable whose original due date is more than 90 days
after the date of the original issuance of the invoice therefor;
(f) any Receivable that remains unpaid for more than 90 days
from the original due date specified at the time of the original
issuance of the invoice therefor;
(g) any Receivable arising outside the ordinary course of
business of the Obligors;
(h) any Receivable as to which the Account Debtor is a Person
other than the Government or a Designated Customer, to the extent the
aggregate amount of all Receivables due from such Account Debtor at
such date exceeds 10% of the aggregate amount of the Borrowing Base
at such date;
(i) any Receivable as to which the Account Debtor is a
Designated Customer, to the extent the aggregate amount of all
Receivables due from such Designated Customer exceeds 15% of the
aggregate amount of the Borrowing Base at such date;
(j) any Receivable evidenced by an "instrument" (as defined in
the UCC) not in the possession of the Collateral Agent;
(k) any Receivable that is not an "account" as defined in the
UCC;
(l) any Receivable that is not subject to a perfected first
priority Lien in favor of the Collateral Agent (under all applicable
10
<PAGE> 16
laws and subject only to Permitted Liens), including without
limitation any Receivable which constitutes an "account" under the
Uniform Commercial Code subject to subsection (5) of Section 9-103 of
the Uniform Commercial Code in effect in any applicable jurisdiction
and which respect to which Receivable all necessary actions
(including without limitation the filing of all necessary UCC-1
financing statements in the proper form) necessary to perfect such
Lien have not been taken;
(m) any Receivable as to which the Borrower does not have good
title, free and clear of all Liens other than Permitted Liens;
(n) any Receivable that is not at all times the legal and valid
payment obligation of the Account Debtor thereon, enforceable against
such Account Debtor in accordance with its terms, subject to the
effect of any applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally;
(o) any Receivable which is subject to any asserted offset,
counterclaim or other defense but only to the extent of such offset,
counterclaim or other defense;
(p) any Receivable from an Account Debtor that to the Company's
knowledge is the subject of a bankruptcy, insolvency or similar
proceeding;
(q) any Receivable which is part of an Eligible Back-to-Back
Transaction; and
(r) any Receivable from an Account Debtor who is an Affiliate.
All Eligible Receivables shall be determined after deducting from the aggregate
amount thereof all payments, adjustments or credits applicable thereto (but
without any deduction for credits or adjustments backed by a Letter of Credit
issued hereunder) and all amounts due thereon considered by the Collateral
Agent in its reasonable discretion to be difficult to collect or uncollectible
by reason of return, rejection, repossession, loss or damage of or to the
merchandise giving rise thereto, merchandise-related or other unresolved
disputes or any other reason taken into account by the Collateral Agent in its
reasonable discretion.
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A Receivable which is an Eligible Receivable, but which subsequently fails
to meet any of the foregoing requirements shall immediately cease to be an
Eligible Receivable.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Company and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company, are treated as a single
employer under Section 414 of the Internal Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Company
and the Administrative Agent.
"EURO-DOLLAR LOAN" means a Loan which bears interest at a Euro-Dollar Rate
plus the Euro-Dollar Margin pursuant to the applicable Notice of Borrowing or
Notice of Interest Rate Election.
"EURO-DOLLAR MARGIN" means a rate per annum determined daily in accordance
with the Pricing Schedule.
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<PAGE> 18
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section
2.06(b) on the basis of a London Interbank Offered Rate.
"EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section
2.16.
"EVENTS OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING HOLDERS" means (i) Lamar Norsworthy, David Norsworthy Nona
Barrett, Betty Regard, Margaret Simmons and Suzanne Bartolucci, (ii) the
parents, spouses, children and other lineal descendants of any Person listed in
clause (i) and (iii) any estate or any trust established for the benefit of any
Person described in clauses (i) or (ii).
"EXISTING LETTERS OF CREDIT" means the letters of credit listed on
Schedule II.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted on such day on such transactions as
determined by the Administrative Agent.
"FIFO" means the first-in, first-out method of accounting.
"FINANCING DOCUMENTS" means this Agreement, the Security Agreements, the
Guarantee Agreement and the Notes, and "FINANCING DOCUMENT" means any one of
them.
"FIRST TIER CASH EQUIVALENTS" has the meaning set forth in any Security
Agreement.
"GOVERNMENT" means the federal government of the United States of America
or any agency or instrumentality thereof.
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"GROUP OF LOANS" means, at any time, a group of Loans to a single Borrower
consisting of (i) all such Loans which are Base Rate Loans at such time or (ii)
all Euro-Dollar Loans having the same Interest Period at such time, provided
that, if a Loan of any particular Bank is converted to or made as a Base Rate
Loan pursuant to Article 8, such Loan shall be included in the same Group or
Groups of Loans from time to time as it would have been in if it had not been
so converted or made.
"GUARANTEE" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"GUARANTEE AGREEMENT" means a Guarantee Agreement substantially in the
form of Exhibit H among the Company, the other Guarantors from time to time
party thereto and the Administrative Agent, as amended from time to time.
"GUARANTOR" means (i) with respect to each Borrower, the other Borrowers
and (ii) with respect to all Borrowers, each Restricted Subsidiary from time to
time party to the Guarantee Agreement.
"INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter as the Borrower
may elect in such notice; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar Business Day;
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<PAGE> 20
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period) shall, subject to clause (d) below, end on the
last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, Guarantee, time deposit or otherwise (but
not including any demand deposit).
"JOINT VENTURE" means Rio Grande Pipeline.
"JOINT VENTURE DEBT" means, at any date, any Debt of any Joint Venture
which Debt is non-recourse to, and is not otherwise supported by the credit of,
the Company or any of its Restricted Subsidiaries (except by a Guarantee from a
Restricted Subsidiary which Guarantee arises solely by virtue of the fact that
such Restricted Subsidiary is a general partner of such Joint Venture).
"LC BANK" means Canadian Imperial Bank of Commerce, Banque Paribas and The
First National Bank of Boston, each in its capacity as LC Bank under the letter
of credit facility described in Section 2.03, and their respective successors
in such capacity.
"LC EXPOSURE" means, with respect to each Bank at any one time, an amount
equal to such Bank's Commitment Percentage of the aggregate amount of Letter of
Credit Liabilities at such time in respect of all Letters of Credit issued
hereunder.
"LETTER OF CREDIT COMMISSION RATE" means a rate per annum determined in
accordance with the Pricing Schedule.
"LETTER OF CREDIT LIABILITIES" means, on any date and in respect of any
Letter of Credit, the sum, without duplication, of (i) the amount available for
drawing under such Letter of Credit on such date plus (ii) the aggregate amount
outstanding on such date of all Reimbursement Obligations in respect of such
Letter of Credit.
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<PAGE> 21
"LETTERS OF CREDIT" has the meaning set forth in Section 2.03(a), and
"LETTER OF CREDIT" means any one of them.
"LEVERAGE RATIO" means, at any date the ratio of Consolidated Operating
Cash Flow for the period of four consecutive fiscal quarters most recently
ended on or prior to such date to Total Borrowed Funds as of such date.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Company or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"LIFO" means the last-in, first-out method of accounting.
"LOAN" means a Base Rate Loan or a Euro-Dollar Loan and "LOANS" means Base
Rate Loans or Euro-Dollar Loans or both, provided that, if any such loan or
loans (or portions thereof) are combined or subdivided pursuant to a Notice of
Interest Rate Election, the term Loan shall refer to the combined principal
amount resulting from such combination or to each of the separate principal
amounts resulting from such subdivision, as the case may be.
"LOAN EXPOSURE" means, with respect to each Bank at any time, an amount
equal to the aggregate principal amount of the Loans of such Bank outstanding
at such time.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.06.
"MARGIN STOCK" has the meaning assigned thereto in Regulation U.
"MARKET VALUE" means the fair market value of petroleum products
determined by reference to indices and data acceptable to the Administrative
Agent after consultation with the Banks.
"MATERIAL DEBT" means Debt in an aggregate principal amount exceeding
$1,000,000 (other than the Loans and the Reimbursement Obligations) of the
Company and/or one of more of the Restricted Subsidiaries arising in one or
more related or unrelated transactions.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
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<PAGE> 22
"MONTANA" means Montana Refining Company, a Partnership, a Montana general
partnership.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to such
corporation's business of rating debt securities.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"NOTES" means promissory notes of a Borrower, substantially in the form of
Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans
made to it, together with any modifications, substitutions, extensions or
renewals of such promissory notes, and "NOTE" means any one of such promissory
notes issued hereunder.
"NOTICE OF BORROWING" has the meaning set forth in Section 2.02.
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.15.
"OBLIGOR" means any Borrower or Guarantor.
"OIL AND GAS PROPERTIES" means oil and gas leasehold, royalty or other
interests held by any Obligor.
"PARENT" means, with respect to any Bank, any Controlling Person of such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PEMEX ACCOUNT DEBTOR" has the meaning set forth in clause (c) of the
definition of "Eligible Receivable".
"PERMITTED ASSET SALE" means an Asset Sale consisting of (i) the sale of
Montana or Holly Petroleum Inc. (either by way of a sale of their respective
17
<PAGE> 23
equity interests or all or substantially all of their respective assets) or
(ii) the sale of any of the Oil and Gas Properties.
"PERMITTED LIEN" has the meaning set forth in Section 5.11.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof
(including, without limitation, the Government).
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) that is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person that
was at such time a member of the ERISA Group for employees of any Person that
was at such time a member of the ERISA Group.
"PLEDGED CASH" means, on any date, the aggregate amount of cash and cash
equivalents contained in the Collateral Account on such date.
"PRICING SCHEDULE" means the Schedule attached hereto and identified as
such.
"PRIME RATE" means the rate of interest publicly announced by Canadian
Imperial Bank of Commerce from time to time in New York City as its Prime Rate.
"PRIOR CREDIT AGREEMENT" means the First Amended and Restated Credit
Agreement dated as of July 23, 1993, as amended, among the Company and certain
of its Subsidiaries, the lenders party thereto and NationsBank of Texas, N.A.,
as agent.
"PRIVATE PLACEMENT AGREEMENT" means, collectively, (i) the Note Agreement,
dated as of November 15, 1995, providing for the issuance by the Company of
$39,000,000 of its 7.62% Series C Senior Notes Due December 15, 2005 and of
$21,000,000 of its Series D Senior Notes Due December 15, 2005, and (ii) the
Note Agreement, dated as of June 15, 1991, providing for the issuance by the
Company of $28,000,000 of its Series A Senior Notes Due June 15, 1998 and of
$52,000,000 of its Series B Senior Notes Due June 15, 2001, as either of the
same may be amended from time to time.
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"QUARTERLY PAYMENT DATE" means each April 30, July 31, October 31 and
January 31.
"RECEIVABLE" means, at any date of determination thereof, the amount of
the unpaid portion of an obligation, as stated in the invoice to a customer of
any Obligor which such Obligor has issued with respect thereto, in respect of
goods sold or services rendered in the ordinary course of business, which
amount has been earned by performance under the terms of the contract between
such Obligor and such customer relating to such goods or services, as the case
may be, net of any credits, rebates or offsets owed to such customer.
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"REIMBURSEMENT OBLIGATIONS" means at any date, with respect to any
Borrower, the obligations of such Borrower pursuant to Section 2.03 to
reimburse the LC Bank for any amount, outstanding as of such date, paid by the
LC Bank in respect of a drawing under a Letter of Credit issued upon request of
such Borrower.
"REQUIRED BANKS" means at any time Banks having at least 51% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 51% of the aggregate unpaid
principal amount of the Loans or, if the Commitments shall have been terminated
and the Notes shall have been repaid in full, having at least 51% of the
aggregate outstanding Letter of Credit Liabilities.
"RESTRICTED INVESTMENT" means any Investment by the Company or any
Restricted Subsidiary pursuant to Section 5.07(b).
"RESTRICTED PAYMENT" means (i) any dividend or other distribution on any
shares of the Company's capital stock (except dividends payable solely in
shares of capital stock of the Company which stock is not mandatorily
redeemable preferred stock) or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (a) any shares of the Company's
capital stock or (b) any option, warrant or other right to acquire shares of
the Company's capital stock (but not including payments of principal, premium
(if any) or interest made pursuant to the terms of convertible debt securities
prior to conversion).
"RESTRICTED SUBSIDIARY" means, at any time, any Subsidiary which is not an
Unrestricted Subsidiary at such time.
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"SECOND TIER CASH EQUIVALENTS" has the meaning set forth in any Security
Agreement.
"SECURED PARTY" has the meaning set forth in any Security Agreement.
"SECURITY AGREEMENTS" means, collectively, the Company Security Agreement
and the Subsidiary Security Agreements, and "SECURITY AGREEMENT" means any one
of them.
"SECURITY EVENT" has the meaning set forth in any of the Security
Agreements.
"S&P" means Standard and Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., or any successor to its business of rating debt
securities.
"SUBSIDIARY" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company (or if such term is used with
reference to any other Person, by such other Person).
"SUBSIDIARY SECURITY AGREEMENTS" means security agreements substantially
in the form of Exhibit D, among each Guarantor and the Collateral Agent, as
amended from time to time, and "SUBSIDIARY SECURITY AGREEMENT" means any one of
them.
"TELERATE BRITISH BANKERS ASSOC. INTEREST SETTLEMENT RATES PAGE" has the
meaning set forth in Section 2.06(b).
"TERMINATION DATE" means October 10, 2000, or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"THIRD TIER CASH EQUIVALENTS" has the meaning set forth in any Security
Agreement.
"TOTAL BORROWED FUNDS" means at any date the aggregate amount of Debt of
the Company and the Restricted Subsidiaries (but excluding contingent
obligations in respect of letters of credit with maturities of 13 months or
less), determined on a consolidated basis at such date.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
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<PAGE> 26
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as of
the then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the ERISA Group to
the PBGC or any other Person under Title IV of ERISA.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to Section 5.17 subsequent to
the date hereof; provided that no Debt or other obligation of such Subsidiary
is Guaranteed or otherwise supported by the Company or any Restricted
Subsidiary or subjects any asset of the Company or any Restricted Subsidiary,
directly or indirectly, contingently or otherwise, to the satisfaction thereof.
"VOTING STOCK" means, with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent (except for changes in accordance with generally
accepted accounting principles) with the most recent audited consolidated
financial statements of the Company and its Consolidated Subsidiaries delivered
to the Banks; provided that, if the Company notifies the Documentation Agent
that the Company wishes to amend any covenant in Article 5 to eliminate the
effect of any change in generally accepted accounting principles on the
operation of such covenant (or if the Documentation Agent notifies the Company
that the Required Banks wish to amend Article 5 for such purpose), then the
Company's compliance with such covenant shall be determined on the basis of
generally accepted accounting principles in effect immediately before the
relevant change in generally accepted accounting principles became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Company and the Required Banks.
SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to a Borrower pursuant to
Article 2 on the same date, all of which Loans are of the same type (subject to
Article 8) and, except in the case of Base Rate Loans, have the same initial
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Interest Period. Borrowings are classified for purposes of this Agreement by
reference to the type of Loans comprising such Borrowing (e.g., a "Euro-Dollar
Borrowing" is a Borrowing comprised of Euro-Dollar Loans).
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the
terms and conditions set forth in this Agreement, to make Loans to any Borrower
from time to time prior to the Termination Date in amounts such that (i) the
Credit Exposure of such Bank shall at no time exceed the amount of its
Commitment and (ii) the Loan Exposure of such Bank shall at no time exceed 50%
of its Commitment. Each Borrowing shall be (x) in the case of a Euro-Dollar
Borrowing, in an aggregate principal amount of $5,000,000 or any larger
multiple of $100,000 and (y) in the case of a Base Rate Borrowing, in an
aggregate principle amount of $1,000,000 or any larger multiple of $100,000,
except that (a) any Borrowing may be in the aggregate amount available in
accordance with Section 3.02(d) and (b) any Base Rate Borrowing may be in an
amount equal to a Reimbursement Amount, as set forth in Section 2.03(e). Each
Borrowing shall be made from the several Banks ratably in proportion to their
respective Commitments. Within the foregoing limits, the Borrower may borrow,
prepay Loans to the extent permitted by Section 2.10 and reborrow at any time
under this subsection.
SECTION 2.02. Method of Borrowing. (a) The Borrower shall give the
Administrative Agent notice (a "Notice of Borrowing") not later than 11:00 (New
York City time) on (x) the date of each Base Rate Borrowing and (y) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing; specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are to be Base Rate
Loans or Euro-Dollar Loans, and
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(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
(b) Upon receipt (or deemed receipt) of a Notice of Borrowing, the
Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such Borrowing and such Notice of Borrowing
shall not thereafter be revocable by the Borrower.
(c) Not later than 1:00 P.M. (New York City time) on the date of each
Borrowing, each Bank shall make available its ratable share of such Borrowing,
in Federal or other immediately available funds, to the Administrative Agent at
its address specified in or pursuant to Section 9.01. Unless the Administrative
Agent determines that any applicable condition specified in Article 3 has not
been satisfied, the Administrative Agent will make the funds so received from
the Banks available to the Borrower at the Administrative Agent's aforesaid
address.
(d) Unless the Administrative Agent shall have received notice from a Bank
prior to 1:00 P.M. (New York City time) on the date of any Borrowing that such
Bank will not make available to the Administrative Agent such Bank's share of
such Borrowing, the Administrative Agent may assume that such Bank has made
such share available to the Administrative Agent on the date of such Borrowing
in accordance with subsection 2.02(c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Administrative Agent, such Bank and the
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (i) if such amount is repaid
by the Borrower, a rate per annum equal to the higher of the Federal Funds Rate
and the Interest Rate applicable thereto pursuant to Section 2.06 and (ii) if
such amount is repaid by such Bank, at the Federal Funds Rate. If such Bank
shall repay to the Administrative Agent such corresponding amount, the Borrower
shall not be required to repay such amount and the amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.03. Letters of Credit. (a) The LC Bank agrees, subject to the
terms and conditions hereof, to issue letters of credit hereunder from time to
time upon the request of any Borrower (such letters of credit issued, together
with the Existing Letters of Credit, the "LETTERS OF CREDIT") provided that,
immediately after each such Letter of Credit is issued, the aggregate Credit
Exposures of the Banks shall not exceed the aggregate amount of the
Commitments. Each Letter
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of Credit issued pursuant to this subsection shall be issued in an amount equal
to or greater than $100,000 (or, with respect to any Letter of Credit, such
lower amount as the LC Bank and such Borrower shall agree to prior to the
issuance of such Letter of Credit) . Upon the date of issuance by the LC Bank
of a Letter of Credit pursuant to this subsection, the LC Bank shall be deemed,
without further action by any party hereto, to have sold to each Bank, and each
Bank shall be deemed, without further action by any party hereto, to have
purchased from the LC Bank, a participation in such Letter of Credit and the
related Letter of Credit Liabilities equal to each Bank's Commitment
Percentage. The Borrower shall pay to the LC Bank issuance fees in the amounts
and at the times as agreed between the Borrower and the LC Bank.
(b) Existing Letters of Credit. On and as of the date of effectiveness of
this Agreement, each LC Bank shall be deemed, without further action by any
party hereto, to have sold to each Bank, and each Bank shall be deemed, without
further action by any party hereto, to have purchased from such LC Bank, a
participation in each Existing Letter of Credit issued by such LC Bank and the
related Letter of Credit Liabilities equal to each Bank's Commitment
Percentage. In addition, each LC Bank agrees that, on and as of the date of
effectiveness of this Agreement, the Existing Letters of Credit issued by such
LC Bank shall no longer be "Letters of Credit" under the Prior Credit Agreement
and the rights and remedies of such LC Bank with respect to such Letters of
Credit shall be governed solely by the terms of this Agreement.
(c) Notice of Issuance. The Borrower shall give the LC Bank at least two
Domestic Business Days' prior notice (effective upon receipt) specifying the
date each Letter of Credit is to be issued, and describing the proposed terms
of such Letter of Credit and the nature of the transactions proposed to be
supported thereby. Upon receipt of such notice the LC Bank shall promptly
notify the Administrative Agent, and the Administrative Agent shall promptly
notify each Bank, of the contents thereof and of the amount of such Bank's
participation in such proposed Letter of Credit (determined in accordance with
Section 2.03(a)). The issuance by the LC Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Article 3, be subject to
the conditions precedent that such Letter of Credit shall be in such form and
contain such terms as shall be reasonably satisfactory to the LC Bank and that
the Borrower shall have executed and delivered such other instruments and
agreements relating to such Letter of Credit as the LC Bank shall have
reasonably requested. No Letter of Credit shall have a term (i) longer than 13
months or (ii) extending beyond the fifth Domestic Business Day prior to the
Termination Date.
(d) Reimbursement of Payments. Upon receipt from the beneficiary of any
Letter of Credit of any demand for payment or other drawing under such
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Letter of Credit, the LC Bank shall notify the Administrative Agent and the
Administrative Agent shall promptly notify the Borrower and each other Bank as
to the amount to be paid as a result of such demand or drawing and the payment
date. If at any time the LC Bank shall make a payment to a beneficiary of a
Letter of Credit in respect of a drawing under such Letter of Credit, each Bank
will pay to the Administrative Agent, for the account of the LC Bank,
immediately upon the LC Bank's demand at any time during the period commencing
after such payment until reimbursement therefor in full by the Borrower, an
amount equal to such Bank's Commitment Percentage multiplied by the amount of
such payment, together with interest on such amount for each day from the date
of the LC Bank's demand for such payment (or, if such demand is made after 3:00
P.M. (New York City time) on such date, from the next succeeding Domestic
Business Day) to the date of payment by such Bank of such amount at a rate of
interest per annum equal to the Federal Funds Rate for such period. The LC Bank
shall reimburse each Bank for any such payments made for a draw honored under
the Letter of Credit as a result of the LC Bank's willful misconduct or gross
negligence in honoring a draw which does not conform to the terms of the Letter
of Credit together with interest thereon at a rate of interest per annum equal
to the Federal Funds Rate for each day from the date on which the Bank made
payment to the LC Bank until the date the LC Bank repays such amount in full.
(e) Reimbursement Unconditional. The Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse the LC Bank for any amounts
paid by the LC Bank upon any drawing under any Letter of Credit (any such
amount, a "Reimbursement Amount") on the date of such payment by the LC Bank
(the "Reimbursement Date"), without presentment, demand, protest or other
formalities of any kind; provided that the Borrower shall not hereby be
precluded from asserting any claim for direct (but not consequential) damages
suffered by the Borrower to the extent, but only to the extent, caused by (i)
the willful misconduct or gross negligence of such LC Bank in determining
whether a request presented under any Letter of Credit complied with the terms
of such Letter of Credit or (ii) such Bank's failure to pay under any Letter of
Credit after the presentation to it of a request strictly complying with the
terms and conditions of the Letter of Credit. On any Reimbursement Date, the LC
Bank shall notify the Administrative Agent prior to 11:00 (New York City time)
of the fact that the Borrower is obligated to pay a Reimbursement Amount and of
the amount thereof. Upon receipt of such notice on the Reimbursement Date, the
Administrative Agent shall promptly notify each Bank of the contents thereof.
The Company shall, unless it gives not less than one Domestic Business Day's
notice to the Administrative Agent to the contrary, be deemed to have timely
given a Notice of Borrowing for a Base Rate Borrowing on the Reimbursement Date
in the exact amount of the Reimbursement Amount, and the Administrative Agent
shall apply the proceeds of the Loans included in such Borrowing to make
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payment of such Reimbursement Amount (it being understood that the making of
any such Loans shall be subject to satisfaction of the conditions precedent set
forth in Section 3.02). The LC Bank will pay to each Bank ratably in accordance
with its Commitment Percentage all amounts (including interest) received from
the Borrower for application in payment, in whole or in part, of the
Reimbursement Obligation in respect of any Letter of Credit, but only to the
extent such Bank has made payment to the LC Bank in respect of such Letter of
Credit pursuant to Section 2.03(d).
(f) Indemnification. The Borrower hereby indemnifies and holds harmless
each Bank and Agent from and against any and all claims and damages, losses,
liabilities, costs or expenses which such Bank or Agent may incur by reason of
or in connection with the execution and delivery or transfer of or payment or
failure to pay under any Letter of Credit, including, without limitation, any
claims, damages, losses, liabilities, costs or expenses which the LC Bank may
incur by reason of or in connection with the failure of any other Bank to
fulfill or comply with its obligations to the LC Bank hereunder (but nothing
herein contained shall affect any rights the Borrower may have against such
defaulting Bank); provided that the Borrower shall not be required to indemnify
any Bank or Agent for any claims, damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, caused by (i) the willful
misconduct or gross negligence of the LC Bank in determining whether a request
presented under any Letter of Credit complied with the terms of such Letter of
Credit or (ii) the LC Bank's failure to pay under any Letter of Credit after
the presentation to it of a request strictly complying with the terms and
conditions of the Letter of Credit. Nothing in this Section is intended to
limit the obligations of the Borrower under any other provision of this
Agreement.
(g) Limited Liability of the LC Bank. The Borrower assumes all risks of
the acts or omissions of any beneficiary and any transferee of any Letter of
Credit with respect to its use of such Letter of Credit. The Banks, the LC Bank
and their respective officers and directors shall not be liable or responsible
for, and the obligations of each Bank to make payments, and of the Borrower to
reimburse the LC Bank for payments, pursuant to this Section shall not be
excused by, any action or inaction of any Bank or the LC Bank related to: (i)
the use which may be made of any Letter of Credit or any acts or omissions of
any beneficiary or transferee in connection therewith; (ii) the validity,
sufficiency or genuineness of documents presented under any Letter of Credit,
or of any endorsements thereon, even if such documents should in fact prove to
be in any or all respects invalid, insufficient, fraudulent or forged; (iii)
payment by the LC Bank against presentation of documents to the LC Bank which
do not comply with the terms of any Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such Letter of Credit;
or (iv) any other circumstances
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whatsoever in making or failing to make or notifying or failing to notify the
LC Bank that it is required to make any payment under any Letter of Credit.
Notwithstanding the foregoing, the Borrower shall have a claim against the LC
Bank and the LC Bank shall be liable to the Borrower, to the extent, but only
to the extent, of any direct, as opposed to consequential, damages suffered by
the Borrower which were caused by (i) the LC Bank's willful misconduct or gross
negligence in determining whether documents presented under any Letter of
Credit comply with the terms thereof or (ii) the LC Bank's willful failure to
pay, or to notify any Bank that it is required to pay, under any Letter of
Credit after the presentation to the LC Bank by any beneficiary (or a successor
beneficiary to whom such Letter of Credit has been transferred in accordance
with its terms) of documents strictly complying with the terms and conditions
of such Letter of Credit. Subject to the preceding sentence, the LC Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary unless any beneficiary (or a successor beneficiary
to whom such Letter of Credit has been transferred in accordance with its
terms) and the Borrower shall have notified the LC Bank that such documents do
not comply with the terms and conditions of such Letter of Credit. Each Bank
shall, ratably in accordance with its Commitment, indemnify the LC Bank (to the
extent not reimbursed by the Borrower) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from the LC Bank's gross negligence or willful
misconduct) that the LC Bank may suffer or incur in connection with this
Agreement or any action taken or omitted by the LC Bank hereunder.
(h) Letter of Credit Commission; Fronting Fee. The Borrower agrees to pay
(i) to the Administrative Agent for the account of each Bank, ratably in
proportion to the Commitment Percentage of such Bank, a letter of credit
commission accruing daily at the Letter of Credit Commission Rate on the
aggregate amount then available for drawing under all Letters of Credit and
(ii) to the LC Bank (A) a fronting fee accruing daily on the aggregate amount
then available for drawing under all Letters of Credit at the rate of .125% per
annum and (B) other customary costs incurred by the LC Bank in connection with
its obligations hereunder. Such commission, fronting fee and additional costs
shall be payable quarterly in arrears on each Quarterly Payment Date and on the
Termination Date or, if earlier, the date of effectiveness of the termination
of the Commitments in their entirety.
SECTION 2.04. Notes. (a) If requested by any Bank, the Loans of such Bank
to each Borrower shall be evidenced by a single Note of such Borrower payable
to the order of such Bank for the account of its Applicable Lending Office
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in an amount equal to the aggregate unpaid principal amount of such Bank's
Loans to such Borrower.
(b) Each Bank may, by notice to a Borrower and the Administrative Agent,
request that its Loans of a particular type to such Borrower be evidenced by a
separate Note in an amount equal to the aggregate unpaid principal amount of
such Loans. Each such Note shall be in substantially the form of Exhibit A
hereto with appropriate modifications to reflect the fact that it evidences
solely Loans of the relevant type. Each reference in this Agreement to a "Note"
or the "Notes" of such Bank shall be deemed to refer to and include any or all
of such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(c), the
Documentation Agent shall mail such Note to such Bank. Each Bank shall record
the date and amount of each Loan made by it to each Borrower and the date and
amount of each payment of principal made with respect thereto, and prior to any
transfer of its Note of any Borrower, shall endorse on the schedule forming a
part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan to such Borrower then outstanding; provided that the
failure of any Bank to make any such recordation or endorsement shall not
affect the obligations of the Borrowers hereunder or under the Notes or any
other Financing Documents. Each Bank is hereby irrevocably authorized by each
Borrower so to endorse its Note and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
SECTION 2.05. Maturity of Loans. Each Loan shall mature, and the
outstanding principal amount thereof shall be due and payable (together with
accrued interest thereon), on the Termination Date.
SECTION 2.06. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable at maturity, quarterly in arrears
on each Quarterly Payment Date prior to maturity. Any overdue principal of or
interest on any Base Rate Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 2% plus the rate
otherwise applicable to Base Rate Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
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if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the rate per annum determined by the Administrative Agent to be the
arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered rates for
deposits in dollars with a term comparable to such Interest Period that appears
on the Telerate British Bankers Assoc. Interest Settlement Rates Page (as
defined below) at approximately 11:00 A.M., London time, on the second
Euro-Dollar Business Day preceding the first day of such Interest Period;
provided, however that if there shall at any time no longer exist a Telerate
British Bankers Assoc. Interest Settlement Rates Page, the "LONDON INTERBANK
OFFERED RATE" applicable to any Interest Period means the rate per annum equal
to the rate at which Canadian Imperial Bank of Commerce is offered dollar
deposits at or about 10:00 A.M., New York City time, two Euro-Dollar Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations in
respect of its Euro-Dollar Loans are then being conducted for delivery on the
first day of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of its Euro-Dollar Loan to be outstanding
during such Interest Period.
"TELERATE BRITISH BANKERS ASSOC. INTEREST SETTLEMENT RATES PAGE" shall
mean the display designated as Page 3750 on the Telerate System Incorporated
Service (or such other page as may replace such page on such service for the
purpose of displaying the rates at which Dollar deposits are offered by leading
banks in the London interbank deposit market).
(c) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan on the day before such payment was due and (ii) the
Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (x) the London Interbank
Offered Rate for the applicable period determined as provided above by (y) 1.00
minus the Euro-Dollar Reserve Percentage (or, if the circumstances described
in clause 8.01(a) or 8.01(b) shall exist, at a rate per annum equal to the sum
of 2% plus the rate applicable to Base Rate Loans for such day).
SECTION 2.07. Commitment Fees. The Company shall pay to the Administrative
Agent for the account of each Bank a commitment fee at the
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Commitment Fee Rate on the daily amount by which such Bank's Commitment exceeds
such Bank's Credit Exposure. Such commitment fee shall accrue from and
including the date hereof to but excluding the Termination Date. Such
commitment fee shall be payable quarterly in arrears on each Quarterly Payment
Date and on the Termination Date or, if earlier, the date of effectiveness of
the termination of the Commitments in their entirety.
SECTION 2.08. Optional Termination or Reduction of the Commitments. The
Company may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (a) terminate the Commitments at any time, if no Loans
and no Letters of Credit are outstanding at such time or (b) ratably reduce
from time to time by an aggregate amount of at least $25,000,000, the aggregate
amount of the Commitments in excess of the aggregate Credit Exposures of the
Banks.
SECTION 2.09. Mandatory Termination of Commitments. The Commitments shall
terminate on the Termination Date, and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on such date.
SECTION 2.10. Optional Prepayments. (a) Subject in the case of any
Euro-Dollar Borrowing to Section 2.12, the Borrower may, upon at least one
Domestic Business Day's notice to the Administrative Agent, prepay any Group of
Base Rate Loans or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in
whole at any time, or from time to time in part in amounts aggregating (x) in
the case of any Group of Euro-Dollar Loans, $5,000,000 or any larger multiple
of $100,000 and (y) in the case of any Group of Base Rate Loans, $1,000,000 or
any larger multiple of $100,000, in each case by paying the principal amount to
be prepaid together with accrued interest thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Loans of
the several Banks included in such Group of Loans.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.11. General Provisions as to Payments. (a) The Borrowers shall
make each payment of principal of, and interest on, the Loans and of
commissions and fees hereunder, not later than 1:00 P.M. (New York City time)
on the date when due, in Federal or other immediately available funds, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative
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Agent will promptly distribute to each Bank its ratable share of each such
payment received by the Administrative Agent for the account of the Banks.
Whenever any payment of principal of, or interest on, the Base Rate Loans or
fees shall be due on a day which is not a Domestic Business Day, the date for
payment thereof shall be extended to the next succeeding Domestic Business Day.
Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from a
Borrower prior to the date on which any payment is due from such Borrower to
the Banks hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in
full to the Administrative Agent on such date and the Administrative Agent may,
in reliance upon such assumption, cause to be distributed to each Bank on such
due date an amount equal to the amount then due such Bank. If and to the extent
that such Borrower shall not have so made such payment, each Bank shall repay
to the Administrative Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.12. Funding Losses. If a Borrower makes any payment of principal
with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a
Base Rate Loan (pursuant to Article 2, 6 or 8 or otherwise, including, without
limitation, pursuant to Section 2.14) on any day other than the last day of an
Interest Period applicable thereto, or the end of an applicable period fixed
pursuant to Section 2.06(c), or if the Borrower fails to borrow, prepay,
convert or continue any Euro-Dollar Loans after notice has been given to any
Bank in accordance with Section 2.02(a), 2.10(b) or 2.15 the Company shall
reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or conversion or failure to
borrow, prepay, convert or continue; provided that such Bank shall have
delivered to the Company a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest
error.
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SECTION 2.13. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
all fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.14. Deficiencies in the Borrowing Base. If at any time the
aggregate Credit Exposures of the Banks shall exceed the Borrowing Base, the
Borrowers shall within one Domestic Business Day, prepay Loans (together with
accrued interest thereon and any amounts payable pursuant to Section 2.12)
and/or provide additional Pledged Cash in such aggregate amount as shall be
necessary to reduce the amount of such excess to zero.
SECTION 2.15. Method of Electing Interest Rates. (a) The Loans included in
each Borrowing shall initially be of the type specified by the Borrower in the
applicable Notice of Borrowing. Thereafter, the Borrower may from time to time
elect to change or continue the type of Loans in each Group of Loans, subject
in each case to the provisions of Article 8, as follows:
(i) if such Loans are Base Rate Loans, the Borrower may, subject to
subsection (d), elect to convert such Loans to Euro-Dollar Loans as of any
Euro-Dollar Business Day; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day or,
subject to subsection (d), to continue such Loans as Euro-Dollar Loans for
an additional Interest Period as of the last day of the then current
Interest Period applicable to such Loans.
Each such shall be made by delivering a notice (a "Notice of Interest Rate
Election") to the Administrative Agent not later than 11:00 A.M. (New York City
time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies, and the remaining portion to which it does not
apply, are each at least $5,000,000 (unless such portion is comprised of Base
Rate Loans). If no such notice is timely received before the end of an Interest
Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have
elected that such Group of Loans be converted to Base Rate Loans at the end of
such Interest Period.
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(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective;
(iii) if the Loans comprising such Group are to be converted, the new
type of Loans and, if the Loans being converted are to be Euro-Dollar
Loans, the duration of the next succeeding Interest Period applicable
thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the Borrower
pursuant to subsection (a) above, the Administrative Agent shall promptly
notify each Bank of the contents thereof and such notice shall not thereafter
be revocable by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any Loans to,
or continue any Loans for an additional Interest Period as, Euro-Dollar Loans
if a Default shall have occurred and be continuing when the Borrower delivers
notice of such election to the Administrative Agent.
SECTION 2.16. Regulation D Compensation. For so long as any Bank maintains
reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of such Bank to
United States residents), and as a result the cost to such Bank (or its
Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is
increased, then such Bank may require the Borrower to pay, contemporaneously
with each payment of interest on the Euro-Dollar Loans, additional interest on
the related Euro-Dollar Loan of such Bank at a rate per annum up to but not
exceeding the excess of (i)(A) the applicable London Interbank Offered Rate
divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the
applicable London Interbank Offered Rate. Any Bank wishing to require payment
of such additional interest (x) shall so notify the Borrower and the Agent, in
which case such additional interest on
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the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place
indicated in such notice with respect to each Interest Period commencing at
least three Euro-Dollar Business Days after the giving of such notice and (y)
shall furnish to the Borrower at least five Euro-Dollar Business Days prior to
each date on which interest is payable on the Euro-Dollar Loans an officer's
certificate setting forth the amount to which such Bank is then entitled under
this Section (which shall be consistent with such Bank's good faith estimate of
the level at which the related reserves are maintained by it). Each such
certificate shall be accompanied by such information as the Borrower may
reasonably request as to the computation set forth therein.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve system (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
SECTION 2.17. Register. The Administrative Agent shall maintain a register
(the "Register") on which it will record the Commitment of each Bank, each Loan
made by such Bank and each repayment of any Loan made by such Bank. Any such
recordation by the Administrative Agent on the Register shall be conclusive,
absent manifest error. With respect to any Bank, the assignment or other
transfer of the Commitment of such Bank and the rights to the principal of, and
interest on, any Loan made and Note issued pursuant to this Agreement shall not
be effective until such assignment or other transfer is recorded on the
Register and otherwise complies with Section 9.06(c). The registration of
assignment or other transfer of all or part of the Commitment, Loans and Notes
for a Bank shall be recorded by the Administrative Agent on the Register only
upon the acceptance by the Administrative Agent of a properly executed and
delivered Assignment and Assumption Agreement referred to in Section 9.06(c).
The Register shall be available at the offices where kept by the Administrative
Agent for inspection by the Borrower and any Bank at any reasonable time upon
reasonable prior notice to the Administrative Agent. The Borrower may not
replace any Bank pursuant to Section 8.06 unless, with respect to any Notes
held by such Bank, the requirements of this subsection have been satisfied.
Each Bank shall record on its internal records (including computerized systems)
the foregoing information as to its own Commitment and Loans. Failure to make
any such recordation, or any
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error in such recordation, shall not affect the obligations of the Borrower
under the Loan Documents.
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. The Commitments shall become effective on and
as of the date on which the Documentation Agent shall have received in New York
City:
(a) counterparts hereof signed by each of the parties hereto (or, in
the case of any party as to which an executed counterpart shall not have
been received, receipt by the Documentation Agent in form satisfactory to
it of telegraphic, telex, facsimile or other written confirmation from
such party of execution of a counterpart hereof by such party);
(b) counterparts of the Company Security Agreement, duly executed by
the Company;
(c) duly executed Notes of each Borrower for the account of each Bank
complying with the provisions of Section 2.04, but solely if such Bank has
so requested at least two Euro-Dollar Business Days prior to such date;
(d) counterparts of a Subsidiary Security Agreement for each
Guarantor other than the Company, duly executed by the parties thereto;
(e) counterparts of the Guarantee Agreement, duly executed by the
Company and each Restricted Subsidiary;
(f) a duly executed Perfection Certificate (as defined in the Company
Security Agreement), together with evidence satisfactory to the
Documentation Agent that the Lien created under the Company Security
Agreement constitutes a perfected first priority Lien (subject only to
Permitted Liens) to the extent a Lien may be perfected thereunder;
(g) a duly executed Perfection Certificate (as defined in each
Subsidiary Security Agreement), together with evidence satisfactory to the
Documentation Agent that the Lien created under such Subsidiary Security
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Agreement constitutes a perfected first priority Lien (subject to
Permitted Liens) to the extent a Lien may be perfected thereunder;
(h) the most recent Borrowing Base Certificate contemplated by
Section 5.01(e);
(i) evidence satisfactory to the Documentation Agent that (i) any
loans outstanding under the Prior Credit Agreement shall have been repaid
in full together with accrued interest thereon and all other amounts
payable under the Prior Credit Agreement, (ii) all letters of credit
outstanding under the Prior Credit Agreement shall have been canceled or
cash collateralized in full pursuant to arrangements satisfactory to the
Documentation Agent and (iii) all Liens securing the Prior Credit
Agreement shall have been released or assigned to the Collateral Agent;
(j) an opinion of Baker & Botts L.L.P., special counsel for the
Obligors, and Christopher Cella, General Counsel of the Obligors,
substantially in the forms of Exhibit B-1 and B-2, respectively, hereto
and covering such additional matters relating to the transactions
contemplated by the Financing Documents as the Required Banks may
reasonably request;
(k) an opinion of Davis Polk & Wardwell, special counsel for the
Agents, substantially in the form of Exhibit C hereto and covering such
additional matters relating to the transactions contemplated by the
Financing Documents as the Required Banks may reasonably request;
(l) all documents the Documentation Agent may reasonably request
relating to the existence of the Obligors, the corporate authority for and
the validity of the Financing Documents, and any other matters reasonably
relevant hereto, all in form and substance reasonably satisfactory to the
Administrative Agent; and
(m) evidence satisfactory to the Documentation Agent of the payment
by the Company of all fees, expenses and other amounts previously agreed
to by the Company and the Agents or payable hereunder (including fees and
expenses payable pursuant to Sections 2.07 or 9.03) before the date
hereof.
provided that the Commitments shall not become effective or binding on any Bank
unless the foregoing conditions are satisfied not later than October 15, 1997.
The Documentation Agent shall promptly notify the Company and the Banks of
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the effectiveness of this Agreement, and such notice shall be conclusive and
binding on all parties hereto.
SECTION 3.02. All Credit Events. The obligation of any Bank to make a Loan
on the occasion of any Borrowing and the obligation of the LC Bank to issue,
extend or renew a Letter of Credit on the occasion of a request therefor by any
Borrower are each subject to the satisfaction of the following conditions:
(a) receipt (or deemed receipt) by the Administrative Agent of a
Notice of Borrowing as required by Section 2.02 or receipt by the LC Bank
of a request for issuance, extension or renewal of a Letter of Credit as
required by Section 2.03, as the case may be;
(b) the fact that, immediately before and after such Credit Event, no
Default shall have occurred and be continuing;
(c) the fact that the representations and warranties of the Obligors
contained in the Financing Documents shall be true on and as of the date
of such Credit Event;
(d) the fact that, immediately after such Credit Event, the aggregate
Credit Exposures of the Banks will not exceed the Borrowing Base; and
(e) solely with respect to the first Borrowing by any Borrower
Subsidiary, receipt by the Documentation Agent of duly executed Notes of
such Borrower Subsidiary for the account of each Bank complying with the
provisions of Section 2.04, but solely if such Bank has so requested at
least two Euro-Dollar Business Days prior to the effective date of this
Agreement.
Each Credit Event hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Credit Event as to the facts
specified in clauses 3.02(b), 3.02(c) and 3.02(d).
SECTION 3.03. Termination of Prior Credit Agreement. The Company hereby
notifies each Bank which is a "Bank" under the Prior Credit Agreement that,
effective on and as of the date of effectiveness of this Agreement, (i) the
Total Commitment (as defined in the Prior Credit Agreement) shall be terminated
and (ii) all loans outstanding under the Prior Credit Agreement, together with
accrued and unpaid interest thereon, shall be repaid. In order to facilitate
the
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satisfaction of the condition set forth in Section 3.01(i) above, each of the
parties hereto which is a party to the Prior Credit Agreement waives (i) the
requirement in Section 2.2 thereof that a notice terminating the Total
Commitment must be given at least five Business Days (as defined therein) prior
to such termination and (ii) to the extent necessary, the requirement in
Section 2.8 thereof that a notice of prepayment of any loans thereunder must be
given at least three Business Days (as defined therein) prior to such
prepayment. The waivers granted under this Section are subject to the
obligations of the Company and Montana to pay to each bank party to the Prior
Credit Agreement all amounts payable by each of them to such bank pursuant to
Section 2.9 of the Prior Credit Agreement as a result of any prepayment.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
Each Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. Each Obligor is a corporation
or partnership duly incorporated or organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
and each has all corporate or partnership powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by each Obligor of the Financing
Documents to which each is a party are within their respective corporate or
partnership powers, as the case may be, have been duly authorized by all
necessary corporate or partnership action (including without limitation any
necessary corporate action on the part of any general partner), as the case may
be, require no action by or in respect of or filing with (except as
contemplated by the Security Agreements) any governmental body, agency or
official and do not contravene, or constitute a default under, any provision of
(i) any applicable law, rule or regulation, (ii) the certificate of
incorporation, by-laws or partnership documents of any Obligor, (iii) the
Private Placement Agreement or any other agreement, judgment, injunction,
order, decree or other instrument binding upon the Company or any of its
Subsidiaries or, except as contemplated by the Security
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Agreements, result in the creation or imposition of any Lien on any asset of
the Company or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes and each of the
other Financing Documents, when executed and delivered in accordance with this
Agreement, will constitute, a valid and binding obligation of each Obligor
signatory hereto or thereto, as the case may be, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and general principles of equity.
SECTION 4.04. Lien Enforceable. Each Security Agreement, when executed and
delivered in accordance with this Agreement, will create in favor of the
Collateral Agent for the ratable benefit of the Secured Parties, a valid and
binding first priority Lien (subject only to Permitted Liens) on the Collateral
referred to therein.
SECTION 4.05. Assignments Valid. The assignments and notices of assignment
substantially in the form of Exhibits G-2 and G-3, respectively, when completed
by the appropriate Obligor and duly acknowledged by each governmental authority
or agency described therein, will constitute valid assignments of the monies
due or to become due under the Eligible Government Contracts described therein
under the Assignment of Claims Act.
SECTION 4.06. Financial Information. (a) The consolidated balance sheet of
the Company and its Consolidated Subsidiaries as of July 31, 1996 and the
related consolidated statements of operations and cash flows for the fiscal
year then ended, reported on by Ernst & Young, LLP, copies of which have been
delivered to each of the Banks, fairly present in all material respects, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Company and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such
fiscal year.
(b) The unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of April 30, 1997 and the related unaudited
consolidated statements of operations and cash flows for the nine months then
ended, copies of which have been delivered to each of the Banks, fairly present
in all material respects, in conformity (except for the absence of footnotes)
with generally accepted accounting principles applied on a basis consistent
with the financial statements referred to in subsection (a), the consolidated
financial position of the Company and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such nine
month period (subject to normal year-end adjustments).
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(c) Since April 30, 1997 there has been no material adverse change in the
business, financial position or results of operations of the Company and the
Restricted Subsidiaries, taken as a whole.
SECTION 4.07. Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of any Obligor threatened against the Company or
any of its Subsidiaries before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility of an
adverse decision which could reasonably be expected to materially adversely
affect the business, financial position or results of operations of the Company
and the Restricted Subsidiaries, taken as a whole, or which in any manner draws
into question the validity of any of the Financing Documents.
SECTION 4.08. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of
the Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multi-employer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting
of a bond or other security under ERISA or the Internal Revenue Code or (iii)
any unsatisfied liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.09. Environmental Matters. The Company and each of its
Subsidiaries have obtained all permits, licenses and other authorizations that
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization could not reasonably be expected to
have a material adverse effect on the business, financial position or results
of operations of the Company and the Restricted Subsidiaries, taken as a whole,
and the Company and its Restricted Subsidiaries are in compliance with the
terms and conditions of all such permits, licenses and authorizations, and are
also in compliance with all other provisions of any applicable Environmental
Law or any order, judgment, injunction, notice or demand letter issued or
entered thereunder, except to the extent failure to comply could not reasonably
be expected to have a material adverse effect on the business, financial
position or results of operations of the Company and the Restricted
Subsidiaries, taken as a whole.
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SECTION 4.10. Taxes. The Company and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any of
its Subsidiaries, other than those being contested in good faith by appropriate
proceedings. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes (including without limitation taxes which
are being contested) or other governmental charges are adequate.
SECTION 4.11. Restricted Subsidiaries. Each of the Restricted Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4.12. Full Disclosure. No information heretofore or hereafter
furnished by any Borrower to the Agents or any Bank for purposes of or in
connection with this Agreement, the other Financing Documents or any
transaction contemplated hereby or thereby, taken together with all such
information so furnished, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.13. Compliance with Margin Regulations. After giving effect to
the application of the proceeds of the Loans included in any Borrowing, no more
than 25% (or such greater or lesser percentage as is set forth in the exclusion
from the definition of "indirectly secured" set forth in Regulation U as in
effect at the time of the making of such Loans) of the total value of the
assets of the Company and its Restricted Subsidiaries subject to the provisions
of Section 5.11 is represented by Margin Stock.
ARTICLE 5
COVENANTS
The Company agrees for itself and each of its Restricted Subsidiaries that
so long as any Bank has any Commitment hereunder or any Loan or Letter of
Credit remains outstanding or any amount payable under any Financing Document
remains unpaid:
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SECTION 5.01. Information. The Company will deliver to each of the
Banks:
(a) as soon as available and in any event within 105 days after the
end of each fiscal year of the Company, a consolidated balance sheet of
the Company and its Consolidated Subsidiaries as of the end of such fiscal
year and the related consolidated statements of operations and cash flows
for such fiscal year in the form currently prepared by the Company,
setting forth in comparative form the figures for the previous fiscal
year, all such consolidated statements reported on in a manner acceptable
to the Securities and Exchange Commission by Ernst & Young, LLP or other
independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
statements of operations and cash flows for such quarter and for the
portion of the Company's fiscal year ended at the end of such quarter in
the form currently prepared by the Company, setting forth in each case in
comparative form the figures for the corresponding quarter and the
corresponding portion of the Company's previous fiscal year, all certified
(subject to normal year-end adjustments and the absence of footnotes) as
to fairness of presentation in all material respects and generally
accepted accounting principles by the chief financial officer or the chief
accounting officer of the Company;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses 5.01(a) and 5.01(b) above, the related
consolidating financial statements reflecting the adjustments necessary to
eliminate the accounts of Unrestricted Subsidiaries (if any) from the
consolidated financial statements of the Company;
(d) upon the request of the Administrative Agent at the direction of
any Bank, (i) an estimated Borrowing Base Certificate for the calendar
month most recently ended at least 15 days prior to the day on which such
request is made and (ii) an accounts receivable aging report in a form
acceptable to the Administrative Agent, which estimated Borrowing Base
Certificate shall among other things be used by the Administrative Agent
to calculate the Borrowing Base until the next Borrowing Base Certificate
is delivered pursuant to this Section 5.01(e);
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(e) as soon as practicable, but in any event not later than 46 days
after the end of each calendar month, other than July and August, and not
later than 60 days after the end of each July and August, a Borrowing Base
Certificate for such calendar month; provided that the Company shall
deliver the Borrowing Base Certificates described in Sections 5.01(d) and
(e) at any other time such Borrowing Base Certificates are reasonably
requested by Administrative Agent on behalf of the Banks;
(f) simultaneously with the delivery of each set of financial
statements referred to in clauses 5.01(a) and 5.01(b) above, a certificate
of the chief financial officer or the treasurer of the Company (i) setting
forth in reasonable detail the calculations required to establish whether
the Company is in compliance with the requirements of Sections 5.07
through 5.10, inclusive, 5.14 and 5.18, on the date of such financial
statements and (ii) stating whether any Default exists on the date of such
certificate and, if any Default then exists, setting forth the details
thereof and the action which the Borrowers are taking or propose to take
with respect thereto;
(g) simultaneously with the delivery of each set of financial
statements referred to in clause 5.01(a) above, a statement of the firm of
independent public accountants that reported on such statements whether
anything has come to their attention to cause them to believe the Company
was not in compliance with the requirements of Sections 5.07 through 5.10,
inclusive, 5.14 and 5.18 on the date of such financial statements;
provided that nothing herein shall be construed to place an affirmative
duty on such independent public accountants to ensure compliance by the
Borrower with the terms of this Agreement (it being understood that such
accountants shall not be liable, directly or indirectly, for any failure
to obtain knowledge of any Default or Event of Default relating to the
requirements of such Sections unless such accountants shall have obtained
knowledge thereof in making an audit in accordance with generally accepted
auditing standards or did not make such an audit);
(h) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed;
(i) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q
and 8-K (or their equivalents) which the Company shall have filed with the
Securities and Exchange Commission;
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(j) within five Business Days after any executive officer obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the treasurer of the Company
setting forth the details thereof and the action which the Borrowers are
taking or propose to take with respect thereto (for purposes of this
Section, "executive officer" shall mean any of the President, Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer,
Treasurer, Controller and General Counsel of the Company and the President
of any Borrower);
(k) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan that might constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from
the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect
of, or appoint a trustee to administer any Plan, a copy of such notice;
(iv) applies for a waiver of the minimum funding standard under Section
412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a
copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to
any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or
makes any amendment to any Plan or Benefit Arrangement that has resulted
or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the chief
accounting officer of the Company setting forth details as to such
occurrence and action, if any, which the Company or applicable member of
the ERISA Group is required or proposed to take; and
(l) from time to time such additional information regarding the
financial position or business of the Company and its Subsidiaries, or the
calculation of the Borrowing Base, as the Administrative Agent, at the
request of any Bank, may reasonably request.
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SECTION 5.02. Payment of Obligations. The Company will pay and discharge,
and will cause each of its Restricted Subsidiaries to pay and discharge, at or
before maturity or in accordance with customary trade practices, all their
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings, and will maintain, and will cause each of its
Restricted Subsidiaries to maintain, in accordance with and to the extent
required by generally accepted accounting principles, appropriate reserves for
the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance. (a) The Company will
keep, and will cause each of its Restricted Subsidiaries to keep, all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted.
(b) The Company will, and will cause each of its Restricted Subsidiaries
to, maintain (either in the Company's name or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts, against at least such
risks and with no greater risk retention as are usually maintained, insured
against or retained, as the case may be, in the same general area by companies
of established repute engaged in the same or a similar business. The Company
will furnish to the Banks, upon request from the Administrative Agent,
information presented in reasonable detail as to the insurance so carried.
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Company will continue, and will cause each of its Restricted Subsidiaries to
continue, to engage in business of the same general type as now conducted by
it, and will preserve, renew and keep in full force and effect, and will cause
each of its Restricted Subsidiaries to preserve, renew and keep in full force
and effect its corporate existence and rights, privileges and franchises
necessary or desirable in the normal conduct of business; provided that nothing
contained in this Section shall prohibit any transaction expressly permitted
under Section 5.12.
SECTION 5.05. Compliance with Laws. The Company will comply, and will
cause each of its Restricted Subsidiaries to comply, in all material respects
with all applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings.
SECTION 5.06. Inspection of Property, Books and Records. (a) The Company
will keep, and will cause each of its Subsidiaries to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit,
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and will cause each of its respective Subsidiaries to permit, representatives
of any Agent or any Bank, at such Agent's or Bank's expense, to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants, all at such reasonable times during normal
business hours, upon reasonable notice and as often as may reasonably be
desired by such Agent or such Bank.
(b) The Company will permit, and will cause each of its Subsidiaries to
permit, the Collateral Agent to conduct inspections of the Collateral
(including without limitation the annual inspections of the Collateral to be
conducted pursuant to the terms set forth in each Security Agreement).
SECTION 5.07. Investments. Neither the Company nor any Restricted
Subsidiary will hold, make or acquire any Investment in any Person other than:
(a) (i) Investments in Restricted Subsidiaries (other than any
Restricted Subsidiary which is a general partner in any Joint Venture)
engaged in petroleum-related businesses, including without limitation
Guarantees of Debt under the Private Placement Agreement required to be
provided pursuant to paragraph 5J thereof and (ii) Investments in the form
of Guarantees of Debt under the Private Placement Agreement required to be
provided pursuant to paragraph 5J thereof not permitted pursuant to clause
(i);
(b) Investments in Unrestricted Subsidiaries engaged in
petroleum-related businesses;
(c) First Tier Cash Equivalents, Second Tier Cash Equivalents, and
Third Tier Cash Equivalents;
(d) Investments in Joint Ventures and in Restricted Subsidiaries
which are general partners in any Joint Ventures, in each case in
existence on the date hereof; and
(e) Investments not permitted by clause 5.07(a), (b), (c) or (d), if
immediately after such Investment is made or acquired, the aggregate net
book value of all outstanding Investments permitted pursuant to this
clause (d) does not exceed $5,000,000.
SECTION 5.08. Minimum Consolidated Tangible Net Worth. Consolidated
Tangible Net Worth will at no time be less than (i) $82,256,800 plus (ii) 50%
of
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Consolidated Net Income for each fiscal quarter of the Company ended after
April 30, 1997 and at or prior to such time and for which such Consolidated Net
Income is positive (but with no deduction on account of any fiscal quarter for
which Consolidated Net Income is negative) plus (iii) 80% of the aggregate
amount by which Consolidated Tangible Net Worth shall have been increased by
reason of the issuance and/or sale after April 30, 1997 and at or prior to such
time of any capital stock or the conversion or exchange of any Debt of the
Company into or with capital stock of the Company consummated after April 30,
1997 and at or prior to such time.
SECTION 5.09. Leverage Ratio. The Leverage Ratio will at no time be less
than 0.25.
SECTION 5.10. Working Capital. Consolidated Current Assets minus
Consolidated Current Liabilities will at no time be less than $10,000,000.
SECTION 5.11. Negative Pledge. Neither the Company nor any Restricted
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except the following (each a "PERMITTED
LIEN"):
(a) Liens existing as of the date hereof and listed on Schedule I;
(b) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such
event;
(c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset;
provided that such Lien attaches to such asset concurrently with or within
120 days after the acquisition thereof;
(d) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Company or a Subsidiary
and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof
by the Company or a Subsidiary and not created in contemplation of such
acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the
foregoing clauses of this Section; provided that such Debt is not
increased and is not secured by any additional assets;
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(g) (x) Liens (other than Liens described in clause (y)) arising in
the ordinary course of its business which (i) do not secure Debt or Deriva-
tives Obligations, (ii) do not secure any obligation in an amount
exceeding $5,000,000 and (iii) do not in the aggregate materially detract
from the value of its assets or materially impair the use thereof in the
operation of its business and (y) Liens of producers arising in the
ordinary course of its business under the New Mexico Oil and Gas Products
Lien Act or any similar statute in any other jurisdiction or under section
9-319 of the Uniform Commercial Code in effect in the States of Texas,
Kansas and Wyoming or any other applicable jurisdiction;
(h) Liens created pursuant to any of the Security Agreements;
(i) Liens on cash and cash equivalents securing Derivatives
Obligations; provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $5,000,000; and
(j) Liens on cash and cash equivalents securing obligations in
respect of letters of credit issued under the Prior Credit Agreement
pursuant to the arrangements contemplated by Section 3.01(i).
SECTION 5.12. Consolidation, Mergers and Sales of Assets. (a) The Company
will not consolidate or merge with or into any other Person; provided that the
Company may merge with another Person if (i) the Company is the corporation
surviving such merger and (ii) after giving effect to such merger, no Default
shall have occurred and be continuing.
(b) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate any Asset Sale except: (i) Permitted Asset Sales,
subject to compliance with the provisions of Section 5.12(c); (ii) any Asset
Sale with respect to any capital assets so long as the net proceeds received by
the Company or any Restricted Subsidiary from such Asset Sale are reinvested in
capital assets or, subject to Section 5.14(b), applied to the repayment of Debt
within 270 days of receipt thereof; and (iii) any Asset Sale not permitted
pursuant to subclause (i) or (ii) of this clause (x) as long as the aggregate
amount of net proceeds received by the Company and its Restricted Subsidiaries
in any fiscal year from Asset Sales made in reliance on this subclause (iii)
does not exceed $10,000,000 and (y) if applicable, subject to compliance with
the provisions of Section 5.12(c).
(c) The Company will not, and will not permit any of its Restricted
Subsidiaries, to consummate (x) any Permitted Asset Sale described in clause
(i)
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of the definition thereof or (y) any other Asset Sale consisting of the
disposition of the equity interests of any Borrower (other than (1) any
disposition by the Company of equity securities of the Company or (2) any
disposition of equity securities by the Company or any Restricted Subsidiary to
the Company or any Restricted Subsidiary) or all or substantially all of the
assets of any Borrower (any Asset Sale described in clauses (x) or (y), a
"Borrower Sale") unless:
(i) prior to the consummation of any such Borrower Sale, (x) the relevant
Borrower shall have repaid in full all of its outstanding Loans together with
accrued and unpaid interest thereon, (y) all Letters of Credit issued for the
account of such Borrower shall have expired or been canceled or cash
collateralized in full and (z) the Company shall have delivered to each of the
Banks a Borrowing Base Certificate as of the date of the consummation of such
Borrower Sale, calculating the Borrowing Base after giving effect to the
consummation of such Borrower Sale;
(ii) after giving effect to the consummation of such Borrower Sale, the
aggregate Credit Exposures of the Banks do not exceed the Borrowing Base set
forth in the Borrowing Base Certificate delivered by the Company pursuant to
clause (i)(z) as a condition precedent to such Borrower Sale; and
(iii) immediately before and after the consummation of such Borrower Sale,
no Default shall have occurred and be continuing.
SECTION 5.13. Use of Proceeds. The proceeds of the Loans made and the
Letters of Credit issued under this Agreement will be used by the Borrowers for
general corporate purposes, including working capital purposes; provided that
(i) no such proceeds shall be used by any Borrower to repay Debt outstanding
under the Private Placement Agreement and (ii) no such proceeds shall be used
in violation of any applicable law or regulation.
SECTION 5.14. Other Debt. (a) Neither the Company nor any Restricted
Subsidiary will at any time become or be liable in respect of any Debt, other
than:
(i) Debt under the Financing Documents;
(ii) Debt under the Private Placement Agreement;
(iii) Debt owing to the Company or a Restricted Subsidiary;
(iv) subject to Section 3.01(i), Debt consisting of reimbursement
obligations with respect to letters of credit issued under the Prior
Credit Agreement; and
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(v) other Debt in an aggregate principal amount at any time
outstanding not to exceed $5,000,000.
(b) Neither the Company nor any Restricted Subsidiary shall repurchase or
make any optional payment of principal of any Debt other than (i) Debt under
the Financing Documents, (ii) subject to Section 3.01(i), Debt under the Prior
Credit Agreement and (iii) Debt owing to the Company or a Restricted
Subsidiary.
SECTION 5.15. Restricted Payments and Restricted Investments. Neither the
Company nor any Restricted Subsidiary will declare or make any Restricted
Payment or make or acquire any Restricted Investment if, after giving effect
thereto, the aggregate amount of all Restricted Payments declared or made
and Restricted Investments made or acquired during the period commencing on the
first day of the eleventh consecutive fiscal quarter most recently ended on or
prior to the date on which such Restricted Payment is to be declared or made or
such Restricted Investment is to be made or acquired (the "DETERMINATION DATE")
and ending on the determination date would exceed (i) an amount equal to 50% of
Consolidated Net Income for the period of 12 consecutive fiscal quarters most
recently ended on or prior to the determination date or (ii) the aggregate
amount of all Restricted Payments declared or made and Restricted Investments
made or acquired during the then current fiscal year of the Company would
exceed the Applicable Annual Limit. For this purpose, "APPLICABLE ANNUAL LIMIT"
means (i) $20,000,000, if at the determination date the aggregate of cash and
cash equivalents held by the Company and its Restricted Subsidiaries is more
than $20,000,000 and no Loans are outstanding at such date or (ii) $6,000,000,
if at the determination date the conditions specified in the preceding clause
(i) are not satisfied. So long as a dividend is payable within 60 days of the
declaration thereof, compliance with this Section 5.15 shall be determined
solely on the basis of such declaration and the payment of such dividend shall
be disregarded for purposes of calculations hereunder.
SECTION 5.16. Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, pay any funds
to or for the account of, make any investment (whether by acquisition of stock
or indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
the Company or such Restricted Subsidiary as could have been obtained from a
third party that was not an Affiliate; provided that the foregoing provisions
of this Section shall not prohibit any such Person from declaring or paying any
lawful dividend or other payment
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ratably in respect of all its capital stock of the relevant class so long as,
after giving effect thereto, no Default shall have occurred and be continuing.
SECTION 5.17. Designation of Subsidiaries; Restricted Subsidiaries;
Additional Guarantors. (a) Designation of Subsidiaries. The Board of Directors
may at any time designate any Restricted Subsidiary as an Unrestricted
Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary, subject
in each case to the definitions of Restricted Subsidiary and Unrestricted
Subsidiary; provided that no designation by the Board of Directors of any
Borrower as an Unrestricted Subsidiary shall be effective unless:
(i) such Borrower shall have repaid in full all of its outstanding
Loans together with accrued and unpaid interest thereon, (y) all Letters
of Credit issued for the account of such Borrower shall have expired or
been canceled or cash collateralized in full and (z) the Company shall
have delivered to each of the Banks a Borrowing Base Certificate as of the
date of the proposed effectiveness of such designation calculating the
Borrowing Base after giving effect thereto;
(ii) after giving effect to such designation, the aggregate Credit
Exposures of the Banks do not exceed the Borrowing Base set forth in the
Borrowing Base Certificate delivered by the Company pursuant to clause (i)
as a condition precedent to such designation; and
(iii) immediately before and after such designation, no Default shall
have occurred and be continuing.
For avoidance of doubt, the designation of any Restricted Subsidiary as an
Unrestricted Subsidiary shall constitute for purposes of Sections 5.07 and 5.15
an Investment therein at the date of designation in an amount equal to the net
book value of the Company's investment therein, and the designation of any
Unrestricted Subsidiary as a Restricted Subsidiary shall constitute, inter
alia, the incurrence at the time of designation of any Debt or Liens of such
Subsidiary existing at such time.
(b) Restricted Subsidiaries. The Company shall own at least (i) 80% of the
Voting Stock of all Restricted Subsidiaries other than directors qualifying
shares and any shares issued to comply with local ownership legal requirements,
provided that such directors qualifying shares and other shares shall not
represent in excess of 3% of the outstanding shares of the stock of any class
of such Restricted Subsidiary and, after taking such shares into account, the
Company shall, directly or indirectly, own a majority of the Voting Stock of
such Restricted Subsidiary and (ii) 80% of all non-voting stock of every other
class of such
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Restricted Subsidiary, provided that the requirements of this clause (ii) shall
be satisfied if the Company owns such non-voting stock indirectly through a
Subsidiary with ownership interests that comply with the requirements of
clauses (i) and (ii) of this Section 5.17(b).
(c) Additional Guarantors. The Company shall cause any Person which
becomes a Restricted Subsidiary after the date hereof to (i) enter into the
Guarantee Agreement, (ii) enter into a Subsidiary Security Agreement with the
Collateral Agent substantially in the form of Exhibit D and any other
agreements, each in form and substance satisfactory to the Administrative
Agent, as may be necessary or desirable in order to grant perfected first
priority interest (subject only to Permitted Liens) upon all of the Collateral
covered by such Subsidiary Security Agreement and (iii) deliver such
certificates, evidences of corporate action, financing statements, opinions of
counsel and other documents as the Administrative Agent may reasonably request,
all in form and substance reasonably satisfactory to the Administrative Agent,
in each case within 15 days after the later of the date on which such Person
becomes a Restricted Subsidiary or, in the case of clause (iii), the date of
the relevant request of the Administrative Agent.
SECTION 5.18. Consolidated Capital Expenditures. Consolidated Capital
Expenditures for any fiscal year shall not exceed an amount equal to
Consolidated Operating Cash Flow for such fiscal year minus the sum of (a) the
aggregate amount of Restricted Payments declared or made during such fiscal
year, (b) the aggregate net amount of Restricted Investments made or acquired
during such fiscal year and (c) mandatory principal payments of Debt made
during such fiscal year (the "BASE AMOUNT"); provided that:
(i) the Base Amount for any fiscal year may at the option of the
Company be increased by an amount not to exceed the Available Basket
Amount for such fiscal year, to the extent necessary in order to permit
the undertaking of one or more capital projects (the Base Amount for any
fiscal year, together with the Available Basket Amount (if applicable) for
such fiscal year, the "PERMITTED AMOUNT" for such fiscal year); and
(ii) to the extent that Consolidated Capital Expenditures for any
fiscal year are less than the Permitted Amount for such fiscal year, the
difference may be carried forward to the next succeeding fiscal year;
provided that such difference may be used in such succeeding fiscal year
solely for capital expenditures for established projects with respect to
which capital expenditures have been incurred in the preceding fiscal
year.
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For purposes of this Section, "Available Basket Amount" for any fiscal
year means an amount equal to (x) $25,000,000 plus (y) an amount equal to the
net cash proceeds of Permitted Asset Sales which have been consummated
subsequent to the date hereof, but only as to any particular Permitted Asset
Sale if substantially contemporaneously therewith the Company shall have
requested and the Required Banks shall have agreed in writing that the net cash
proceeds thereof be added to the amount set forth in clause (x) of this
definition minus (y) the aggregate amount by which the Company has elected to
increase the Base Amount in all preceding fiscal years pursuant to clause (i)
of this Section.
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan or any Reimbursement Obligation shall
not be paid when due;
(b) any interest on any Loan, any fees or commissions or any other
amount payable under any Financing Document, shall not be paid within five
days after the due date thereof;
(c) any Borrower shall fail to observe or perform any covenant or
agreement contained in Sections 2.14, 5.01(d), and 5.07 to 5.18 inclusive;
(d) any Borrower shall fail to observe or perform any covenant or
agreement contained in any Financing Document (other than those covered by
clauses (a), (b) or (c) above) for 30 days after written notice thereof
has been given to the Company by the Administrative Agent at the request
of any Bank;
(e) any representation, warranty, certification or statement made by
any Borrower in any Financing Document, or in any certificate, financial
statement or other document delivered pursuant thereto shall prove to have
been incorrect in any material respect when made (or deemed made);
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(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of
such Debt or any Person acting on such holder's behalf, to accelerate the
maturity thereof;
(g) the Company or any Restricted Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Company or any Restricted Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Company or any Restricted Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $1,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there shall occur a complete
or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could
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cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $1,000,000;
(j) judgments or orders for the payment of money in excess of
$1,000,000 shall be rendered against the Company and/or any of its
Restricted Subsidiaries and such judgments or orders shall continue
unsatisfied and unstayed for a period of 30 days;
(k) any Person or group of Persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended), other than the
Existing Holders, shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under said Act) of 35% or more of the outstanding shares of
common stock of the Company; or, during any period of 12 consecutive
calendar months, individuals who were directors of the Company on the
first day of such period shall cease to constitute a majority of the board
of directors of the Company;
(l) the Lien created by any Security Agreement shall at any time and
for any reason not constitute a valid and perfected Lien on the Collateral
referred to therein subject to no prior or equal Lien other than a
Permitted Lien;
(m) the aggregate principal amount of the notes issued pursuant to
the Private Placement Agreement shall have been increased, the rate of
interest or premium on such notes shall have been increased, or the
amortization schedule for such notes shall have been modified, in each
case without the prior written consent of the Required Banks; or
(n) Lamar Norsworthy shall cease to serve as Chairman and Chief
Executive Officer of the Company and Matt Clifton shall cease to serve as
President of the Company (except due to appointment as Chairman, Vice
Chairman or Chief Executive Officer) and Jack P. Reid shall cease to serve
as Executive Vice President of the Company (except due to appointment as
Chairman, Vice Chairman, President or Chief Executive Officer of the
Company);
then, and in every such event, the Administrative Agent shall if requested by
the Required Banks, by notice to the Company (i) terminate the Commitments, and
they shall thereupon terminate, (ii) declare the Notes of any or all of the
Borrowers (together with accrued interest thereon) to be, and such Notes shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
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Borrower and (iii) declare an amount (the "AGGREGATE LC AMOUNT") equal to the
sum of the maximum amount which may at any time be drawn under all Letters of
Credit (whether or not a beneficiary shall have presented, or shall be entitled
at such time to present, the drafts or other documents required to draw under
any such Letter of Credit) to be, and the Aggregate LC Amount shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower;
provided that in the case of any of the Events of Default specified in clause
6.01(g) or 6.01(h) above with respect to any Obligor, without any notice to any
Borrower or any other act by any Agent or Bank, the Commitments shall thereupon
terminate, and the Notes of all Borrowers (together with accrued interest
thereon) and the Aggregate LC Amount shall become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Borrower.
The Aggregate LC Amount, when received by the Administrative Agent, shall
be deposited in the Collateral Account, as cash collateral for the
Reimbursement Obligations in the event of any drawing under any Letter of
Credit. Upon any drawing under any Letter of Credit, the Collateral Agent shall
apply such amounts held in the Collateral Account to such Reimbursement
Obligations.
SECTION 6.02. Notice of Default. The Administrative Agent shall give
notice to the Company under Section 6.01(d) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers under the Financing Documents as are delegated to
such Agent by the terms thereof, together with all such powers as are
reasonably incidental thereto.
SECTION 7.02. Agents and Affiliates. Each of the Agents in its individual
capacity shall have the same rights and powers under the Financing Documents as
any other Bank and may exercise or refrain from exercising the same as though
it were not an Agent and each of the Agents in its individual capacity and
their respective affiliates may accept deposits from, lend money to, and
generally
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engage in any kind of business with the Company or any Subsidiary or affiliate
of the Company as if it were not an Agent.
SECTION 7.03. Action by Agents. The obligations of each Agent under the
Financing Documents are only those expressly set forth therein. Without
limiting the generality of the foregoing, no Agent shall be required to take
any action with respect to any Default, except, in the case of the
Administrative Agent, as expressly provided in Article 6 and in the case of the
Collateral Agent, as expressly provided for in the Security Agreements.
SECTION 7.04. Consultation with Experts. Each Agent may consult with legal
counsel (who may be counsel for a Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
SECTION 7.05. Liability of Agents. None of the Agents, their respective
affiliates nor any of their respective directors, officers, agents, or
employees shall be liable to any Bank or any other Agent for any action taken
or not taken by it in connection with the Financing Documents (i) with the
consent or at the request of the Required Banks (or such greater number as may
be required by Section 9.05) or (ii) in the absence of its own gross negligence
or willful misconduct. None of the Agents, their respective affiliates nor any
of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with the Financing
Documents or any borrowing or the issuance of any letter of credit hereunder;
(ii) the performance or observance of any of the covenants or agreements of any
Borrower, (iii) the satisfaction of any condition specified in Article 3
hereof, except, in the case of the Documentation Agent, receipt of items
required to be delivered to the Documentation Agent; (iv) the validity,
effectiveness or genuineness of the Financing Documents or any other instrument
or writing furnished in connection therewith or (v) the existence or
sufficiency of the Collateral. No Agent shall incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex, facsimile or similar writing) believed by it
to be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with
its Commitment, indemnify each Agent, their respective affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitee's gross negligence or willful misconduct) that such
indemnitee
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may suffer or incur in connection with the Financing Documents or any action
taken or omitted by such indemnitee thereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agents. Any Agent may resign at any time by giving
written notice thereof to the Banks and the Company. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
prior to the first day of any Interest Period for any Euro-Dollar Loan:
(a) there no longer exists a Telerate British Bankers Assoc. Interest
Settlement Rates Page and deposits in dollars (in the applicable amounts)
are not being offered to Canadian Imperial Bank of Commerce in the London
interbank market for such Interest Period, or
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(b) Banks holding 50% or more of the aggregate amount of the affected
Euro-Dollar Loans advise the Administrative Agent that the London
Interbank Offered Rate as determined by the Administrative Agent will not
adequately and fairly reflect the cost to such Banks of funding such
Euro-Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Company and
the Banks, whereupon until the Administrative Agent notifies the Company that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make Euro-Dollar Loans or to continue or convert
outstanding Loans as or into Euro-Dollar Loans, shall be suspended and (ii)
each outstanding Euro-Dollar Loan, shall be converted into a Base Rate Loan on
the last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Administrative Agent at least one Domestic Business Day
before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing
has previously been given that it elects not to borrow on such date, such
Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.02. Illegality. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Euro-Dollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall make it unlawful
or impossible for any Bank (or its Euro-Dollar Lending Office) to make,
maintain or fund its Euro-Dollar Loans to any Borrower and such Bank shall so
notify the Administrative Agent, the Administrative Agent shall forthwith give
notice thereof to the other Banks and the Company, whereupon until such Bank
notifies the Company and the Administrative Agent that the circumstances giving
rise to such suspension no longer exist, the obligation of such Bank to make
Euro-Dollar Loans, or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended. Before giving any notice to the
Administrative Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need
for giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of
such Bank then outstanding shall be converted to a Base Rate Loan either (a) on
the last day of the then current Interest Period applicable to such Euro-Dollar
Loan if such Bank may lawfully continue to maintain and fund such Loan as a
Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine
that it may not lawfully continue to maintain and fund such Loan as a
Euro-Dollar Loan to such day.
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SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency shall impose, modify or deem applicable any reserve, special deposit,
insurance assessment or similar requirement (including, without limitation, any
such requirement imposed by the Board of Governors of the Federal Reserve
System but excluding any such requirement included in an applicable Euro-Dollar
Reserve Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Euro-Dollar Lending Office) or shall
impose on any Bank (or its Euro-Dollar Lending Office) or the London interbank
market any other condition affecting its Euro-Dollar Loans, its Notes or its
obligation to make Euro-Dollar Loans, and the result of any of the foregoing is
to increase the cost to such Bank (or its Euro-Dollar Lending Office) of making
or maintaining its Euro-Dollar Loans or issuing or participating in any Letters
of Credit, or to reduce the amount of any sum received or receivable by such
Bank (or its Euro-Dollar Lending Office) under this Agreement or under its Note
with respect thereto, by an amount deemed by such Bank to be material, then,
within 15 days after demand by such Bank which demand shall set forth in
reasonable detail the basis for such request (with a copy to the Administrative
Agent), the Company shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency (other than as
contemplated by Section 8.03(a)), has or would have the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank which demand shall set forth in reasonable
detail the basis for such request (with a copy to the Administrative Agent),
the Company shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.
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(c) Each Bank will promptly notify the Company and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
SECTION 8.04. Taxes. (a) For the purposes of this Section, the following
terms have the following meanings:
"TAXES" means any and all present of future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by any
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Bank and Agent, taxes
imposed on its net income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which such Bank or Agent (as the case may be) is
organized or in which its principal executive office is located or, in the case
of each Bank, in which its Applicable Lending Office is located and (ii) in the
case of each Bank, any United States withholding tax imposed on such payment,
but not excluding any portion of such tax that exceeds the United States
withholding tax which would have been imposed on such a payment to such Bank
under the laws and treaties in effect when such Bank first becomes a party to
this Agreement.
"OTHER TAXES" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to any Financing Document or from the execution,
delivery, registration or enforcement of, or otherwise with respect to, any
Financing Document or Letter of Credit.
(b) All payments by any Borrower to or for the account of any Bank or
Agent hereunder or under any Note shall be made without deduction for any Taxes
or Other Taxes; provided that, if any Borrower shall be required by law to
deduct any Taxes or Other Taxes from any such payment, (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
such Bank or Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made; (ii) such Borrower shall
make such deductions, (iii) such Borrower shall pay the full amount deducted to
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the relevant taxation authority or other authority in accordance with
applicable law and (iv) such Borrower shall promptly furnish to the
Administrative Agent, at its address specified in or pursuant to Section 9.01,
the original or a certified copy of a receipt evidencing payment thereof.
(c) The Company agrees to indemnify each Bank and Agent for the full
amount of Taxes and Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction
on amounts payable under this Section) paid by such Bank or Agent (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be paid within 15
days after such Bank or Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, before it signs and delivers this Agreement in the case of each
Bank listed on the signature pages hereof and before it becomes a Bank in the
case of each other Bank, and from time to time thereafter if requested in
writing by the Company (but only so long as such Bank remains lawfully able to
do so), shall provide each of the Company and the Administrative Agent with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts such Bank from United States withholding tax or reduces the
rate of withholding tax on payments of interest for the account of such Bank or
certifying that the income receivable by it pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide the
Company or the Administrative Agent with the appropriate form referred to in
Section 8.04(d) (unless such failure is due to a change in treaty, law or
regulation occurring after the date of which such form originally was required
to be provided), such Bank shall not be entitled to indemnification under
Section 8.04(b) or 8.04(c) with respect to Taxes imposed by the United States,
provided that, if a Bank, that is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Company shall take such steps, at the
expense of such Bank, as such Bank shall reasonably request to assist such Bank
to recover such Taxes.
(f) If any Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section as a result of a change in law or
treaty occurring after such Bank first became a party to this Agreement, then
such Bank will, at the Company's request, change the jurisdiction of its
Applicable
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Lending Office if, in the judgment of such Bank, such change (i) will eliminate
or reduce any such additional payment which may thereafter accrue and (ii) is
not otherwise disadvantageous to such Bank.
SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.
If (i) the obligation of any Bank to make, or to continue or convert
outstanding Loans as or to, Euro-Dollar Loans to any Borrower has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar
Business Days' prior notice to such Bank through the Administrative Agent, have
elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Company that the circumstances giving
rise to such suspension or demand for compensation no longer apply all Loans
which would otherwise be made by such Bank as (or continued as or converted to)
Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Banks). If such Bank notifies the Company that the circumstances
giving rise to such suspension or demand for compensation no longer exist, the
principal amount of each such Base Rate Loan shall be converted into
Euro-Dollar Loan on the first day of the next succeeding Interest Period
applicable to the related Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution of Bank. If (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, the Borrower shall
have the right, with the assistance of the Administrative Agent, to seek a
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Note and assume the Commitment of such Bank.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of any Borrower or Agent, at its address or facsimile number set forth on
the signature pages hereof, (y) in the case of any Bank, at its address or
telex or facsimile number set forth in its Administrative Questionnaire or (z)
in the case of any party, such other address or telex or facsimile number as
such party may hereafter specify for the purpose by notice to the
Administrative Agent and the
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Company. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in or pursuant to this Section and the appropriate answerback is
received, (ii) if given by reputable overnight courier, one (1) Domestic
Business Day after being delivered to such courier, (iii) if given by certified
mail (return receipt requested), three (3) Domestic Business Days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when received at
the address specified in this Section; provided that notices to the
Administrative Agent under Article 2 or Article 8 and notices to the LC Bank
under Section 2.03(c) shall not be effective until received.
SECTION 9.02. No Waiver. No failure or delay by any Agent or any Bank in
exercising any right, power or privilege under any of the Financing Documents
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies therein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Company shall pay (i) all
reasonable out-of-pocket expenses of the Agents, including reasonable fees and
disbursements of one special New York counsel for the Agents and any local
counsel for the Agents, in connection with (w) the preparation of the Financing
Documents, (x) any waiver or consent under the Financing Documents, (y) any
amendment of the Financing Documents or any Default or alleged Default
thereunder or (z) one annual inspection or audit of the Collateral by the
Collateral Agent or, if an Event of Default has occurred and is continuing, any
inspection or audit of the Collateral made from time to time by the Collateral
Agent in its discretion, reasonably exercised, and (ii) if an Event of Default
occurs, all reasonable out-of-pocket expenses incurred by any Agent or Bank,
including reasonable fees and disbursements of counsel, in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Company agrees to indemnify each Bank and hold each Bank harmless
from and against any and all liabilities, losses, damages, costs and expenses
of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by any Bank (or by any Agent in
connection with its actions as Agent) in connection with any investigative,
administrative or judicial proceeding (whether or not such Bank shall be
designated a party thereto) relating to or arising out of the Financing
Documents, the Collateral or any transaction relating thereto (including
without limitation (i) as a direct or indirect result of the presence on or
under, or escape, seepage, leakage, spillage, discharge, emission or release
from, any property now or
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previously owned, leased or operated by the Company or any of its Subsidiaries
of any Hazardous Materials or any Hazardous Materials Contamination, (ii)
arising out of or relating to the offsite disposal of any materials generated
or present on any such property or (iii) arising out of or resulting from the
environmental condition of any such property or the applicability of any
governmental requirements relating to Hazardous Materials, whether or not
occasioned wholly or in part by any condition, accident or event caused by any
act or omission of the Company or any of its Subsidiaries); provided that no
Bank shall have the right to be indemnified hereunder for its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction. To the fullest extent permitted by law, the Company hereby waives
all rights for contribution or any other rights of recovery with respect to
liabilities, losses, damages, costs and expenses arising under or relating to
Environmental Laws that it might have by statute or otherwise against any
Indemnitee. For purposes of this Section, "Hazardous Materials" means (i) any
"hazardous substance" as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as
amended from time to time, and regulations promulgated thereunder; (ii)
asbestos; (iii) polychlorinated biphenyls; (iv) petroleum, its derivatives,
by-products and other hydrocarbons; and (v) any other toxic, radioactive,
caustic or otherwise hazardous substance regulated under Environmental Laws,
and "Hazardous Materials Contamination" means contamination (whether now
existing or hereafter occurring) of the improvements, buildings, facilities,
personalty, soil, groundwater, air or other elements on or of the relevant
property by Hazardous Materials, or any derivatives thereof, or on or of any
other property as a result of Hazardous Materials, or any derivatives thereof,
generated on, emanating from or disposed of in connection with the relevant
property.
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to any Note of any Borrower held by it and any Letter of Credit
Liabilities of any Borrower which is greater than the proportion received by
any other Bank in respect of the aggregate amount of principal and interest due
with respect to any Note of any Borrower and Letter of Credit Liabilities of
any Borrower held by such other Bank, the Bank receiving such proportionately
greater payment shall purchase such participations in the Notes of such
Borrower and Letter of Credit Liabilities of such Borrower held by the other
Banks, and such other adjustments shall be made, as may be required so that all
such payments of principal and interest with respect to the Notes of such
Borrower and Letter of Credit Liabilities of such Borrower held by the Banks
shall be shared by the Banks pro rata; provided that nothing in this Section
shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to
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such exercise to the payment of indebtedness of a Borrower other than its
indebtedness hereunder. Each Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note or Letter of Credit Liabilities in respect of which it is an obligor,
whether or not acquired pursuant to the foregoing arrangements, may exercise
rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of such Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or
the Notes may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrowers and the Required Banks (and, if the
rights or duties of the LC Bank or either Agent are affected thereby, by it);
provided that no such amendment or waiver shall, unless signed by all the
Banks, (i) increase or decrease the Commitment of any Bank (except for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Loan or any fees hereunder, (iii) postpone the date fixed for any payment of
principal of or interest on any Loan or any fees hereunder or for termination
of any Commitment, (iv) amend the definition of Borrowing Base, (v) amend
Section 2.14 hereof, or (vi) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any action under this
Section or any other provision of this Agreement or the Notes.
SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that no Borrower may assign
or otherwise transfer any of its rights under this Agreement without the prior
written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other financial
institutions (each a "Participant") participating interests in its Commitment
or any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrowers and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrowers and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrowers hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of
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this Agreement; provided that such participation agreement may provide that
such Bank will not agree to any modification, amendment or waiver of this
Agreement described in clauses (i), (ii), (iii), (iv), (v) or (vi) of Section
9.05 without the consent of the Participant. An assignment or other transfer
which is not permitted by subsection 9.06(c) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection.
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations with respect to its Commitment (and corresponding Loans
and Letter of Credit Liabilities), and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement in
substantially the form of Exhibit F hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Company,
the LC Bank and the Administrative Agent (which consents shall not be
unreasonably withheld); provided that (i) if an Assignee is another Bank or an
affiliate of such transferor Bank, no such consent shall be required, (ii)
immediately after giving effect to any such assignment, (x) the transferor
Bank's Commitment is equal to either $0 or at least $5,000,000 and (y) the
Assignee's Commitment is at least equal to $5,000,000. Upon execution and
delivery of such instrument and payment by such Assignee to such transferor
Bank of an amount equal to the purchase price agreed between such transferor
Bank and such Assignee, such Assignee shall be a Bank party to this Agreement
and shall have all the rights and obligations of a Bank with a Commitment as
set forth in such instrument of assumption, and the transferor Bank shall be
released from its obligations hereunder arising on or after the effectiveness
of the assignment effected pursuant to such instrument to a corresponding
extent, and no further consent or action by any party shall be required. Upon
the consummation of any assignment pursuant to this subsection, the transferor
Bank, the Administrative Agent and the Borrowers shall make appropriate
arrangements so that, if required, new Notes are issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the
Administrative Agent an administrative fee for processing such assignment in
the amount of $3,500. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall, prior to the first date
on which interest or fees are payable hereunder for its account, deliver to the
Company and the Administrative Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights under
the Financing Documents to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
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SECTION 9.07. Collateral. Each of the Banks represents to each Agent and
each of the other Banks that it in good faith is not relying upon any Margin
Stock as collateral in the extension or maintenance of the credit provided for
in this Agreement.
SECTION 9.08. Proprietary Information. The Administrative Agent and each
Bank shall keep confidential all written and oral confidential or proprietary
information provided by or on behalf of, or obtained from, any Borrower or any
of their respective Subsidiaries; provided, that nothing herein shall prevent
the Administrative Agent or any Bank from disclosing such information (i) to
its officers, directors, employees, agents, attorneys and accountants in
accordance with customary banking practices, (ii) upon the order of a court or
administrative agency, (iii) upon the request or demand of any regulatory
agency or authority having jurisdiction over such party, (iv) that has become
publicly available without breach of any agreement between the parties hereto,
(v) as necessary for the exercise of any remedy under any Financing Document or
(vi) subject to provisions similar to those contained in this Section, to any
prospective Participant or Assignee; provided that in the case of any
disclosure pursuant to clause (ii) or (iii) above (other than any such
disclosure made to regulatory agencies in connection with examinations
conducted by such regulatory agencies in the ordinary course), the party from
whom such information is sought shall inform the Company (prior to such
disclosure, if practicable, or otherwise promptly after such disclosure, but in
each case solely to the extent permitted by law) of such order, request or
demand in order to enable the Company or the relevant Subsidiary to seek a
protective order or other appropriate remedy.
SECTION 9.09. Governing Law; Submission to Jurisdiction. Except as
otherwise provided for in the Security Agreements, each of the Financing
Documents shall be governed by and construed in accordance with the laws of the
State of New York. Each Borrower, each Bank and each Agent hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement, any other Financing Document or the transactions contemplated
hereby or thereby. Each Borrower, each Bank and each Agent irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 9.10. Counterparts; Integration. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
68
<PAGE> 74
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement and the other Financing Documents constitute the entire
agreement and understanding among the parties hereto and supersede any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.
SECTION 9.11. Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible, and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision in any other
jurisdiction.
SECTION 9.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENTS AND
THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
FINANCING DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
69
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
HOLLY CORPORATION
By /s/ HENRY A. TEICHHOLZ
------------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
100 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
Attention: Henry A. Teichholz
Facsimile number: (214) 871-3560
NAVAJO REFINING COMPANY
BLACK EAGLE, INC.
NAVAJO CORP.
NAVAJO SOUTHERN, INC.
NAVAJO NORTHERN, INC.
LOREFCO, INC.
NAVAJO CRUDE OIL PURCHASING, INC.
NAVAJO HOLDINGS, INC.
HOLLY PETROLEUM, INC.
NAVAJO PIPELINE CO.
LEA REFINING COMPANY
NAVAJO WESTERN ASPHALT COMPANY
By /s/ HENRY A. TEICHHOLZ
------------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
100 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
Attention: Henry A. Teichholz
Facsimile number: (214) 871-3560
<PAGE> 76
MONTANA REFINING COMPANY,
A PARTNERSHIP
By Navajo Northern, Inc., its
General Partner
By /s/ HENRY A. TEICHHOLZ
------------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
100 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
Attention: Henry A. Teichholz
Facsimile number: (214) 871-3560
CANADIAN IMPERIAL BANK OF
COMMERCE, as Administrative Agent
By /s/ MARY BETH ROSS
------------------------------------
Name: Mary Beth Ross
Title: Authorized Signatory
425 Lexington Avenue
New York, New York 10017
Attention:
Facsimile number:
CIBC INC., as Collateral Agent
By /s/ MARY BETH ROSS
------------------------------------
Name: Mary Beth Ross
Title: Authorized Signatory
425 Lexington Avenue
New York, New York 10017
Attention:
Facsimile number:
<PAGE> 77
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Documentation Agent
By /s/ DAVID V. FOX
------------------------------------
Name: David V. Fox
Title: Vice President
60 Wall Street
New York, New York 10260
Attention: Stacey Haimes
Facsimile number: 212-648-5023
<PAGE> 78
Commitments
$20,000,000 CANADIAN IMPERIAL BANK
OF COMMERCE
By /s/ MARY BETH ROSS
------------------------------------
Name: Mary Beth Ross
Title: Authorized Signatory
$20,000,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ DAVID V. FOX
------------------------------------
Name: David V. Fox
Title: Vice President
$15,000,000 BANKBOSTON, N.A.
By /s/ J.R. VAUGHAN, JR.
------------------------------------
Name: J.R. Vaughan, Jr.
Title: Director
Energy & Utilities
$15,000,000 THE BANK OF NOVA SCOTIA
By /s/ F.C.H. ASHBY
------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE> 79
$15,000,000 BANQUE PARIBAS
By /s/ MARIAN LIVINGSTON
------------------------------------
Name: Marian Livingston
Title: Vice President
By /s/ DOUGLAS R. LIFTMAN
------------------------------------
Name: Douglas R. Liftman
Title: Vice President
$15,000,000 TORONTO DOMINION (Texas), INC.
By /s/ DARLENE RIEDEL
------------------------------------
Name: Darlene Riedel
Title: Vice President
Total
==========
$100,000,000
<PAGE> 80
PRICING SCHEDULE
Each of "Commitment Fee Rate", "Euro-Dollar Margin" and "Letter of Credit
Commission Rate" means, for any day, the rate set forth below in the row
opposite such term and in the column corresponding to the Pricing Level that
applies for such day:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Level Level Level Level Level
Pricing Level I II III IV V
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commitment Fee Rate .2000% .2250% .2500% .3000% .3500%
- - -----------------------------------------------------------------------------------------------------
Euro-Dollar Margin .8750% .9375% 1.000% 1.125% 1.375%
- - -----------------------------------------------------------------------------------------------------
Letter of Credit .8750% .9375% 1.000% 1.125% 1.375%
Commission Rate
- - -----------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Applicable Leverage Ratio" means, at any date, the Leverage Ratio
reflected in the certificate most recently delivered by the Company pursuant to
Section 5.01(f) prior to such date; provided that until the delivery of the
first such certificate, the Applicable Leverage Ratio shall be deemed to be
0.41:1; and provided further that at any date on which a Default exists under
Section 5.01(f), the Applicable Leverage Ratio shall be deemed to be less than
0.30.
"Level I Pricing" applies at any date if the Applicable Leverage Ratio is
greater than or equal to 0.60.
"Level II Pricing" applies at any date if (i) the Applicable Leverage
Ratio is greater than or equal to 0.50 and (ii) Level I Pricing does not apply.
"Level III Pricing" applies at any date if (i) the Applicable Leverage
Ratio is greater than or equal to 0.40 and (ii) neither Level I Pricing nor
Level II Pricing applies.
"Level IV Pricing" applies at any date if (i) the Applicable Leverage
Ratio is greater than or equal to 0.30 and (ii) neither Level I Pricing, Level
II Pricing nor Level III Pricing applies.
"Level V Pricing" applies at any date of (i) the Applicable Leverage Ratio
is less than 0.30.
75
<PAGE> 81
"Pricing Level" refers to the determination of which of Level I, Level II,
Level III, Level IV or Level V Pricing applies for any day.
Any change in Pricing Level shall be effective on the second Domestic
Business Day after receipt by the Administrative Agent of the certificate
setting forth the Applicable Leverage Ratio on which such change in Pricing
Level is based.
76
<PAGE> 82
SCHEDULE I
Liens Existing on and as of October 10, 1997
o The liens evidenced by the UCC-1 financing statements, the notices of
tax liens and the abstract of judgement attached hereto.
o Numerous UCC-1 financing statements in favor of NationsBank of Texas,
N.A. as agent under the Prior Credit Agreement with respect to which
a UCC-3 termination statement has been delivered to the Administrative
Agent.(1)
- - -----------------------
(1) These UCC-1 financing statements will be released upon the effective
date of the Credit and Reimbursement Agreement to which this Schedule I is
attached.
<PAGE> 83
SCHEDULE II
Existing Letters of Credit on and as of October 14, 1997
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Issuing Bank Date Maturity Beneficiary Maximum
Issued/Amended Date Amount
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banque Paribas 05/13/92 10/21/97 NM Rothchild $ 3,100,000.00
Bank of Boston 08/22/97 11/30/97 Texaco Inc. $ 2,860,000.00
Banque Paribas 08/25/97 10/31/97 Texaco Inc. $ 2,970,000.00
Banque Paribas 09/26/97 11/30/97 Arco Crude $ 1,100,000.00
Oil
Bank of Boston 09/26/97 12/08/97 Koch Oil Co. $ 3,520,000.00
Banque Paribas 09/25/97 11/30/97 Texaco Inc. $ 2,530,000.00
Bank of Boston 10/02/97 10/01/98 Insurance $ 918,588.00
Comp.
- - --------------------------------------------------------------------------------
</TABLE>
<PAGE> 84
EXHIBIT A
NOTE
New York, New York
_____________, 199_
For value received, Holly Corporation, a Delaware corporation, (the
"Borrower"), promises to pay to the order of [NAME OF BANK] (the "Bank"), for
the account of its Applicable Lending Office, the lesser of (i) __________
million dollars ($_________) or (ii) the unpaid principal amount of each Loan
made by the Bank to the Borrower pursuant to the Credit Agreement referred to
below on the maturity date provided for in the Credit Agreement. The Borrower
promises to pay interest on the unpaid principal amount of each such Loan on
the dates and at the rate or rates provided for in the Credit Agreement. All
such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
Canadian Imperial Bank of Commerce,425 Lexington Avenue, New York 10017.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
prior to any transfer hereof, appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding shall be endorsed
by the Bank on the schedule attached hereto, or on a continuation of such
schedule attached to and made a part hereof; provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Credit Agreement and the
other Financing Documents.
This note is one of the Notes referred to in the Credit and Reimbursement
Agreement dated as of October 14, 1997 among the Borrower and Navajo Refining
Company, Black Eagle, Inc., Navajo Corp., Navajo Southern, Inc., Navajo
Northern, Inc., Lorefco, Inc., Navajo Crude Oil Purchasing, Inc., Navajo
Holdings, Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea Refining
Company, Navajo Western Asphalt Company, and Montana Refining Company, a
Partnership, as Borrowers and Guarantors, the banks listed on the signature
pages thereof, Canadian Imperial Bank of Commerce as Administrative Agent,
CIBC Inc. as Collateral Agent and Morgan Guaranty Trust Company of New York,
as Documentation Agent (as the same may be amended from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein
with the same meanings. Reference is made to the Credit Agreement for
provisions for the prepayment hereof, the acceleration of the maturity hereof
and the basis upon which this Note is secured.
<PAGE> 85
This Note shall be governed by and construed in accordance with the laws
of the State of New York.
The Guarantors have, pursuant to the provisions of the Credit Agreement,
unconditionally guaranteed the payment in full of the principal of and interest
on this Note.
HOLLY CORPORATION
By
---------------------------------
Name:
Title:
2
<PAGE> 86
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
Amount of
Amount of Type of Principal Notation
Date Loan Loan Repaid Made By
- - ---------------------------------------------------------
<S> <C> <C> <C> <C>
- - ---------------------------------------------------------
</TABLE>
3
<PAGE> 87
[BAKER & BOTTS L.L.P. LETTERHEAD]
October 20, 1997
To the Banks and the Agents
Referred to Below
c/o Morgan Guaranty Trust Company of New York,
as Documentation Agent
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
We have acted as special counsel for Holly Corporation (the
"COMPANY"), Navajo Refining Company, Black Eagle, Inc.. Navajo Corp., Navajo
Southern, Inc., Navajo Northern, Inc., Lorefco, Inc., Navajo Crude Oil
Purchasing, Inc., Navajo Holdings, Inc., Holly Petroleum Inc., Navajo Pipeline
Co., Lea Refining Company, Navajo Western Asphalt Company and Montana Refining
Company, A Partnership (collectively, together with the Company, the
"BORROWERS"), in connection with (i) the Credit and Reimbursement Agreement
dated as of October 10, 1997 (the "AGREEMENT") among the Borrowers, the banks
listed on the signature pages thereof (the "BANKS"), Canadian Imperial Bank of
Commerce, as Administrative Agent, CIBC, Inc. as Collateral Agent and Morgan
Guaranty Trust Company of New York, as Documentation Agent. (ii) the Notes
delivered by the Company on the date hereof pursuant to the Agreement (the
"NOTES"), (iii) the Company Security Agreement, (iv) the Subsidiary Security
Agreements delivered by the Borrowers other than the Company on the date hereof
pursuant to the Agreement (together with the Company Security Agreement, the
"SECURITY AGREEMENTS") and (v) the Guarantee Agreement delivered by the
Borrowers on the date hereof (collectively, the "FINANCING DOCUMENTS"). Terms
defined in the Agreement and not otherwise defined herein are used herein as
therein defined.
For purposes of this opinion, our review has been limited to an
examination of originals or photocopies of the Financing Documents, the
Financing Statements (as hereafter defined) and the Private Placement Agreement
and a review of applicable Texas, New York and Federal law. We have also
examined and relied upon the reports described in Schedule I attached hereto as
to Uniform Commercial Code financing statements and notices of Federal tax
liens with respect to the Borrowers on file in the Office of the Secretary of
State of the State of Texas (the "CENTRAL FILING OFFICE") (collectively, the
"UCC SEARCH REPORTS"), copies of which have been delivered to you. We have also
examined and relied upon (except for purposes of the opinion
<PAGE> 88
Morgan Guaranty Trust Company -2- October 20, 1997
of New York, as Documentation Agent
expressed in paragraph 7 below) the opinion of Christopher L. Cella, General
Counsel of the Company, delivered to you on this date pursuant to the Agreement
Upon the basis of and subject to the foregoing, and subject to the
further assumptions, limitations and qualifications hereinafter set forth, we
are of the opinion that:
1. Each of the Financing Documents (other than the Notes)
constitutes a legal, valid and binding agreement of each Borrower that is a
party thereto, and the Notes constitute legal, valid and binding obligations of
the Company, in each such case enforceable in accordance with their respective
terms under the laws of the State of New York and applicable Federal law.
2. Each Security Agreement creates valid security interests
(collectively, the "ARTICLE 9 SECURITY INTERESTS"), in favor of the Collateral
Agent for the benefit of the secured parties named therein, in all of the
right, title and interest of the Borrower party thereto in all Collateral (as
defined in such Security Agreement) to the extent Article 9 of the Uniform
Commercial Code of the State of New York (the "NEW YORK UCC") is applicable to
the creation of a security interest in such Collateral.
3. Upon the filing of UCC financing statements in the form
attached as Exhibit A hereto (collectively, the "FINANCING STATEMENTS") in the
Central Filing Office naming the respective Borrowers as debtors, the Article 9
Security Interests in the Collateral described in the Financing Statements will
be perfected to the extent the Article 9 Security Interests may be perfected by
filing under the Texas Business and Commerce Code (the "TEXAS UCC").
4. Based solely upon the UCC Search Reports and assuming the
accuracy and completeness thereof both as of their respective effective dates
and as of the date hereof, there are
(i) no Uniform Commercial Code financing statements that name any
Borrower as debtor or seller and cover any of the Collateral,
other than the financing statements in favor of NationsBank of
Texas, N.A. or its predecessors as agent under the Prior
Credit Agreement, are of record in the Central Filing Office,
which is the only office prescribed under the Texas UCC as the
office in the State of Texas in which filings may be made to
perfect security interests in the Collateral; and
<PAGE> 89
Morgan Guaranty Trust Company -3- October 20, 1997
of New York, as Documentation Agent
(ii) no notices of the filing of any Federal tax lien (filed
pursuant to Section 6323 of the Internal Revenue Code) or any
lien of the Pension Benefit Guaranty Corporation (filed
pursuant to Section 4068 of ERISA) covering any of the
Collateral are on file in the Central Filing Office, which is
the only office in the State of Texas having files that must
be searched in order to determine the existence of notices of
the proper filing of Federal tax liens (filed pursuant to
Section 6323 of the Internal Revenue Code) and liens of the
Pension Benefit Guaranty Corporation (filed pursuant to
Section 4068 of ERISA) on the Collateral.
5. Except as provided in Section 9.103 of the Texas UCC, Texas
state courts and Federal courts applying Texas conflict of laws principles
would give effect to the governing law provisions in the Financing Documents
that select the laws of the State of New York.
6. The making of the Loans, the collecting of payments in respect
of the Loans, the issuance of Letters of Credit, the creation of the Article 9
Security Interests, the enforcement of rights as to Collateral, the taking of
actions necessary to preserve and protect the interest of the Collateral Agent
in said Collateral, or any combination of such transactions, solely in and of
themselves, but without regard to other facts or transactions involving the
Administrative Agent, the Collateral Agent, the Documentation Agent or the
Banks, will not require the Administrative Agent, the Collateral Agent, the
Documentation Agent or the Banks to become qualified to do business in the
State of Texas, to file any designation for service of process or to comply
with any statutory or regulatory rule or requirement that is applicable only to
financial institutions chartered or qualified to do business in the State of
Texas, and the validity and enforceability of the Financing Documents will not
be affected by any such failure so to qualify or file. You should be aware,
however, that Texas courts have held that the operation or leasing of
properties constitutes transaction of business in Texas thereby requiring a
foreign corporation to qualify to do business in Texas.
7. The execution and delivery of the Financing Documents by the
Borrowers do not, the obtaining of Loans by the Company and the issuance of
Letters of Credit (including Existing Letters of Credit) for the account of the
Company will not, and the performance by the Borrowers of their obligations
under the Financing Documents will not, violate or constitute a default under
the Private Placement Agreement. The obtaining of loans by a Borrower other
than the Company and the issuance of Letters of Credit for the account of such
Borrower under some circumstances could violate or constitute a default under
paragraphs 6B, 6C and 6F of the Private Placement Agreement.
<PAGE> 90
Morgan Guaranty Trust Company -4- October 20, 1997
of New York, as Documentation Agent
8. No intangible or documentary stamp taxes, recording taxes,
transfer taxes or similar charges are payable to the State of Texas on account
of the execution or delivery of the Security Agreements or the other Financing
Documents, the creation of the indebtedness evidenced or secured thereby, the
creation of the Article 9 Security Interests thereunder, or the filing of the
Financing Statements, except for nominal filing fees.
The opinions hereinabove expressed are subject to the following
qualifications, assumptions, limitations and exceptions:
(a) The foregoing opinions are subject to and may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws from time to
time in effect affecting the enforceability of creditors' rights
generally, (ii) general principles of equity and (iii) the rights of
the United States under the Federal Tax Lien Act of 1966, as amended.
(b) Certain of the remedial provisions contained in the
Security Agreements may be limited by applicable law, although such
limitations do not in our opinion make the remedies provided for
therein inadequate for the practical realization of the benefits of
the security stated to be afforded thereby.
(c) The perfection of the Article 9 Security Interests in
proceeds is subject to Section 9-306 of the New York UCC and Section
9.306 of the Texas UCC.
(d) Removal of tangible Collateral from the State of
Texas will result in the termination of perfection of the security
interests of the Collateral Agent therein unless new filings are made
or other actions taken in a timely fashion under the laws of the
jurisdiction to which such Collateral is removed.
(e) We have assumed that the Financing Statements set
forth the correct name and mailing address of the Collateral Agent.
(f) We call to your attention that a change in the
location (as defined in Section 9-103 of the New York UCC) of a
Borrower that is currently located in the State of Texas will affect
perfection, and the law governing perfection and priority, of a
security interest in accounts, general intangibles, chattel paper,
certain investment property and mobile goods (as each such term is
defined or used in Chapter 9 of the Texas UCC).
<PAGE> 91
Morgan Guaranty Trust Company -5- October 20, 1997
of New York, as Documentation Agent
(g) The Texas UCC requires the filing of continuation
statements, executed by the secured party of record, within the period
of six months prior to the expiration of each period of five years
from the respective date of the original filing of the Financing
Statements in order to maintain the effectiveness of such filings.
(h) Changes in the name, identity or corporate structure
of a Borrower will cause the security interests of the Collateral
Agent to be unperfected with respect to any property acquired by such
Borrower more than four months after such change unless new,
appropriate financing statements are filed before the expiration of
that time.
(i) We express no opinion with respect to any Collateral
of a type described in Section 9.401(a)(2) of the Texas UCC.
(j) We call to your attention that Section 552 of the
Bankruptcy Code limits the extent to which proceeds realized, and
property acquired, by a debtor after the commencement of a case under
such Code may be subject to a security interest arising from a
security agreement entered into by the debtor before the commencement
of such case.
(k) The indemnification provisions of the Credit
Agreement may be limited by public policy.
(l) We express no opinion regarding Section 2.02(g) of
the Guarantee Agreement.
The foregoing opinions are limited in all respects to the laws of the
State of Texas, the laws of the State of New York, and applicable Federal law,
in each case as in effect on the date hereof. Moreover, our opinions in
paragraph 2 are limited to Article 9 of the New York UCC, and our opinions in
paragraphs 3 and 4 are limited to Article 9 of the Texas UCC. Therefore, those
opinions do not address (i) laws of other jurisdictions or other laws of the
State of New York or the State of Texas, (ii) Collateral of a type not subject
to Article 9 of the New York UCC or Article 9 of the Texas UCC, and (iii) under
the New York UCC what law governs perfection of the Article 9 Security
Interests.
We undertake no obligation or responsibility to update or supplement
this opinion in response to subsequent changes in the law or future events
affecting any of the transactions contemplated by any Financing Document. The
opinions expressed herein are solely for your benefit
<PAGE> 92
Morgan Guaranty Trust Company -6- October 20, 1997
of New York, as Documentation Agent
in connection with the transactions consummated on the date hereof pursuant to
the Agreement and may not be relied upon or described or quoted to any other
person, firm or entity without, in each instance, our express prior written
consent.
Very truly yours,
/s/ BAKER & BOTTS, L.L.P.
<PAGE> 93
SCHEDULE I TO
OPINION OF SPECIAL COUNSEL FOR THE COMPANY
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
NAME OF COMPANY RECORDS SEARCHED (UCC EFFECTIVE DATE
NAME OF DEBTOR PERFORMING SEARCH AND FEDERAL TAX LIENS) OF SEARCH
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Holly Corporation Access Information Secretary of State of the 09/10/97
Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Refining Access Information Secretary of State of the 09/10/97
Company Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Black Eagle, Inc. Access Information Secretary of State of the 09/14/97
Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Corp. Access Information Secretary of State of the 10/01/97
Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Southern Access Information Secretary of State of the 10/01/97
Inc. Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Northern, Access Information Secretary of State of the 09/14/97
Inc. Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Lorefco Inc. Access Information Secretary of State of the 10/01/97
Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Crude Oil Secretary of State of the Secretary of State of the 10/09/97
Purchasing, Inc. State of Texas State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Holdings, Access Information Secretary of State of the 09/10/97
Inc. Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Holly Petroleum, Access Information Secretary of State of the 09/10/97
Inc. Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Pipeline Access Information Secretary of State of the 09/10/97
Co. Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Lea Refining Access Information Secretary of State of the 09/10/97
Company Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
Navajo Western Access Information Secretary of State of the 09/10/97
Asphalt Company Services, Inc. State of Texas
- - -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
NAME OF COMPANY RECORDS SEARCHED (UCC EFFECTIVE DATE
NAME OF DEBTOR PERFORMING SEARCH AND FEDERAL TAX LIENS) OF SEARCH
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Montana Refining Access Information Secretary of State of the 09/10/97
Company, A Services, Inc. State of Texas
Partnership
- - -------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE> 95
EXHIBIT A to Opinion of Special Counsel STATE OF TEXAS UCC-1 LASER
for the Company THIS FINANCING STATEMENT
IS PRESENTED TO A FILING
OFFICER FOR FILING PURSUANT
TO THE UNIFORM COMMERCIAL
CODE.
11. [] CHECK TO REQUEST SAME DEBTOR
SEARCH CERTIFICATE. (INSTRUCTION B.11)
FILED WITH: SECRETARY OF STATE
<TABLE>
<S> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 1A. PREFIX 1B. SUFFIX
[Name of Debtor]
- - ------------------------------------------------------------------------------------------------------------------------------------
1C. MAILING ADDRESS 1D. CITY, STATE 1E. ZIP CODE
[Address of Debtor]
- - ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 2A. PREFIX 2B. SUFFIX
- - ------------------------------------------------------------------------------------------------------------------------------------
2C. MAILING ADDRESS 2D. CITY, STATE 2E. ZIP CODE
- - ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 3A. PREFIX 3B. SUFFIX
- - ------------------------------------------------------------------------------------------------------------------------------------
3C. MAILING ADDRESS 3D. CITY, STATE 3E. ZIP CODE
- - ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY (IF PERSONAL) LAST NAME FIRST NAME M.I.
CIBC, Inc., as Collateral Agent, as more particularly described on Schedule I attached hereto
- - ------------------------------------------------------------------------------------------------------------------------------------
4A. MAILING ADDRESS 4B. CITY, STATE 4C. ZIP CODE
425 Lexington Avenue New York, NY 10017
- - ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY)
- - ------------------------------------------------------------------------------------------------------------------------------------
5A. MAILING ADDRESS 5B. CITY, STATE 5C. ZIP CODE
- - ------------------------------------------------------------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following types or items of property. (If collateral is crops, fixtures, timber or minerals,
read instruction B. 6-7.)
All inventory; all accounts; all chattel paper, documents or instruments relating to accounts or the sale or lease of goods or
the rendering of services; all contract rights or general intangibles relating to any of the foregoing or to any agreements
relating to any or the foregoing; all accounts receivables not otherwise described herein and proceeds of all of the foregoing,
as more fully described in Exhibit A attached hereto.
- - ------------------------------------------------------------------------------------------------------------------------------------
7. CHECK ONLY 7A. PRODUCTS OF 7B. THIS FINANCING STATEMENT IS NUMBER OF ADDITIONAL
IF COLLATERAL ARE TO BE FILED FOR RECORD IN SHEETS
APPLICABLE [] ALSO COVERED [] THE REAL ESTATE RECORDS. PRESENTED 1
- - ------------------------------------------------------------------------------------------------------------------------------------
8. CHECK 8A. THIS FINANCING STATEMENT IS SIGNED BY THE SECURED PARTY
APPROPRIATE INSTEAD OF THE DEBTOR TO PERFECT A SECURITY INTEREST IN
BOX COLLATERAL IN ACCORDANCE WITH INSTRUCTION B. 8 ITEM: [] (1) [] (2) [] (3) [] (4) [] (5)
- - ------------------------------------------------------------------------------------------------------------------------------------
9. SIGNATURE(S) THIS SPACE FOR USE OF FILING OFFICER
OF [Name of Debtor] (DATE, TIME, NUMBER, FILING OFFICER)
DEBTOR(S)
- - ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE(S)
OF
SECURED PARTY(IES)
- - ------------------------------------------------------------------------------------------------------------------------------------
10. Return copy to:
NAME
ADDRESS
CITY
STATE
ZIP
- - ------------------------------------------------------------------------------------------------------------------------------------
STANDARD FORM - FORM UCC-1 (REV. 9/1/92) (C)1992 OFFICE OF THE SECRETARY OF STATE OF TEXAS
</TABLE>
<PAGE> 96
ATTACHMENT TO UCC-1 FINANCING STATEMENT
[NAME OF DEBTOR], DEBTOR
CIBC INC., AS COLLATERAL AGENT, SECURED PARTY
FILED WITH TEXAS SECRETARY OF STATE
SCHEDULE 1
CIBC Inc. is serving as Collateral Agent for the Canadian Imperial
Bank of Commerce, as Administrative Agent, CIBC Inc., as Collateral Agent,
Morgan Guaranty Trust Company of New York, as Documentation Agent
(collectively, the "Agents"), the Banks (capitalized terms not otherwise
defined herein are used herein as defined in the Credit and Reimbursement
Agreement described below) and each of the Agents' and Banks' successors and
assigns, all pursuant to that certain Credit and Reimbursement Agreement dated
as of October 10, 1997 by and among the Banks listed therein, the Agents and
the Borrowers (including the Debtor as such term is used in this financing
statement), as amended from time to time.
EXHIBIT A
DESCRIPTION OF COLLATERAL
(i) All inventory, (ii) all accounts, (iii) all chattel paper,
documents and instruments relating to accounts or arising out of or in
connection with the sale or lease of goods or the rendering of services, (iv)
all rights in, to, or under security agreements, leases and other contracts
securing or otherwise relating to accounts, chattel paper, documents or
instruments, (v) all contract rights and general intangibles arising in
connection with or otherwise relating to any agreements, leases or contracts
described in clause (iv) or to accounts, chattel paper, documents, instruments,
or inventory, (vi) all accounts receivable which are not described in clauses
(ii), (iii), (iv) or (v), in each case now owned or hereafter acquired,
wherever located, and all proceeds thereof.
<PAGE> 97
[HOLLY CORPORATION LETTERHEAD]
October __, 1997
To the Banks and each Agent
Referred to Below
c/o Morgan Guaranty Trust Company of New York,
as Documentation Agent
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
I am General Counsel of Holly Corporation (the "COMPANY") and in that
capacity I have acted as legal counsel to the Company, Navajo Refining Company,
Navajo Holdings, Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea Refining
Company, Navajo Western Asphalt Company, Montana Refining Company, A
Partnership, Black Eagle, Inc., Navajo Corp., Navajo Southern, Inc., Navajo
Northern, Inc., Lorefco, Inc. and Navajo Crude Oil Purchasing, Inc.
(collectively, the "BORROWERS"), in connection with (i) the Credit and
Reimbursement Agreement dated as of October ____, 1997 (the "AGREEMENT") among
the Borrowers, the banks listed on the signature pages thereof (the "BANKS"),
Canadian Imperial Bank of Commerce, as Administrative Agent, CIBC, Inc. as
Collateral Agent and Morgan Guaranty Trust Company of New York, as
Documentation Agent, (ii) the Notes, (iii) the Company Security Agreement, (iv)
the Subsidiary Security Agreements and (v) the Guarantee Agreement. Terms
defined in the Agreement and not otherwise defined herein are used herein as
therein defined.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as I have deemed necessary or advisable for
purposes of this opinion.
In giving my opinions set forth herein, I have relied upon
certificates of public officials and certificates of officers of the Borrowers
with respect to the accuracy of the factual matters contained therein. I have
assumed the genuineness of all signatures, the conformity to originals of all
documents reviewed by me as photostatic copies and the legal competence of each
individual executing any document.
<PAGE> 98
Upon the basis and subject to the foregoing, I am of the opinion that:
1. Each of the Borrowers, other than Montana Refining Company, A
Partnership ("MONTANA"), is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of incorporation. Montana is a
general partnership duly formed and validly existing under the laws of the
State of Montana. Each of the Borrowers has the corporate (or, in the case of
Montana, the partnership) power required to carry on its business as now
conducted.
2. The execution, delivery and performance by the Borrowers of
the Financing Documents to which each is a party are within their respective
corporate or partnership power, as the case may be, have been duly authorized
by all necessary, corporate or partnership action (including without limitation
any necessary corporate action on the part of any general partner), as the case
may be, require no consent of, notice to or filing with, any governmental or
regulatory body, agency or official (other than the filing, of the financing
statements and the providing of notices of assignments of government contracts
provided for in the Financing Documents and routine filings after the date
hereof with the Securities and Exchange Commission) and do not violate the
certificate of incorporation or the articles of incorporation, as the case may
be, or the bylaws of any Borrower (other than Montana) or the partnership
agreement of Montana or constitute a breach of or a default under any provision
of applicable law or regulation or any material agreement, or any judgment,
injunction, order or decree, binding upon the Company or any of its
Subsidiaries and known to me, or result in the creation or imposition of any
Lien (other than the Liens created by the Security Agreements) on any revenues
or assets of the Company or any of its Subsidiaries.
3. There is no action, suit or proceeding pending or, to my
knowledge, threatened in writing against any Borrower before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could reasonably be
expected to materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, or which in any manner draws into
question the validity of any of the Financing Documents.
The foregoing opinions are limited in all respects to the existing
laws of the State of Texas and the United States of America and the General
Corporation Law of the State of Delaware and, solely for purposes of my opinion
set forth in Paragraph 1 above, the Montana Uniform Partnership Act (Mont. Code
Ann. Section 35-10 et seq.), each as in effect on the date hereof, and no
opinion is expressed herein as to any matters governed by the laws of any other
jurisdiction. I undertake no obligation or responsibility to update or
supplement this opinion in response to subsequent changes in the law or future
events affecting any of the transactions contemplated by any Financing
Document. The opinions expressed herein are solely for your benefit in
connection with the transactions consummated on the date hereof pursuant to the
Agreement and may not be relied upon or described or quoted to any other
person, firm or entity other than you without, in each instance, my prior
written consent.
2
<PAGE> 99
I am a Vice President of each Borrower other than Montana.
Very truly yours,
/s/ CHRISTOPHER L. CELLA
<PAGE> 100
[DAVIS POLK & WARDWELL LETTERHEAD]
October 10, 1997
To the Banks and the Agents
Referred to Below
c/o Morgan Guaranty Trust Company of New York,
as Documentation Agent
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
We have participated in the preparation of the Credit and
Reimbursement Agreement (the "Credit Agreement") dated as of October 10, 1997,
among Holly Corporation, Navajo Refining Company, Black Eagle, Inc., Navajo
Corp., Navajo Southern, Inc., Navajo Northern, Inc., Lorefco, Inc., Navajo
Crude Oil Purchasing, Inc., Navajo Holdings, Inc., Holly Petroleum, Inc.,
Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company and
Montana Refining Company, A Partnership (collectively, the "Borrowers"), as
Borrowers and Guarantors, the banks listed on the signature pages thereof,
Canadian Imperial Bank of Commerce, as administrative agent (the
"Administrative Agent"), CIBC Inc. as collateral agent (the "Collateral Agent")
and Morgan Guaranty Trust Company of New York, as documentation agent (the
"Documentation Agent" and, together with the Administrative Agent and the
Collateral Agent, the "Agents") and have acted as special counsel for the
Agents for the purpose of rendering this opinion pursuant to Section 3.01(k) of
the Credit Agreement. Terms defined in the Credit Agreement are used herein as
therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
<PAGE> 101
To the Banks and the Agents 2 October 10, 1997
Upon the basis of the foregoing, we are of the opinion that the Credit
Agreement constitutes a valid and binding agreement of each Borrower and the
Notes of each Borrower issued under the Credit Agreement today constitute valid
and binding obligations of such Borrower, in each case enforceable in
accordance with their respective terms, except as the same may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
We are members of the bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America. In giving the foregoing opinion we have assumed,
with your permission and without independent investigation, that (i) each
Borrower is a corporation duly incorporated or a partnership duly organized, as
the case may be, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be, (ii) the
execution, delivery and performance by each Borrower of the Credit Agreement
and the Notes are within the Borrower's corporate or partnership powers, as the
case may be, and have been duly authorized by all necessary action and (iii)
the Credit Agreement and the Notes issued under the Credit Agreement today have
been duly executed and delivered by each Borrower. In addition, we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which limits the rate of
interest that such Bank may charge or collect.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other Person without our prior written consent.
Very truly yours,
/s/ DAVIS POLK & WARDWELL
<PAGE> 102
EXHIBIT D
SECURITY AGREEMENT
dated as of October 14, 1997
among
[NAME OF SUBSIDIARY]
and
CIBC Inc., as Collateral Agent
<PAGE> 103
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of October 14, 1997 among [NAME OF
SUBSIDIARY], a _________ corporation (with its successors, the "DEBTOR") and
CIBC INC. as Collateral Agent (the "COLLATERAL AGENT").
W I T N E S S E T H :
WHEREAS, Holly Corporation, Navajo Refining Company, Black Eagle, Inc.,
Navajo Corp., Navajo Southern, Inc., Navajo Northern, Inc., Lorefco, Inc.,
Navajo Crude Oil Purchasing, Inc., Navajo Holdings, Inc., Holly Petroleum,
Inc., Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company
and Montana Refining Company, A Partnership, as Borrowers and Guarantors,
certain banks (with their respective successors and assigns, the "BANKS"),
Canadian Imperial Bank of Commerce, Inc., as Administrative Agent (the
"ADMINISTRATIVE AGENT"), CIBC Inc., as Collateral Agent and Morgan Guaranty
Trust Company of New York, as Documentation Agent have entered into a Credit
and Reimbursement Agreement dated as of October 14, 1997 (as amended from time
to time, the "CREDIT AGREEMENT");
WHEREAS, it is a condition to effectiveness of the Credit Agreement that
the Debtor grant a continuing security interest to the Collateral Agent for the
ratable benefit of the Secured Parties (as hereafter defined) in and to the
Collateral (as hereafter defined) to secure the Secured Obligations (as
hereinafter defined);
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that, on and as of the date hereof as
follows:
SECTION 1. Definitions.
Terms defined in the Credit Agreement and not otherwise defined herein
have, as used herein, the respective meanings provided for therein. The
following additional terms, as used herein, have the following respective
meanings:
"ACCOUNTS" means all "accounts" (as defined in the UCC) now owned or
hereafter acquired by the Debtor.
"CASH COLLATERAL INVESTMENTS" means:
<PAGE> 104
(i) marketable direct or guaranteed obligations of the United States of
America or any agency thereof which mature within one year from the date of
purchase by or on behalf of Debtor (including without limitation repurchase
transactions with respect thereto which are effected through banks);
(ii) certificates of deposit, bankers acceptances and time deposits of any
of the Banks, or any other United States banks, in each case maturing within
one year after the date of acquisition thereof by or on behalf of Debtor;
provided that such Banks and such other banks have a Thompson Bank Watch rating
of "B" or better at the time of acquisition and at any time such certificates
of deposit, bankers acceptance and time deposit are included in the Borrowing
Base and such other banks shall also have total assets in excess of
$20,000,000,000;
(iii) certificates of deposit, bankers acceptances and time deposits of
First National Bank of Artesia up to an aggregate amount of $600,000 which are
fully insured by the Federal Deposit Insurance Corporation and which mature
within one year after the date of acquisition thereof by or on behalf of
Debtor;
(iv) interests in money market mutual funds that invest solely in
so-called "money market" instruments maturing not more than one year after the
acquisition thereof by or on behalf of Debtor, which funds are managed by
Persons having, or which are members of holding company groups having, capital
and surplus in excess of $100,000,000;
(v) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof which at the time of purchase thereof by or on
behalf of Debtor and at any time thereafter when such securities are included
in the Borrowing Base have been rated and the ratings for which are not less
than "P 2" if rated by Moody's Investors Service, Inc. or A-2 by Standard &
Poor's Ratings Services;
(vi) money market preferred stocks of any corporation that are to be
reauctioned within 60 days of the date of acquisition thereof by or on behalf
of Debtor and with either of the two highest ratings by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Services at the time of acquisition
thereof by or on behalf of Debtor and at any time such money market preferred
stocks are included in the Borrowing Base;
(vii) variable rate tax exempt bonds, notes or funds given either of the
two highest ratings by Moody's Investors Service, Inc. or Standard & Poor's
Ratings Services at the time of acquisition thereof by or on behalf of Debtor
and at any time such variable rate tax exempt bonds, notes or funds are
included in the
2
<PAGE> 105
Borrowing Base, or if payment thereunder may be made by drawing on letters of
credit issued by banks, with outstanding debt securities having one of such
ratings at the time of acquisition thereof by or on behalf of Debtor, so long
as the investments in such bonds, notes or funds mature within one year of such
date;
(viii) fixed income securities rated "A" or better by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Services or Debtor at any time such
securities are included in the Borrowing Base so long as such securities mature
within one year of such date of acquisition thereof by or on behalf of Debtor;
(ix) money market preferred stocks of any corporation that are to be
reauctioned within one year of the date of acquisition thereof by or on behalf
of Debtor and with either of the two highest ratings by Moody's Investor's
Service, Inc. or Standard & Poor's Ratings Services at the time of acquisition
thereof by or on behalf of Debtor and at any time such money market preferred
stocks are included in the Borrowing Base, excluding Cash Collateral
Investments described in subsection (vi) above.
The Cash Collateral Investments described in subsections (i) - (iii) above
owned by Debtor and in which Secured Party has a perfected, first priority
security interest are herein called "First Tier Cash Equivalents"; the Cash
Collateral Investments described in subsections (iv) - (vi) above owned by
Debtor and in which Secured Party has a perfected, first priority security
interest are herein called "Second Tier Cash Equivalents"; and the Cash
Collateral Investments described in subsections (vii) - (ix) above owned by
Debtor and in which Secured Party has a perfected, first priority security
interest are herein called "Third Tier Cash Equivalents".
"COLLATERAL" has the meaning set forth in Section 3.
"COLLATERAL ACCOUNT" has the meaning set forth in the Company Security
Agreement.
"COMPANY SECURITY AGREEMENT" means the Security Agreement dated as of
October 14, 1997 between Holly Corporation and the Collateral Agent, as amended
from time to time.
"DOCUMENTS" means all documents relating to Accounts or arising out of or
in connection with the sale or lease of goods or the rendering of services,
whether now owned or hereafter acquired by the Debtor.
3
<PAGE> 106
"GENERAL INTANGIBLES" means (i) all rights in, to, or under all security
agreements, leases and other contracts securing or otherwise relating to
Accounts, Documents or Instruments, (ii) all contracts rights and general
intangibles of any kind arising in connection with or otherwise relating to
agreements, leases or contracts described in clause (i) or relating to
Accounts, Documents, Instruments or Inventory and (iii) all accounts receivable
which are not otherwise described in clauses (i) or (ii) and do not constitute
Accounts.
"INSTRUMENTS" means all instruments or chattel paper relating to Accounts
or arising out of or in connection with the sale or lease of goods or the
rendering of services, whether now owned or hereafter acquired by the Debtor.
"INVENTORY" means all inventory now owned or hereafter acquired by the
Debtor (including, but not limited to, all (i) petroleum products, raw
materials and work in process therefor, and materials used or consumed in the
manufacture of production thereof, (ii) goods in which Debtor has an interest
in mass or a joint or other interest or right of any kind, and (iii) goods
which are returned to or repossessed by Debtor, and all accessions thereto and
products thereof and documents therefor wherever located).
"LETTER OF CREDIT OBLIGATION" means at any time any Reimbursement
Obligations of the Debtor or other obligation of the Debtor to make a payment
in connection with a Letter of Credit issued for the account of the Debtor,
including contingent obligations with respect to amounts which are then, or may
thereafter become, available for drawing under Letters of Credit issued for the
account of the Debtor then outstanding.
"PERFECTION CERTIFICATE" means the certificate, substantially in the form
of Exhibit A, completed and supplemented with the schedules and attachments
contemplated thereby to the satisfaction of the Collateral Agent, and duly
executed by the Debtor.
"PROCEEDS" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, Collateral,
including without limitation all claims of the Debtor against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance in respect of, any
Collateral, rights to any returned or repossessed goods relating to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
4
<PAGE> 107
"SECURED OBLIGATIONS" means the obligations secured under this Agreement
including (a) all principal of and interest (including, without limitation, any
interest that accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the Debtor,
whether or not allowed or allowable as a claim in any such proceeding) on any
loan to the Debtor under, or any note issued by the Debtor pursuant to, the
Credit Agreement, (b) all reimbursement obligations with respect to any letter
of credit issued for the account of the Debtor pursuant to the Credit
Agreement, (c) all amounts payable by the Debtor under the Guarantee Agreement,
(d) all other amounts payable by the Debtor hereunder or under any other
Financing Document, and (e) any renewals or extensions of any of the foregoing;
provided that the Secured Obligations described in clause (c) above and any
renewal or extension thereof described in clause (e) above (collectively, the
"GUARANTEED OBLIGATIONS"), shall be subordinate and junior in rank to the other
Secured Obligations for purposes of this Security Agreement and the Liens
created hereby.
"SECURED PARTIES" means each of the Banks and the Agents.
"SECURITY EVENT" means any event, occurrence or condition which, in the
sole discretion of the Required Banks acting in good faith, "impairs the
prospect of payment" by the Debtor within the meaning of Section 1-208 of the
UCC.
"SECURITY INTERESTS" means the security interests in the Collateral
granted hereunder securing the Secured Obligations.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of New York; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection.
SECTION 2. Representations and Warranties.
The Debtor represents and warrants as follows:
(a) The Debtor has good title to all of the Accounts, free and clear of
any Liens other than the Permitted Liens. The Debtor has taken all actions
necessary under the UCC to perfect its interest in any Accounts purchased or
otherwise acquired by it, as against its assignors and creditors of its
assignors.
5
<PAGE> 108
(b) Other than financing statements, mortgages, security agreements or
other similar or equivalent documents or instruments with respect to the
Security Interests and other Permitted Liens, no financing statement, mortgage,
security agreement or similar or equivalent document or instrument covering all
or any part of the Collateral is on file or of record in any jurisdiction in
which such filing or recording would be effective to perfect a Lien on such
Collateral. No Collateral is in the possession of any Person (other than the
Debtor) asserting any claim thereto or security interest therein, except that
the Collateral Agent or its designee may have possession of Collateral as
contemplated hereby.
(c) On or prior to the date hereof, the Debtor shall deliver the
Perfection Certificate to the Collateral Agent. The information set forth
therein shall be correct and complete in all material respects. Within 60 days
after the date hereof, the Debtor shall furnish to the Collateral Agent
acknowledgment copies of the filings set forth in Schedule 7 to the Perfection
Certificate.
(d) The Security Interests constitute valid security interests under the
UCC securing the Secured Obligations to the extent the UCC is applicable
thereto. When UCC Financing Statements in the form specified in Exhibit A shall
have been filed in the offices specified in the Perfection Certificate, the
Security Interests shall constitute perfected security interests in the
Collateral (except Inventory in transit) to the extent that a security interest
therein may be perfected by filing pursuant to the UCC, prior to all other
Liens except for the Permitted Liens (other than the Security Interests).
(e) Upon the delivery to the Collateral Agent of assignments and notices
of assignment substantially in the forms of Exhibits G-2 and G-3, respectively,
to the Credit Agreement with respect thereto, and the filing of each such
notice with the governmental authority or agency or other office described
therein, the Security Interests shall constitute valid assignments of the
Accounts due under Eligible Government Contracts to the extent that such
assignment is governed by the Assignment of Claims Act.
(f) All Inventory has or will have been produced in compliance with the
applicable requirements of the Fair Labor Standards Act, as amended.
SECTION 3. The Security Interests.
(a) In order to secure the full and punctual payment of the Secured
Obligations in accordance with the terms thereof, and to secure the performance
of all of the obligations of the Debtor hereunder and under the other Financing
Documents, the Debtor hereby grants to the Collateral Agent for the ratable
6
<PAGE> 109
benefit of the Secured Parties, a continuing security interest in and to all of
the following property of the Debtor, whether now owned or existing or
hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "COLLATERAL"):
(1) Accounts;
(2) Inventory;
(3) Documents;
(4) Instruments;
(5) The Collateral Account, all cash deposited therein from time to
time and the Cash Collateral Investments made pursuant to Section 5(d);
(6) All books and records and other writings relating to any of the
Collateral (including without limitation computer programs, tapes and
related electronic data processing hardware); and
(7) All Proceeds of all or any of the Collateral described in Clauses
1 through 6 hereof.
(b) The Security Interests are granted as security only and shall not
subject the Collateral Agent or any other Secured Party to, or transfer or in
any way affect or modify, any obligation or liability of the Debtor with
respect to any of the Collateral or any transaction in connection therewith.
SECTION 4. Further Assurances; Covenants.
(a) The Debtor will not change its name, identity or corporate structure
in any manner or change the location of (i) its chief executive office or chief
place of business, or (ii) the locations where it keeps or holds any Collateral
from the applicable location described in the Perfection Certificate unless it
shall have given the Collateral Agent thirty (30) days prior notice thereof;
provided that (x) no such notice shall be required if the location where any
Collateral is kept or held shall be changed from the applicable location
described in the Perfection Certificate with respect to such Collateral to any
other location described in the Perfection Certificate in a jurisdiction where
a UCC financing statement in the form specified in Exhibit A is on file and
effective at the time of such change and (y) with respect to any Collateral
consisting of Inventory, such notice shall be required to be given within 90
days after any such change is made.
7
<PAGE> 110
(b) The Debtor will, from time to time, at its expense, execute, deliver,
file and record any statement, notice, assignment, instrument, document,
agreement or other paper and take any other action, (including, without
limitation, any filings of financing or continuation statements under the UCC,
or any such document or action in respect of the Assignment of Claims Act;
provided that the Debtor shall not be required at any time to file any document
or take any action in respect of the Assignment of Claims Act if at such time
no Receivables created pursuant to a Government Contract are included in the
Borrowing Base) that from time to time may be necessary or desirable, or that
the Collateral Agent may reasonably request, in order to create, preserve,
perfect, confirm or validate the Security Interests or to enable the Collateral
Agent and the Secured Parties to obtain the full benefits of this Agreement, or
to enable the Collateral Agent to exercise and enforce any of its rights,
powers and remedies hereunder with respect to any of the Collateral. To the
extent permitted by applicable law, the Debtor hereby authorizes the Collateral
Agent to execute and file financing statements or continuation statements
without the Debtor's signature appearing thereon. The Debtor agrees that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement. The Debtor shall
pay the costs of, or incidental to, any recording or filing of any financing or
continuation statements concerning the Collateral.
(c) If at any time during which an Event of Default has occurred and is
continuing any Collateral is in the possession or control of any warehouseman,
bailee or any of the Debtor's agents or processors, promptly upon request of
the Collateral Agent at the request of any Bank, the Debtor shall notify such
warehouseman, bailee, agent or processor of the Security Interests created
hereby and to hold all such Collateral for the Collateral Agent's account
subject to the Collateral Agent's instructions.
(d) The Debtor shall keep full and accurate books and records relating to
the Collateral, and stamp or otherwise mark such books and records in such
manner as the Required Banks may reasonably require in order to reflect the
Security Interests.
(e) The Debtor will immediately deliver and pledge each Instrument to the
Collateral Agent, appropriately endorsed to the Collateral Agent, provided that
so long as no Event of Default shall have occurred and be continuing, the
Debtor may retain for collection in the ordinary course any Instruments (other
than checks and drafts constituting payments in respect of Accounts, as to
which the provisions of Section 5(b) shall apply) received by it in the
ordinary course of business and the Collateral Agent shall, promptly upon
request of the Debtor, make appropriate arrangements for making any other
Instrument pledged by the
8
<PAGE> 111
Debtor available to it for purposes of presentation, collection or renewal (any
such arrangement to be effected, to the extent deemed appropriate to the
Collateral Agent, against trust receipt or like document).
(f) Without the prior written consent of the Required Banks, the Debtor
will not sell, lease, exchange, assign or otherwise dispose of, or grant any
option with respect to, any Collateral except that, subject to the rights of
the Secured Parties hereunder if an Event of Default shall have occurred and be
continuing, the Debtor may consummate (i) any Asset Sale permitted by Section
5.12 of the Credit Agreement and (ii) any disposition of Collateral excluded
from the definition of "Asset Sale" pursuant to clauses (i) and (ii) thereof.
(g) The Debtor will, promptly upon request, provide to the Collateral
Agent all information and evidence it may reasonably request concerning the
Collateral to enable the Collateral Agent to enforce the provisions of this
Agreement.
(h) Prior to the date of the first Borrowing under the Credit Agreement,
the Debtor will cause the Collateral Agent to be named as an insured party and
loss payee of each insurance policy covering risks relating to any of its
Inventory. The Debtor will deliver to the Collateral Agent, upon request of the
Collateral Agent, the insurance policies for such insurance or certificates of
insurance evidencing such coverage. The Debtor shall not cancel or terminate
any such insurance policy or enter into any material modification thereof
unless the Debtor shall have given the Collateral Agent at least 30 days'
prior notice thereof. The Debtor hereby appoints the Collateral Agent as its
attorney-in-fact, at any time that an Event of Default exists and is
continuing, to make proof of loss, claim for insurance and adjustments with
insurers, and to execute or endorse all documents, checks or drafts in
connection with payments made as a result of any insurance policies.
SECTION 5. Collateral Account.
(a) There shall be deposited from time to time into the Collateral Account
(i) the cash proceeds of the Collateral required to be delivered to the
Collateral Agent pursuant to subsection (b) of this Section 5 (if any) or any
other provision of this Agreement and (ii) at the discretion of the Debtor, any
other cash. Any income received by the Collateral Agent with respect to the
balance from time to time standing to the credit of the Collateral Account,
including any interest or capital gains on Cash Collateral Investments, shall
remain, or be deposited, in the Collateral Account. The cash amounts on deposit
from time to time in the Collateral Account together with any Cash Collateral
Investments from time to time made pursuant to subsection (d) of this Section
shall constitute
9
<PAGE> 112
part of the Collateral hereunder and shall not constitute payment of the
Secured Obligations until applied thereto as hereinafter provided.
(b) Upon the occurrence and continuation of an Event of Default, the
Debtor shall instruct all Account Debtors to make all payments in respect of
Accounts either (i) directly to the Collateral Agent (by instructing that such
payments be remitted to a post office box which shall be in the name and under
the control of the Collateral Agent) or (ii) to one or more other banks in any
state (other than Louisiana) in the United States (by instructing that such
payments be remitted to a post office box which shall be in the name and under
the control of such bank) under a Lockbox Letter substantially in the form of
Exhibit B hereto duly executed by the Debtor and such bank or under other
arrangements, in form and substance reasonably satisfactory to the Collateral
Agent, pursuant to which the Debtor shall have irrevocably instructed such
other bank (and such other bank shall have agreed) to remit all proceeds of
such payments directly to the Collateral Agent for deposit into the Collateral
Account or as the Collateral Agent may otherwise instruct such bank. All such
payments made to the Collateral Agent shall be deposited in the Collateral
Account. In addition to the foregoing, the Debtor agrees that if the Proceeds
of any Collateral hereunder (including the payments made in respect of
Accounts) shall be received by it upon the occurrence and continuation of an
Event of Default, the Debtor shall as promptly as possible deposit such
Proceeds into the Collateral Account. Until so deposited, all such Proceeds
shall be held in trust by the Debtor for the Collateral Agent and the other
Secured Parties and shall not be commingled with any other funds or property of
the Debtor.
(c) The balance from time to time standing to the credit of the Collateral
Account shall, except upon the occurrence and continuation of an Event of
Default, be distributed to the Debtor upon the order of the Debtor. If
immediately available cash on deposit in the Collateral Account is not
sufficient to make any distribution to the Debtor referred to in the previous
sentence of this Section 5(c), the Collateral Agent shall liquidate as promptly
as practicable Cash Collateral Investments as required to obtain sufficient
cash to make such distribution and, notwithstanding any other provision of this
Section 5, such distribution shall not be made until such liquidation has taken
place. Upon the occurrence and continuation of an Event of Default, the
Collateral Agent shall, if so instructed by the Required Banks, apply or cause
to be applied (subject to collection) any or all of the balance from time to
time standing to the credit of the Collateral Account to the payment of the
matured Secured Obligations in the manner specified in Section 9.
(d) Amounts on deposit in the Collateral Account shall be invested and
re-invested from time to time in such Cash Collateral Investments as the Debtor
10
<PAGE> 113
shall determine, which Cash Collateral Investments shall be under the control
of the Collateral Agent, provided that, if an Event of Default has occurred and
is continuing, the Collateral Agent shall, if instructed by the Required Banks,
liquidate any such Cash Collateral Investment and apply or cause to be applied
the proceeds thereof to the payment of the Secured Obligations in the manner
specified in Section 9.
SECTION 6. General Authority.
The Debtor hereby irrevocably appoints the Collateral Agent its true and
lawful attorney, with full power of substitution, in the name of the Debtor,
the Agents, any other Secured Parties or otherwise, for the sole use and
benefit of the Collateral Agent and the other Secured Parties, but at the
Debtor's expense, to the extent permitted by law (including, without
limitation, applicable laws, rules, regulations and orders) to exercise, upon
notice to the Debtor as specified below at any time and from time to time while
and only after an Event of Default has occurred and is continuing, all or any
of the following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due thereon or by virtue thereof;
(ii) to settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto;
(iii) to sell, transfer, assign or otherwise deal in or with the same
or the proceeds or avails thereof, as fully and effectually as if the
Collateral Agent were the absolute owner thereof; and
(iv) to extend the time of payment of any or all thereof and to make
any allowance and other adjustments with reference thereto;
provided that the Collateral Agent shall give the Debtor not less than ten
days' prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. The Debtor agrees that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC. In addition,
the Collateral Agent shall give notice to the Debtor of other actions taken by
the Collateral Agent with respect to the Collateral pursuant to this Section;
provided that failure by the Collateral Agent to give any such notice with
respect to any such action shall not affect in any manner the validity of such
action.
11
<PAGE> 114
SECTION 7. Remedies upon Event of Default.
(a) If any Event of Default has occurred and is continuing, the Collateral
Agent may exercise on behalf of the Secured Parties all rights of a secured
party under the UCC (or, if the Uniform Commercial Code is not in effect in the
jurisdiction where such rights are exercised, the UCC as in effect in the State
of New York to the extent not prohibited by the laws of such jurisdiction),
and, in addition, the Collateral Agent may, without being required to give any
notice, except as herein provided or as may be required by mandatory provisions
of law, (i) withdraw all cash and Cash Collateral Investments in the Collateral
Account and apply such cash and Cash Collateral Investments and other cash, if
any, then held by it as Collateral as specified in Section 9 and (ii) if there
shall be no such cash or Cash Collateral Investments or if such cash and Cash
Collateral Investments shall be insufficient to pay all the Secured Obligations
in full, sell the Collateral (subject to any applicable laws, rules,
regulations and orders) or any part thereof at public or private sale, for
cash, upon credit or for future delivery, and at such price or prices as the
Collateral Agent may reasonably deem satisfactory. The Collateral Agent or any
other Secured Party may be the purchaser of any or all of the Collateral
(subject to any applicable laws, rules, regulations and orders) so sold at any
public sale (or, if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely distributed
standard price quotations, at any private sale). The Debtor will execute and
deliver such documents and take such other action as the Collateral Agent
reasonably deems necessary or advisable in order that any such sale may be made
in compliance with law. Upon any such sale the Collateral Agent shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral
so sold (subject to any applicable laws, rules, regulations and orders). Each
purchaser at any such sale shall (subject to any applicable laws, rules,
regulations and orders) hold the Collateral so sold to it absolutely and free
from any claim or right of whatsoever kind, including any equity or right of
redemption of the Debtor which may be waived, and the Debtor, to the extent
permitted by law, hereby specifically waives all rights of redemption, stay or
appraisal which it has or may have under any law now existing or hereafter
adopted. The notice (if any) of such sale required by Section 7 shall (1) in
the case of a public sale, state the time and place fixed for such sale, and
(2) in the case of a private sale, state the day after which such sale may be
consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix in the notice of such sale. At any such sale the Collateral may be sold in
one lot as an entirety or in separate parcels, as the Collateral Agent may
determine. The Collateral Agent shall not be obligated to make any such sale
pursuant to any such notice. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and
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<PAGE> 115
such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit
or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the selling price is paid by the purchaser thereof, but
the Collateral Agent shall not incur any liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may again be sold upon like notice. The
Collateral Agent, instead of exercising the power of sale herein conferred upon
it (subject to any applicable laws, rules, regulations and orders) may, at the
direction of the Required Banks, proceed by a suit or suits at law or in equity
to foreclose the Security Interests and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(b) For the purpose of enforcing any and all rights and remedies under
this Agreement the Collateral Agent may (i) require the Debtor to, and the
Debtor agrees that it will, at its expense and upon the request of the
Collateral Agent, forthwith assemble all or any part of the Collateral as
directed by the Collateral Agent and make it available at a place reasonably
designated by the Collateral Agent which is, in its opinion, reasonably
convenient to the Collateral Agent and the Debtor, whether at the premises of
the Debtor or otherwise, (ii) to the extent permitted by applicable law, enter,
with or without process of law and without breach of the peace, any premise
where any of the Collateral is or may be located, and without charge or
liability to it seize and remove such Collateral from such premises, (iii) have
access to and use the Debtor's books and records relating to the Collateral and
(iv) prior to the disposition of the Collateral, store or transfer it without
charge in or by means of any storage or transportation facility owned or leased
by the Debtor, process, repair or recondition it or otherwise prepare it for
disposition in any reasonable manner and to the extent the Collateral Agent
deems appropriate and, in connection with such preparation and disposition, use
without charge any trademark, trade name, copyright, patent or technical
process used by the Debtor.
SECTION 8. Limitation on Duty of Collateral Agent in Respect of
Collateral.
Beyond the exercise of reasonable care in the custody thereof, the
Collateral Agent shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody of the Collateral in its possession if
the Collateral is accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or responsible for any loss
or damage to any of the
13
<PAGE> 116
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Collateral Agent in good faith.
SECTION 9. Application of Proceeds.
(a) Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in the Collateral Account shall be applied by the
Collateral Agent in the following order of priorities:
first, to payment of the expenses of such sale or other realization,
including reasonable compensation to agents and counsel for the Collateral
Agent, and all expenses and advances incurred or made by the Collateral
Agent in connection therewith, and any other unreimbursed expenses, in
each case for which the Collateral Agent or any Bank is to be reimbursed
pursuant to the Credit Agreement, and unpaid fees owing to the Agents
under the Credit Agreement;
second, to the ratable payment of accrued but unpaid interest on any
Loans made to the Debtor and Letter of Credit commissions with respect to
Letters of Credit issued at the request of the Debtor;
third, to the ratable payment of unpaid principal of the Loans made
to the Debtor and unpaid Reimbursement Obligations with respect to Letters
of Credit issued at the request of the Debtor;
fourth, to the ratable payment of all other Secured Obligations
(other than the Guaranteed Obligations), until all such Secured
Obligations shall have been paid in full;
fifth, to the ratable payment of all Guaranteed Obligations, until
all such Secured Obligations shall have been paid in full; and
finally, to payment to the Debtor or its successors or assigns, or as
a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds;
(b) The Collateral Agent may make distributions hereunder in cash or in
kind or, on a ratable basis, in any combination thereof. If at any time any
monies collected or received by the Collateral Agent are distributable pursuant
to this Section in respect of a Letter of Credit Obligation which is a
contingent obligation at such time, then the Collateral Agent shall invest such
amounts in Cash
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<PAGE> 117
Collateral Investments selected by it and shall hold all such amounts so
distributable and all such Cash Collateral Investments and the net proceeds
thereof in trust for application to the payment of such Letter of Credit
Obligation at such time as such Letter of Credit Obligation is no longer a
contingent obligation. If the Collateral Agent holds any amounts which were
distributable in respect of any Letter of Credit Obligations after all Letters
of Credit have expired and all amounts payable with respect thereto have been
paid, such amounts shall be applied in the order set forth in subsection (a)
above.
(c) In making the determinations and allocations required by this Section,
the Collateral Agent shall have no liability to any of the Banks for actions
taken in reliance on information supplied by the Banks as to the amounts of the
Secured Obligations held by them. All distributions made by the Collateral
Agent pursuant to this Section shall be final, and the Collateral Agent shall
have no duty to inquire as to the application by the Banks of any amount
distributed to them. However, if at any time the Collateral Agent determines
that an allocation or distribution previously made pursuant to this Section was
based on a mistake of fact (including, without limiting the generality of the
foregoing, mistakes based on any assumption that principal or interest has been
paid by payments which are subsequently recovered from the recipient thereof
through the operation of any bankruptcy, reorganization, insolvency or other
laws or otherwise), the Collateral Agent may in its discretion, but shall not
be obligated to, adjust subsequent allocations and distributions hereunder so
that, on a cumulative basis, the Collateral Agent and the Banks receive the
distributions to which they would have been entitled if such mistake of fact
had not been made.
SECTION 10. Appointment of Co-Agents.
At any time or times, in order to comply with any legal requirement in any
jurisdiction, the Collateral Agent may appoint another bank or trust company or
one or more other Persons, either to act as collateral co-agent or collateral
co-agents, jointly with the Collateral Agent, or to act as separate collateral
agent or collateral agents on behalf of the Secured Parties with such power and
authority as may be necessary for the effectual operation of the provisions
hereof and may be specified in the instrument of appointment (which may, in the
discretion of the Collateral Agent, include provisions for the protection of
each such collateral co-agent or separate collateral agent similar to the
provisions of Article 7 of the Credit Agreement).
15
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SECTION 11. Expenses.
The Company shall pay (i) all reasonable out-of-pocket expenses of the
Agents, including reasonable fees and disbursements of one special New York
counsel for the Agents and any local counsel for the Agents, in connection with
(w) the preparation of the Financing Documents, (x) any waiver or consent under
the Financing Documents, (y) any amendment of the Financing Documents or any
Default or alleged Default thereunder or (z) one annual inspection or audit of
the Collateral by the Collateral Agent or, if an Event of Default has occurred
and is continuing, any inspection or audit of the Collateral made from time to
time by the Collateral Agent in its discretion, reasonably exercised, and (ii)
if an Event of Default occurs, all reasonable out-of-pocket expenses incurred
by any Agent or Bank, including reasonable fees and disbursements of counsel,
in connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
SECTION 12. Termination of Security Interests; Release of Collateral.
(a) Upon the repayment in full of all Secured Obligations, the termination
of the Commitments under the Credit Agreement and the cancellation of all
Letters of Credit, the Security Interests and all obligations of the Debtor
under this Agreement shall terminate and all rights to and interests in the
Collateral shall revert to the Debtor.
(b) Upon any disposition of Collateral permitted by clause (i) of Section
4(f), the Collateral Agent shall release the Collateral (but not any Proceeds
thereof) subject to such disposition, without the consent of any Bank; provided
that, solely with respect to any disposition of Collateral constituting a
Borrower Sale, the Collateral Agent shall release such Collateral only if each
of the conditions precedent set forth in Section 5.12(c) of the Credit
Agreement shall have been satisfied with respect thereto. The Collateral Agent
shall be fully protected in relying on a certificate of the Debtor as to
whether any particular disposition of Collateral is permitted by clause (i) of
Section 4(f), whether any particular Asset Sale constitutes a Borrower Sale and
whether the conditions precedent set forth in Section 5.12 of the Credit
Agreement with respect thereto have been satisfied.
(c) Upon any disposition of Collateral described by clause (ii) of Section
4(f), the Security Interests created hereby in the Collateral subject to such
disposition (by not in any Proceeds arising from such disposition) shall cease
immediately without any further action on the part of any Secured Party.
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<PAGE> 119
(d) Upon the designation of the Debtor as an Unrestricted Subsidiary as
permitted by Section 5.17 of the Credit Agreement, the Collateral Agent shall
release all of the Collateral without the consent of any Bank; provided that
each of the conditions precedent set forth in Section 5.17(a) of the Credit
Agreement shall have been satisfied. The Collateral Agent shall be fully
protected in relying on a certificate of the Company as to whether the
conditions precedent set forth in Section 5.17(a) of the Credit Agreement have
been satisfied.
(e) In addition to releases of Collateral permitted by subsection (b) or
(d) above or effected by subsection (c) above, at any time and from time to
time prior to such termination of the Security Interests, the Collateral Agent
may release any of the Collateral with the prior written consent of the
Required Banks; provided that the Collateral Agent may release all or
substantially all of the Collateral (as defined in the Credit Agreement) only
with the prior written consent of all of the Banks.
(f) Upon the termination of the Security Interests or any release of any
Collateral permitted by this Section, the Collateral Agent will promptly, at
the expense of the Debtor, execute and deliver to the Debtor such documents as
the Debtor shall reasonably request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may be, including UCC
termination statements and any notices of termination of assignment to be filed
with the Government, and will duly assign, transfer and deliver to the Debtor
or to whomever lawfully shall be entitled to receive the same, such of the
Collateral as may be in the possession of the Collateral Agent.
SECTION 13. Notices.
All notices, communications and distributions to any party hereunder shall
be given in accordance with Section 9.01 of the Credit Agreement.
SECTION 14. Waivers, Non-exclusive Remedies.
No failure on the part of the Collateral Agent to exercise, and no delay
in exercising and no course of dealing with respect to, any right under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise by the Collateral Agent of any right under this Agreement preclude any
other or further exercise thereof or the exercise of any other right. The
rights in the Financing Documents are cumulative and are not exclusive of any
other remedies provided by law.
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<PAGE> 120
SECTION 15. Successors and Assigns.
This Agreement is for the benefit of the Collateral Agent and the other
Secured Parties and their successors and assigns, and in the event of a
permitted assignment of all or any of the Secured Obligations, the rights
hereunder, to the extent applicable to the indebtedness so assigned, may be
transferred with such indebtedness. This Agreement shall be binding on the
Debtor and the Collateral Agent and their respective successors and assigns.
SECTION 16. Changes in Writing.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only in writing signed by the Debtor and
the Collateral Agent with the consent of the Required Banks (or in the case of
changes to Section 12 hereof, the consent of all of the Banks).
SECTION 17. New York Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, except as otherwise required by mandatory
provisions of law and except to the extent that remedies provided by the laws
of any jurisdiction other than New York are governed by the laws of such
jurisdiction.
SECTION 18. Severability.
If any provision hereof is invalid or unenforceable in any jurisdiction,
then, to the fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible; and (ii) the invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 19. Counterparts.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
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<PAGE> 121
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
[NAME OF SUBSIDIARY]
By
-------------------------------------
Name:
Title:
CIBC INC, as Collateral Agent
By
-------------------------------------
Name:
Title:
19
<PAGE> 122
EXHIBIT A
PERFECTION CERTIFICATE
The undersigned, the treasurer/controller and the chief legal officer of
[NAME OF SUBSIDIARY], a Delaware corporation (the "Debtor"), hereby certify
with reference to the Security Agreement dated as of October 14, 1997 among the
Debtor and CIBC Inc., as Collateral Agent (terms defined therein being used
herein as therein defined), to the Collateral Agent and each other Secured
Party as follows:
1. Names. (a) The exact corporate name of the Debtor as of the date
hereof:
(b) Set forth below is each other corporate name the Debtor has had since
its organization, together with the period during which such name was used:
(c) Except as set forth in Schedule 1, the Debtor has not changed its
identity or corporate structure in any way within the past five years.
[Changes in identity or corporate structure would include mergers,
consolidations and acquisitions, as well as any change in the form, nature or
jurisdiction of corporate organization. If any such change has occurred,
include in Schedule 1 the information required by paragraphs 1, 2 and 3 of this
certificate as to each acquiree or constituent party to a merger or
consolidation.]
(d) The following is a list of all other names (including trade names or
similar appellations) used by the Debtor or any of its divisions or other
business units at any time during the past five years:
2. Current Locations. (a) The chief executive office of the Debtor is
located at the following address:
Mailing Address County State
- - --------------- ------ -----
<PAGE> 123
(b) The following are all the places of business of the Debtor not
identified above in the states identified above:
<TABLE>
<CAPTION>
Mailing
Name Address County State
- - ---- ------- ------ -----
<S> <C> <C> <C>
</TABLE>
(c) The following are all the locations where the Debtor maintains any
Inventory not identified above:
<TABLE>
<CAPTION>
Mailing Address County State
- - --------------- ------ ------
<S> <C> <C>
</TABLE>
(d) The following are the names and addresses of all Persons other than
the Debtor which have possession of any of the Debtor's Inventory:
<TABLE>
<CAPTION>
Mailing Address County State
- - --------------- ------ ------
<S> <C> <C>
</TABLE>
3. Prior Locations. (a) Set forth below is the information required by
subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location or
place of business maintained by the Debtor (except as otherwise disclosed in
paragraph 2) at any time during the past five years:
(b) Set forth below is the information required by subparagraph 2(c)
and 2(d) above with respect to each location or bailee where or with whom
Inventory has been lodged at any time during the past four months:
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<PAGE> 124
4. Unusual Transactions. Except as set forth in Schedule 4, all Accounts
have been originated by the Debtor and all Inventory has been acquired by the
Debtor in the ordinary course of its business.
5. File Search Reports. Attached hereto as Schedule 5(A) is a true copy of
a file search report from ____________ in each jurisdiction identified in
paragraph 2 or 3 above with respect to each name set forth in paragraph 1
above. Attached hereto as Schedule 5(B) is a true copy of each financing
statement or other filing identified in such file search reports.
6. UCC Filings. A duly signed financing statement on Form UCC-1 in
substantially the form of Schedule 6(A) hereto has been duly filed or has been
delivered to the Collateral Agent for filing in the Uniform Commercial Code
filing office in each jurisdiction identified in paragraph 2 hereof.
7. Filing Fees. All filing fees and taxes payable in connection with the
filings described in paragraph 6 above have been paid.
3
<PAGE> 125
IN WITNESS WHEREOF, we have hereunto set our hands this 14th day of
October, 1997.
-------------------------------------
Name:
Title:
-------------------------------------
Name:
Title:
4
<PAGE> 126
SCHEDULE 6(A)
Description of Collateral
(i) All inventory, (ii) all accounts, (iii) all chattel paper, documents
and instruments relating to accounts or arising out of or in connection with
the sale or lease of goods or the rendering of services, (iv) all rights in,
to, or under security agreements, leases and other contracts securing or
otherwise relating to accounts, chattel paper, documents or instruments, (v)
all contract rights and general intangibles arising in connection with or
otherwise relating to any agreements, leases or contracts described in clause
(iv) or to accounts, chattel paper, documents, instruments, or inventory, (vi)
all accounts receivable which are not described in clauses (ii), (iii), (iv) or
(v), in each case now owned or hereafter acquired, wherever located, and all
proceeds thereof.
<PAGE> 127
SCHEDULE 7
SCHEDULE OF FILINGS
Debtor Filing Officer File Number Date of Filing(2)
- - --------
(2)Indicate lapse date, if other than fifth anniversary.
<PAGE> 128
EXHIBIT B
[FORM OF LOCKBOX LETTER]
, 199_
[Name and Address of Lockbox Bank]
Re: [Name of Debtor]
Gentlemen:
We hereby notify you that effective, 19 , we have transferred
exclusive control of our lock-box account[s] No.[s]. (the "Lockbox
Account[s]") maintained with you under the terms of the [Lockbox Agreement]
attached hereto as Exhibit A to CIBC Inc., as Collateral Agent (the "Collateral
Agent").
We hereby irrevocably instruct you to make all payments to be made by you
out of or in connection with the Lockbox Account[s] (i) to the Collateral Agent
for credit to account no. maintained by it at its office at
or (ii) as you may otherwise be instructed by the Collateral Agent.
We also hereby notify you that the Collateral Agent shall be irrevocably
entitled to exercise any and all rights in respect of or in connection with the
Lockbox Account[s], including, without limitation, the right to specify when
payments are to be made out of or in connection with the Lockbox Account[s] and
the right to exercise sole dominion and control over all the contents in the
lock-box(es), including the right to deny any person access to such contents.
All funds deposited into the Lockbox Account[s] will not be subject to
deductions, set-off, banker's lien or any other right in favor of any other
person than the Collateral Agent, except that you may set-off against the
Lockbox Account[s] the face amount of any check deposited in and credited to
such Lockbox Account[s] which is subsequently returned for any reason. Your
compensation for providing the services contemplated herein shall be as
mutually
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agreed between you and us from time to time and we will continue to pay such
compensation.
Please confirm your acknowledgment of and agreement to the foregoing
instructions by signing in the space provided below.
Very truly yours,
[Name of Debtor]
By
-------------------------------------
Name:
Title:
Acknowledged and agreed
to as of this day of
, 199 .
- - -------------------- --
[LOCKBOX BANK]
By
-------------------------------------
Name:
Title:
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EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of October 14, 1997 among HOLLY CORPORATION
(with its successors, the "DEBTOR") and CIBC, INC., as Collateral Agent (with
its successors, the "COLLATERAL AGENT").
W I T N E S S E T H :
WHEREAS, Holly Corporation, Navajo Refining Company, Black Eagle, Inc.,
Navajo Corp., Navajo Southern, Inc., Navajo Northern, Inc., Lorefco, Inc.,
Navajo Crude Oil Purchasing, Inc., Navajo Holdings, Inc., Holly Petroleum,
Inc., Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company
and Montana Refining Company, A Partnership, as Borrowers and Guarantors,
certain banks (with their respective successors and assigns, the "BANKS"),
Canadian Imperial Bank of Commerce, Inc., as Administrative Agent (the
"ADMINISTRATIVE AGENT"), CIBC, Inc., as Collateral Agent and Morgan Guaranty
Trust Company of New York, as Documentation Agent have entered into a Credit
and Reimbursement Agreement dated as of October 14, 1997 (as amended from time
to time, the "CREDIT AGREEMENT");
WHEREAS, it is a condition to effectiveness of the Credit Agreement that
the Debtor grant a continuing security interest to the Collateral Agent for the
ratable benefit of the Secured Parties (as hereafter defined) in and to the
Collateral (as hereafter defined) to secure the Secured Obligations (as
hereinafter defined);
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that, on and as of the date hereof (as
defined in the Credit Agreement) as follows:
SECTION 1. Definitions.
Terms defined in the Credit Agreement and not otherwise defined herein
have, as used herein, the respective meanings provided for therein. The
following additional terms, as used herein, have the following respective
meanings:
"ACCOUNTS" means all "accounts" (as defined in the UCC) now owned or
hereafter acquired by the Debtor.
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"CASH COLLATERAL INVESTMENTS" means:
(i) marketable direct or guaranteed obligations of the United States of
America or any agency thereof which mature within one year from the date of
purchase by or on behalf of Debtor (including without limitation repurchase
transactions with respect thereto which are effected through banks);
(ii) certificates of deposit, bankers acceptances and time deposits of
any of the Banks, or any other United States banks, in each case maturing
within one year after the date of acquisition thereof by or on behalf of
Debtor; provided that such Banks and such other banks have a Thompson Bank
Watch rating of "B" or better at the time of acquisition and at any time such
certificates of deposit, bankers acceptance and time deposit are included in
the Borrowing Base and such other banks shall also have total assets in excess
of $20,000,000,000;
(iii) certificates of deposit, bankers acceptances and time deposits of
First National Bank of Artesia up to an aggregate amount of $600,000 which are
fully insured by the Federal Deposit Insurance Corporation and which mature
within one year after the date of acquisition thereof by or on behalf of
Debtor;
(iv) interests in money market mutual funds that invest solely in so-
called "money market" instruments maturing not more than one year after the
acquisition thereof by or on behalf of Debtor, which funds are managed by
Persons having, or which are members of holding company groups having, capital
and surplus in excess of $100,000,000;
(v) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof which at the time of purchase thereof by or on
behalf of Debtor and at any time thereafter when such securities are included
in the Borrowing Base have been rated and the ratings for which are not less
than "P 2" if rated by Moody's Investors Service, Inc. or A-2 by Standard &
Poor's Ratings Services;
(vi) money market preferred stocks of any corporation that are to be
reauctioned within 60 days of the date of acquisition thereof by or on behalf
of Debtor and with either of the two highest ratings by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Services at the time of acquisition
thereof by or on behalf of Debtor and at any time such money market preferred
stocks are included in the Borrowing Base;
(vii) variable rate tax exempt bonds, notes or funds given either of the
two highest ratings by Moody's Investors Service, Inc. or Standard & Poor's
Ratings
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Services at the time of acquisition thereof by or on behalf of Debtor and at
any time such variable rate tax exempt bonds, notes or funds are included in
the Borrowing Base, or if payment thereunder may be made by drawing on letters
of credit issued by banks, with outstanding debt securities having one of such
ratings at the time of acquisition thereof by or on behalf of Debtor, so long
as the investments in such bonds, notes or funds mature within one year of such
date;
(viii) fixed income securities rated "A" or better by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Services or Debtor at any time such
securities are included in the Borrowing Base so long as such securities mature
within one year of such date of acquisition thereof by or on behalf of Debtor;
(ix) money market preferred stocks of any corporation that are to be
reauctioned within one year of the date of acquisition thereof by or on behalf
of Debtor and with either of the two highest ratings by Moody's Investor's
Service, Inc. or Standard & Poor's Ratings Services at the time of acquisition
thereof by or on behalf of Debtor and at any time such money market preferred
stocks are included in the Borrowing Base, excluding Cash Collateral
Investments described in subsection (vi) above.
The Cash Collateral Investments described in subsections (i) - (iii) above
owned by Debtor and in which Secured Party has a perfected, first priority
security interest are herein called "First Tier Cash Equivalents"; the Cash
Collateral Investments described in subsections (iv) - (vi) above owned by
Debtor and in which Secured Party has a perfected, first priority security
interest are herein called "Second Tier Cash Equivalents"; and the Cash
Collateral Investments described in subsections (vii) - (ix) above owned by
Debtor and in which Secured Party has a perfected, first priority security
interest are herein called "Third Tier Cash Equivalents".
"COLLATERAL" has the meaning set forth in Section 3.
"COLLATERAL ACCOUNT" has the meaning set forth in Section 6.
"COMPANY SECURITY AGREEMENT" means the Security Agreement dated as of
October 14, 1997 between Holly Corporation and the Collateral Agent, as amended
from time to time.
"DOCUMENTS" means all documents relating to Accounts or arising out of
or in connection with the sale or lease of goods or the rendering of services,
whether now owned or hereafter acquired by the Debtor.
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"GENERAL INTANGIBLES" means (i) all rights in, to, or under all security
agreements, leases and other contracts securing or otherwise relating to
Accounts, Documents or Instruments, (ii) all contracts rights and general
intangibles of any kind arising in connection with or otherwise relating to
agreements, leases or contracts described in clause (i) or relating to
Accounts, Documents, Instruments or Inventory and (iii) all accounts receivable
which are not otherwise described in clauses (i) or (ii) and do not constitute
Accounts.
"INSTRUMENTS" means all instruments or chattel paper relating to
Accounts or Arising out of or in connection with the sale or lease of goods or
the rendering of services, whether now owned or hereafter acquired by the
Debtor.
"INVENTORY" means all inventory now owned or hereafter acquired by the
Debtor (including, but not limited to, all (i) petroleum products, raw
materials and work in process therefor, and materials used or consumed in the
manufacture of production thereof, (ii) goods in which Debtor has an interest
in mass or a joint or other interest or right of any kind, and (iii) goods
which are returned to or repossessed by Debtor, and all accessions thereto and
products thereof and documents therefor wherever located.
"LETTER OF CREDIT OBLIGATION" means at any time any Reimbursement
Obligations of the Debtor or other obligation of the Debtor to make a payment
in connection with a Letter of Credit issued for the account of the Debtor,
including contingent obligations with respect to amounts which are then, or may
thereafter become, available for drawing under Letters of Credit issued for the
account of the Debtor then outstanding.
"PERFECTION CERTIFICATE" means the certificate, substantially in the
form of Exhibit A, completed and supplemented with the schedules and
attachments contemplated thereby to the satisfaction of the Collateral Agent,
and duly executed by the Debtor.
"PROCEEDS" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, Collateral,
including without limitation all claims of the Debtor against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance in respect of, any
Collateral, rights to any returned or repossessed goods relating to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
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"SECURED OBLIGATIONS" means the obligations secured under this Agreement
including (a) all principal of and interest (including, without limitation, any
interest that accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the Debtor,
whether or not allowed or allowable as a claim in any such proceeding) on any
loan to the Debtor under, or any note issued by the Debtor pursuant to, the
Credit Agreement, (b) all reimbursement obligations with respect to any letter
of credit issued for the account of the Debtor pursuant to the Credit
Agreement, (c) all amounts payable by the Debtor under the Guarantee Agreement,
(d) all other amounts payable by the Debtor hereunder or under any other
Financing Document, and (e) any renewals or extensions of any of the foregoing;
provided that the Secured Obligations described in clause (e) above
(collectively the "GUARANTEED OBLIGATIONS"), shall be subordinate and junior in
rank to the other Secured Obligations for purposes of this Security Agreement
and the Liens created hereby.
"SECURED PARTIES" means each of the Banks and the Agents.
"SECURITY EVENT" means any event, occurrence or condition which, in the
sole discretion of the Required Banks acting in good faith, "impairs the
prospect of payment" by the Debtor within the meaning of Section 1-208 of the
UCC.
"SECURITY INTERESTS" means the security interests in the Collateral
granted hereunder securing the Secured Obligations.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York; provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of perfection or
non-perfection.
SECTION 2. Representations and Warranties.
The Debtor represents and warrants as follows:
(a) The Debtor has good title to all of the Accounts, free and clear
of any Liens other than the Permitted Liens. The Debtor has taken all actions
necessary under the UCC to perfect its interest in any Accounts purchased or
otherwise acquired by it, as against its assignors and creditors of its
assignors.
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(b) Other than financing statements, mortgages, security agreements
or other similar or equivalent documents or instruments with respect to the
Security Interests and the Permitted Liens, no financing statement, mortgage,
security agreement or similar or equivalent document or instrument covering all
or any part of the Collateral is on file or of record in any jurisdiction in
which such filing or recording would be effective to perfect a Lien on such
Collateral. No Collateral is in the possession of any Person (other than the
Debtor) asserting any claim thereto or security interest therein, except that
the Collateral Agent or its designee may have possession of Collateral as
contemplated hereby.
(c) On or prior to the date hereof, the Debtor shall deliver the
Perfection Certificate to the Collateral Agent. The information set forth
therein shall be correct and complete in all material respects. Within 60 days
after the date hereof, the Debtor shall furnish to the Collateral Agent
acknowledgment copies of the filings set forth in Schedule 7 to the Perfection
Certificate.
(d) The Security Interests constitute valid security interests under
the UCC securing the Secured Obligations to the extent the UCC is applicable
thereto. When UCC Financing Statements in the form specified in Exhibit A
shall have been filed in the offices specified in the Perfection Certificate,
the Security Interests shall constitute perfected security interests in the
Collateral (except Inventory in transit) to the extent that a security interest
therein may be perfected by filing pursuant to the UCC, prior to all other
Liens except for the Permitted Liens (other than the Security Interests).
(e) Upon the delivery to the Collateral Agent of assignments and
notices of assignment substantially in the forms of Exhibits G-2 and G-3,
respectively, to the Credit Agreement with respect thereto, and the filing of
each such notice with the governmental authority or agency or other office
described therein, the Security Interests shall constitute valid assignments of
the Accounts due under Eligible Government Contracts to the extent that such
assignment is governed by the Assignment of Claims Act.
(f) All Inventory has or will have been produced in compliance with
the applicable requirements of the Fair Labor Standards Acts, as amended.
SECTION 3. The Security Interests.
(a) In order to secure the full and punctual payment of the Secured
Obligations in accordance with the terms thereof, and to secure the performance
of all of the obligations of the Debtor hereunder and under the other Financing
Documents, the Debtor hereby grants to the Collateral Agent for the ratable
benefit of the Secured Parties, a continuing security interest in and to all of
the
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following property of the Debtor, whether now owned or existing or hereafter
acquired or arising and regardless of where located (all being collectively
referred to as the "COLLATERAL"):
(1) Accounts;
(2) Inventory;
(3) Documents;
(4) Instruments;
(5) The Collateral Account, all cash deposited therein from
time to time and the Cash Collateral Investments made pursuant to
Section 5(d);
(6) All books and records and other writings relating to any
of the Collateral (including without limitation computer programs, tapes
and related electronic data processing hardware); and
(7) All Proceeds of all or any of the Collateral described in
clauses 1 through 6 hereof.
(b) The Security Interests are granted as security only and shall not
subject the Collateral Agent or any other Secured Party to, or transfer or in
any way affect or modify, any obligation or liability of the Debtor with
respect to any of the Collateral or any transaction in connection therewith.
SECTION 4. Further Assurances; Covenants.
(a) The Debtor will not change its name, identity or corporate
structure in any manner or change the location of (i) its chief executive
office or chief place of business, or (ii) the locations where it keeps or
holds any Collateral from the applicable location described in the Perfection
Certificate unless it shall have given the Collateral Agent thirty (30) days
prior notice thereof: provided that (x) no such notice shall be required if the
location where any Collateral is kept or held shall be changed from the
applicable location described in the Perfection Certificate with respect to
such Collateral to any other location described in the Perfection Certificate
in a jurisdiction where a UCC financing statement in the form specified in
Exhibit A is on file and effective at the time of such change and (y) with
respect to any Collateral consisting of Inventory, such notice shall be
required to be given within 90 days after any such change is made.
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(b) The Debtor will, from time to time, at its expense, execute,
deliver, file and record any statement, notice, assignment, instrument,
document, agreement or other paper and take any other action, (including,
without limitation, any filings of financing or continuation statements under
the UCC, or any such document or action in respect of the Assignment of Claims
Act; provided that the Debtor shall not be required at any time to file any
document or take any action in respect of the Assignment of Claims Act if at
such time no Receivables created pursuant to a Government Contract are included
in the Borrowing Base) that from time to time may be necessary or desirable, or
that the Collateral Agent may reasonably request, in order to create, preserve,
perfect, confirm or validate the Security Interests or to enable the Collateral
Agent and the Secured Parties to obtain the full benefits of this Agreement, or
to enable the Collateral Agent to exercise and enforce any of its rights,
powers and remedies hereunder with respect to any of the Collateral. To the
extent permitted by applicable law, the Debtor hereby authorizes the Collateral
Agent to execute and file financing statements or continuation statements
without the Debtor's signature appearing thereon. The Debtor agrees that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement. The Debtor shall
pay the costs of, or incidental to, any recording or filing of any financing or
continuation statements concerning the Collateral.
(c) If at any time during which an Event of Default has occurred and
is continuing any Collateral is in the possession or control of any
warehouseman, bailee or any of the Debtor's agents or processors, promptly upon
request of the Collateral Agent at the request of any Bank, the Debtor shall
notify such warehouseman, bailee, agent or processor of the Security Interests
created hereby and to hold all such Collateral for the Collateral Agent's
account subject to the Collateral Agent's instructions.
(d) The Debtor shall keep full and accurate books and records
relating to the Collateral, and stamp or otherwise mark such books and records
in such manner as the Required Banks may reasonably require in order to reflect
the Security Interests.
(e) The Debtor will immediately deliver and pledge each Instrument to
the Collateral Agent, appropriately endorsed to the Collateral Agent, provided
that so long as no Event of Default shall have occurred and be continuing, the
Debtor may retain for collection in the ordinary course any Instruments (other
than checks and drafts constituting payments in respect of Accounts, as to
which the provisions of Section 5(b) shall apply) received by it in the
ordinary course of business and the Collateral Agent shall, promptly upon
request of the Debtor, make appropriate arrangements for making any other
Instrument pledged by the Debtor available to it for purposes of presentation,
collection or renewal (any such
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arrangement to be effected, to the extent deemed appropriate to the Collateral
Agent, against trust receipt or like document).
(f) Without the prior written consent of the Required Banks, the
Debtor will not sell, lease, exchange, assign or otherwise dispose of, or grant
any option with respect to, any Collateral except that, subject to the rights
of the Secured Parties hereunder if an Event of Default shall have occurred and
be continuing, the Debtor may consummate (i) any Asset Sale permitted by
Section 5.12 of the Credit Agreement and (ii) any disposition of Collateral
excluded from the definition of "Asset Sale" pursuant to clauses (i) and (ii)
thereof.
(g) The Debtor will, promptly upon request, provide to the Collateral
Agent all information and evidence it may reasonably request concerning the
Collateral to enable the Collateral Agent to enforce the provisions of this
Agreement.
(h) Prior to the date of the first Borrowing under the Credit
Agreement, the Debtor will cause the Collateral Agent to be named as an insured
party and loss payee on each insurance policy covering risks relating to any of
its Inventory. The Debtor will deliver to the Collateral Agent, upon request
of the Collateral Agent, the insurance policies for such insurance or
certificates of insurance evidencing such coverage. The Debtor shall not
cancel or terminate any such insurance policy or enter into any material
modification thereof unless the Debtor shall have given the Collateral Agent at
least 30 days's prior notice thereof. The Debtor hereby appoints the
Collateral Agent as its attorney-in-fact, at any time that an Event of Default
exists and is continuing, to make proof of loss, claim for insurance and
adjustments with insurers, and to execute or endorse all documents, checks or
drafts in connection with payments made as a result of any insurance policies.
SECTION 5. Collateral Account.
(a) There shall be deposited from time to time into the Collateral
Account (i) the cash proceeds of the Collateral required to be delivered to the
Collateral Agent pursuant to subsection (b) of this Section 5 (if any)or any
other provision of this Agreement and (ii) at the discretion of the Debtor, any
other cash. Any income received by the Collateral Agent with respect to the
balance from time to time standing to the credit of the Collateral Account,
including any interest or capital gains on Cash Collateral Investments, shall
remain, or be deposited, in the Collateral Account. The cash amounts on
deposit from time to time in the Collateral Account together with any Cash
Collateral Investments from time to time made pursuant to subsection (D) of
this Section shall constitute
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part of the Collateral hereunder and shall not constitute payment of the
Secured Obligations until applied thereto as hereinafter provided.
(b) Upon the occurrence and continuation of an Event of Default, the
Debtor shall instruct all Account Debtors to make all payments in respect of
Accounts either (i) directly to the Collateral Agent (by instructing that such
payments be remitted to a post office box which shall be in the name and under
the control of the Collateral Agent) or (ii) to one or more other banks in any
state (other than Louisiana) in the United States (by instructing that such
payments be remitted to a post office box which shall be in the name and under
the control of such bank) under a Lockbox Letter substantially in the form of
Exhibit B hereto duly executed by the Debtor and such bank or under other
arrangements, in form and substance reasonably satisfactory to the Collateral
Agent, pursuant to which the Debtor shall have irrevocably instructed such
other bank (and such other bank shall have agreed) to remit all proceeds of
such payments directly to the Collateral Agent for deposit into the Collateral
Account or as the Collateral Agent may otherwise instruct such bank. All such
payments made to the Collateral Agent shall be deposited in the Collateral
Account. In addition to the foregoing, the Debtor agrees that if the Proceeds
of any Collateral hereunder (including the payments made in respect of
Accounts) shall be received by it upon the occurrence and continuation of an
Event of Default, the Debtor shall as promptly as possible deposit such
Proceeds into the Collateral Account. Until so deposited, all such Proceeds
shall be held in trust by the Debtor for the Collateral Agent and the other
Secured Parties and shall not be commingled with any other funds or property of
the Debtor.
(c) The balance from time to time standing to the credit of the
Collateral Account shall, except upon the occurrence and continuation of an
Event of Default, be distributed to the Debtor upon the order of the Debtor. If
immediately available cash on deposit in the Collateral Account is not
sufficient to make any distribution to the Debtor referred to in the previous
sentence of this Section 5(c), the Collateral Agent shall liquidate as promptly
as practicable Cash Collateral Investments as required to obtain sufficient
cash to make such distribution and, notwithstanding any other provision of this
Section 5, such distribution shall not be made until such liquidation has taken
place. Upon the occurrence and continuation of an Event of Default, the
Collateral Agent shall, if so instructed by the Required Banks, apply or cause
to be applied (subject to collection) any or all of the balance from time to
time standing to the credit of the Collateral Account to the payment of the
matured Secured Obligations in the manner specified in Section 9.
(d) Amounts on deposit in the Collateral Account shall be invested
and re-invested from time to time in such Cash Collateral Investments as the
Debtor
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shall determine, which Cash Collateral Investments shall be under the control
of the Collateral Agent, provided that, if an Event of Default has occurred and
is continuing, the Collateral Agent shall, if instructed by the Required Banks,
liquidate any such Cash Collateral Investment and apply or cause to be applied
the proceeds thereof to the payment of the Secured Obligations in the manner
specified in Section 9.
SECTION 6. General Authority.
The Debtor hereby irrevocably appoints the Collateral Agent its true and
lawful attorney, with full power of substitution, in the name of the Debtor,
the Agents, any other Secured Parties or otherwise, for the sole use and
benefit of the Collateral Agent and the Secured Parties, but at the Debtor's
expense, to the extent permitted by law (including, without limitation,
applicable laws, rules, regulations and orders) to exercise, upon notice to the
Debtor as specified below at any time and from time to time while and only
after an Event of Default has occurred and is continuing, all or any of the
following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due thereon or by virtue
thereof;
(ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto;
(iii) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds or avails thereof, as fully and effectually as if
the Collateral Agent were the absolute owner thereof; and
(iv) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
provided that the Collateral Agent shall give the Debtor not less than
ten days' prior written notice of the time and place of any sale or other
intended disposition of any of the Collateral, except any Collateral which is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market. The Debtor agrees that such notice
constitutes "reasonable notification" within the meaning of Section 9-504(3) of
the UCC. In addition, the Collateral Agent shall give notice to the Debtor of
other actions taken by the Collateral Agent with respect to the Collateral
pursuant to this Section; provided that failure by the Collateral Agent to give
any such notice with respect to any such action shall not affect in any manner
the validity of such action.
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SECTION 7. Remedies upon Event of Default.
(a) If any Event of Default has occurred and is continuing, the
Collateral Agent may exercise on behalf of the Secured Parties all rights of a
secured party under the UCC (or, if the Uniform Commercial Code is not in
effect in the jurisdiction where such rights are exercised, the UCC as in
effect in the State of New York to the extent not prohibited by the laws of
such jurisdiction), and, in addition, the Collateral Agent may, without being
required to give any notice, except as herein provided or as may be required by
mandatory provisions of law, (i) withdraw all cash and Cash Collateral
Investments in the Collateral Account and apply such cash and Cash Collateral
Investments and other cash, if any, then held by it as Collateral as specified
in Section 9 and (ii) if there shall be no such cash or Cash Collateral
Investments or if such cash and Cash Collateral Investments shall be
insufficient to pay all the Secured Obligations in full, sell the Collateral
(subject to any applicable laws, rules, regulations and orders) or any part
thereof at public or private sale, for cash, upon credit or for future
delivery, and at such price or prices as the Collateral Agent may reasonably
deem satisfactory. The Collateral Agent or any other Secured Party may be the
purchaser of any or all of the Collateral (subject to any applicable laws,
rules, regulations and orders) so sold at any public sale (or, if the
Collateral is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations, at any
private sale). The Debtor will execute and deliver such documents and take
such other action as the Collateral Agent reasonably deems necessary or
advisable in order that any such sale may be made in compliance with law. Upon
any such sale the Collateral Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold (subject to any
applicable laws, rules, regulations and orders). Each purchaser at any such
sale shall (subject to any applicable laws, rules, regulations and orders) hold
the Collateral so sold to it absolutely and free from any claim or right of
whatsoever kind, including any equity or right of redemption of the Debtor
which may be waived, and the Debtor, to the extent permitted by law, hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter adopted. The notice (if any)
of such sale required by Section 8 shall (1) in the case of a public sale,
state the time and place fixed for such sale, and (2) in the case of a private
sale, state the day after which such sale may be consummated. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as the Collateral Agent may fix in the notice of such
sale. At any such sale the Collateral may be sold in one lot as an entirety or
in separate parcels, as the Collateral Agent may determine. The Collateral
Agent shall not be obligated to make any such sale pursuant to any such notice.
The Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed
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for the sale, and such sale may be made at any time or place to which the same
may be so adjourned. In case of any sale of all or any part of the Collateral
on credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the selling price is paid by the purchaser thereof, but
the Collateral Agent shall not incur any liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may again be sold upon like notice. The
Collateral Agent, instead of exercising the power of sale herein conferred upon
it (subject to any applicable laws, rules, regulations and orders) may, at the
direction of the Required Banks, proceed by a suit or suits at law or in equity
to foreclose the Security Interests and sell the Collateral, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(b) For the purpose of enforcing any and all rights and remedies
under this Agreement the Collateral Agent may (i) require the Debtor to, and
the Debtor agrees that it will, at its expense and upon the request of the
Collateral Agent, forthwith assemble all or any part of the Collateral as
directed by the Collateral Agent and make it available at a place reasonably
designated by the Collateral Agent which is, in its opinion, reasonably
convenient to the Collateral Agent and the Debtor, whether at the premises of
the Debtor or otherwise, (ii) to the extent permitted by applicable law, enter,
with or without process of law and without breach of the peace, any premise
where any of the Collateral is or may be located, and without charge or
liability to it seize and remove such Collateral from such premises, (iii) have
access to and use the Debtor's books and records relating to the Collateral and
(iv) prior to the disposition of the Collateral, store or transfer it without
charge in or by means of any storage or transportation facility owned or leased
by the Debtor, process, repair or recondition it or otherwise prepare it for
disposition in any reasonable manner and to the extent the Collateral Agent
deems appropriate and, in connection with such preparation and disposition, use
without charge any trademark, trade name, copyright, patent or technical
process used by the Debtor.
SECTION 8. Limitation on Duty of Collateral Agent in Respect of
Collateral.
Beyond the exercise of reasonable care in the custody thereof, the
Collateral Agent shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody of the Collateral in its possession if
the Collateral is accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or responsible for any loss
or damage to any of the
13
<PAGE> 143
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Collateral Agent in good faith.
SECTION 9. Application of Proceeds.
(a) Upon the occurrence and during the continuance of an Event of
Default, the proceeds of any sale of, or other realization upon, all or any
part of the Collateral and any cash held in the Collateral Account shall be
applied by the Collateral Agent in the following order of priorities:
first, to payment of the expenses of such sale or other realization,
including reasonable compensation to agents and counsel for the Collateral
Agent, and all expenses and advances incurred or made by the Collateral Agent
in connection therewith, and any other unreimbursed expenses, in each case for
which the Collateral Agent or any Bank is to be reimbursed pursuant to the
Credit Agreement, and unpaid fees owing to the Agents under the Credit
Agreement;
second, to the ratable payment of accrued but unpaid interest on any
Loans made to the Debtor and Letter of Credit commissions with respect to
Letters of Credit issued at the request of the Debtor;
third, to the ratable payment of unpaid principal of the Loans made to
the Debtor and unpaid Reimbursement Obligations with respect to Letters of
Credit issued at the request of the Debtor;
fourth, to the ratable payment of all other Secured Obligations, until
all Secured Obligations shall have been paid in full; and
finally, to payment to the Debtor or its successors or assigns, or as a
court of competent jurisdiction may direct, of any surplus then remaining from
such proceeds;
(b) The Collateral Agent may make distributions hereunder in cash or
in kind or, on a ratable basis, in any combination thereof. If at any time any
monies collected or received by the Collateral Agent are distributable pursuant
to this Section in respect of a Letter of Credit Obligation which is a
contingent obligation at such time, then the Collateral Agent shall invest such
amounts in Cash Collateral Investments selected by it and shall hold all such
amounts so distributable and all such Cash Collateral Investments and the net
proceeds thereof in trust for application to the payment of such Letter of
Credit Obligation at such time as such Letter of Credit Obligation is no longer
a contingent obligation. If the Collateral Agent holds any amounts which were
distributable in
14
<PAGE> 144
respect of any Letter of Credit Obligations after all Letters of Credit have
expired and all amounts payable with respect thereto have been paid, such
amounts shall be applied in the order set forth in subsection (a) above.
(c) In making the determinations and allocations required by this
Section, the Collateral Agent shall have no liability to any of the Banks for
actions taken in reliance on information supplied by the Banks as to the
amounts of the Secured Obligations held by them. All distributions made by the
Collateral Agent pursuant to this Section shall be final, and the Collateral
Agent shall have no duty to inquire as to the application by the Banks of any
amount distributed to them. However, if at any time the Collateral Agent
determines that an allocation or distribution previously made pursuant to this
Section was based on a mistake of fact (including, without limiting the
generality of the foregoing, mistakes based on any assumption that principal or
interest has been paid by payments which are subsequently recovered from the
recipient thereof through the operation of any bankruptcy, reorganization,
insolvency or other laws or otherwise), the Collateral Agent may in its
discretion, but shall not be obligated to, adjust subsequent allocations and
distributions hereunder so that, on a cumulative basis, the Collateral Agent
and the Banks receive the distributions to which they would have been entitled
if such mistake of fact had not been made.
SECTION 10. Appointment of Co-agents.
At any time or times, in order to comply with any legal requirement in
any jurisdiction, the Collateral Agent may appoint another bank or trust
company or one or more other Persons, either to act as collateral co-agent or
collateral co-agents, jointly with the Collateral Agent, or to act as separate
collateral agent or collateral agents on behalf of the Secured Parties with
such power and authority as may be necessary for the effectual operation of the
provisions hereof and may be specified in the instrument of appointment (which
may, in the discretion of the Collateral Agent, include provisions for the
protection of each such collateral co-agent or separate collateral agent
similar to the provisions of Article 7 of the Credit Agreement).
SECTION 11. Expenses.
The Company shall pay (i) all reasonable out-of-pocket expenses of the
Agents, including reasonable fees and disbursements of one special New York
counsel for the Agents and any local counsel for the Agents, in connection with
(w) the preparation of the Financing Documents, (x) any waiver or consent under
the Financing Documents, (y) any amendment of the Financing Documents or any
Default or alleged Default thereunder or (z) one annual inspection or audit of
the Collateral by the Collateral Agent or, if an Event of Default has occurred
and is
15
<PAGE> 145
continuing, any inspection or audit of the Collateral made from time to time by
the Collateral Agent in its discretion, reasonably exercised, and (ii) if an
Event of Default occurs, all reasonable out-of-pocket expenses incurred by any
Agent or Bank, including reasonable fees and disbursements of counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
SECTION 12. Termination of Security Interests; Release of Collateral.
(a) Upon the repayment in full of all Secured Obligations, the
termination of the Commitments under the Credit Agreement and the cancellation
of all Letters of Credit, the Security Interests and all obligations of the
Debtor under this Agreement shall terminate and all rights to and interests in
the Collateral shall revert to the Debtor.
(b) Upon any disposition of Collateral permitted by clause (i) of
Section 4(f), the Collateral Agent shall release the Collateral (but not any
Proceeds thereof) subject to such disposition, without the consent of any Bank;
provided that, solely with respect to any disposition of Collateral
constituting a Borrower Sale, the Collateral Agent shall release such
Collateral only if each of the conditions precedent set forth in Section
5.12(c) of the Credit Agreement shall have been satisfied with respect thereto.
The Collateral Agent shall be fully protected in relying on a certificate of
the Debtor as to whether any particular disposition of Collateral is permitted
by clause (i) of Section 4(f), whether any particular Asset Sale constitutes a
Borrower Sale and whether the conditions precedent set forth in Section 5.12 of
the Credit Agreement with respect thereto have been satisfied.
(c) Upon any disposition of Collateral described by clause (ii) of
Section 4(f), the Security Interests created hereby in the Collateral subject
to such disposition (by not in any Proceeds arising from such disposition)
shall cease immediately without any further action on the part of any Secured
Party.
(d) Upon the designation of the Debtor as an Unrestricted Subsidiary
as permitted by Section 5.17 of the Credit Agreement, the Collateral Agent
shall release all of the Collateral without the consent of any Bank; provided
that each of the conditions precedent set forth in Section 5.17(a) of the
Credit Agreement shall have been satisfied. The Collateral Agent shall be fully
protected in relying on a certificate of the Company as to whether the
conditions precedent set forth in Section 5.17(a) of the Credit Agreement have
been satisfied.
(e) In addition to releases of Collateral permitted by subsection (b)
or (d) above or effected by subsection (c) above, at any time and from time to
time
16
<PAGE> 146
prior to such termination of the Security Interests, the Collateral Agent may
release any of the Collateral with the prior written consent of the Required
Banks; provided that the Collateral Agent may release all or substantially all
of the Collateral (as defined in the Credit Agreement) only with the prior
written consent of all of the Banks.
(f) Upon the termination of the Security Interests or any release of
any Collateral permitted by this Section, the Collateral Agent will promptly,
at the expense of the Debtor, execute and deliver to the Debtor such documents
as the Debtor shall reasonably request to evidence the termination of the
Security Interests or the release of such Collateral, as the case may be,
including UCC termination statements and any notices of termination of
assignment to be filed with the Government, and will duly assign, transfer and
deliver to the Debtor or to whomever lawfully shall be entitled to receive the
same, such of the Collateral as may be in the possession of the Collateral
Agent.
SECTION 13. Notices.
All notices, communications and distributions to any party hereunder
shall be given in accordance with Section 9.01 of the Credit Agreement.
SECTION 14. Waivers, Non-Exclusive Remedies.
No failure on the part of the Collateral Agent to exercise, and no delay
in exercising and no course of dealing with respect to, any right under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise by the Collateral Agent of any right under this Agreement preclude any
other or further exercise thereof or the exercise of any other right. The
rights in the Financing Documents are cumulative and are not exclusive of any
other remedies provided by law.
SECTION 15. Successors and Assigns.
This Agreement is for the benefit of the Collateral Agent and the other
Secured Parties and their successors and assigns, and in the event of a
permitted assignment of all or any of the Secured Obligations, the rights
hereunder, to the extent applicable to the indebtedness so assigned, may be
transferred with such indebtedness. This Agreement shall be binding on the
Debtor and the Collateral Agent and their respective successors and assigns.
17
<PAGE> 147
SECTION 16. Changes in Writing.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only in writing signed by the Debtor and
the Collateral Agent with the consent of the Required Banks (or in the case of
changes to Section 12 hereof, the consent of all of the Banks).
SECTION 17. New York Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, except as otherwise required by mandatory
provisions of law and except to the extent that remedies provided by the laws
of any jurisdiction other than New York are governed by the laws of such
jurisdiction.
SECTION 18. Severability.
If any provision hereof is invalid or unenforceable in any jurisdiction,
then, to the fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible; and (ii) the invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 19. Counterparts.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
18
<PAGE> 148
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
HOLLY CORPORATION
By: /s/ HENRY A. TEICHHOLZ
------------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
CIBC INC., as Collateral Agent
By: /s/ MARYBETH ROSS
------------------------------------
Name: Marybeth Ross
Title: Authorized Signatory
<PAGE> 149
EXHIBIT A
PERFECTION CERTIFICATE
The undersigned, the [chief executive officer/chairman] and the chief
legal officer of HOLLY CORPORATION, a Delaware corporation (the "DEBTOR"),
hereby certify with reference to the Security Agreement dated as of October 14,
1997 between the Debtor and CIBC, Inc., as Collateral Agent (terms defined
therein being used herein as therein defined), to the Agents and each other
Secured Party as follows:
1. Names. (a) The exact corporate name of the Debtor as of the date
hereof:
(b) Set forth below is each other corporate name the Debtor has had
since its organization, together with the period during which such name was
used:
(c) Except as set forth in Schedule 1, the Debtor has not changed its
identity or corporate structure in any way within the past five years.
[Changes in identity or corporate structure would include mergers,
consolidations and acquisitions, as well as any change in the form, nature or
jurisdiction of corporate organization. If any such change has occurred,
include in Schedule 1 the information required by paragraphs 1, 2 and 3 of this
certificate as to each acquiree or constituent party to a merger or
consolidation.]
(d) The following is a list of all other names (including trade names
or similar appellations) used by the Debtor or any of its divisions or other
business units at any time during the past five years:
2. Current Locations. (a) The chief executive office of the Debtor
is located at the following address:
<PAGE> 150
<TABLE>
<CAPTION>
Mailing Address County State
--------------- ------ -----
<S> <C> <C>
</TABLE>
(b) The following are all the places of business of the Debtor not
identified above in the states identified above:
<TABLE>
<CAPTION>
Name Mailing Address County State
---- --------------- ------ -----
<S> <C> <C> <C>
</TABLE>
(c) The following are all the locations where the Debtor maintains
any Inventory not identified above:
<TABLE>
<CAPTION>
Mailing Address County State
--------------- ------ -----
<S> <C> <C>
</TABLE>
(d) The following are the names and address of all Persons other than
the Debtor which have possession of any of the Debtor's Inventory:
<TABLE>
<CAPTION>
Mailing Address County State
--------------- ------ -----
<S> <C> <C>
</TABLE>
3. Prior Locations. (a) Set forth below is the information required
by subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location
or place of business maintained by the Debtor (except as otherwise disclosed in
paragraph 2) at any time during the past five years:
(b) Set forth below is the information required by subparagraph 2(c)
and 2(d) with respect to each location or bailee where or with whom Inventory
has been lodged at any time during the past four months:
4. Unusual Transactions. Except as set forth in Schedule 4, all
Accounts have been originated by the Debtor and all Inventory has been acquired
by the Debtor in the ordinary course of its business.
2
<PAGE> 151
5. File Search Reports. Attached hereto as Schedule 5(A) is a true
copy of a file search report from the Debtor in each jurisdiction identified in
paragraph 2 or 3 above with respect to each name set forth in paragraph 1
above. Attached hereto as Schedule 5(B) is a true copy of each financing
statement or other filing identified in such file search reports.
6. UCC Filings. A duly signed financing statement on Form UCC-1 in
substantially the form of Schedule 6(A) hereto has been duly filed in the
Uniform Commercial Code filing office in each jurisdiction identified in
paragraph 2 hereof.
7. Schedule of Filings. Attached hereto as Schedule 7 is a schedule
setting forth filing information with respect to the filings described in
paragraph 6 above.
8. Filing Fees. All filing fees and taxes payable in connection
with the filings described in paragraph 6 above have been paid.
3
<PAGE> 152
IN WITNESS WHEREOF, we have hereunto set our hands this 14th day of
October, 1997.
----------------------------------------
Name:
Title:
----------------------------------------
Name:
Title:
4
<PAGE> 153
SCHEDULE 6(A)
DESCRIPTION OF COLLATERAL
(i) All inventory, (ii) all accounts, (iii) all chattel paper, documents
and instruments relating to accounts or arising out of or in connection with
the sale or lease of goods or the rendering of services, (iv) all rights in,
to, or under security agreements, leases and other contracts securing or
otherwise relating to accounts, chattel paper, documents or instruments, (v)
all contract rights and general intangibles arising in connection with or
otherwise relating to any agreements, leases or contracts described in clause
(iv) or to accounts, chattel paper, documents, instruments, or inventory, (vi)
all accounts receivable which are not described in clauses (ii), (iii), (iv) or
(v), in each case now owned or hereafter acquired, wherever located, and all
proceeds thereof.
<PAGE> 154
SCHEDULE 7
SCHEDULE OF FILINGS
<TABLE>
<CAPTION>
DEBTOR FILING FILE DATE OF
OFFICER NUMBER FILING(1)
<S> <C> <C> <C>
</TABLE>
- - -------------------------------
(1) Indicate lapse date, of other than fifth anniversary.
<PAGE> 155
EXHIBIT B
[FORM OF LOCKBOX LETTER]
_______________ __, 19__
[Name and Address of Lockbox Bank]
Re: HOLLY CORPORATION
Gentlemen:
We hereby notify you that effective _______________, 19__, we have
transferred exclusive control of our lock-box account[s] No.[s]. ____________
(the "LOCKBOX ACCOUNT[S]") maintained with you under the terms of the [Lockbox
Agreement] attached hereto as Exhibit A to CIBC, Inc., as Collateral Agent (the
"COLLATERAL AGENT").
We hereby irrevocably instruct you to make all payments to be made by
you out of or in connection with the Lockbox Account[s] (i) to the Collateral
Agent for credit to account no. ____________ maintained by it at its office at
_______________________________ or (ii) as you may otherwise be instructed by
the Collateral Agent.
We also hereby notify you that the Collateral Agent shall be irrevocably
entitled to exercise any and all rights in respect of or in connection with the
Lockbox Account[s], including, without limitation, the right to specify when
payments are to be made out of or in connection with the Lockbox Account[s] and
the right to exercise sole dominion and control over all the contents in the
lock-box(es), including the right to deny any person access to such contents.
All funds deposited into the Lockbox Account[s] will not be subject to
deductions, set-off, banker's lien or any other right in favor of any other
person than the Collateral Agent, except that you may set-off against the
Lockbox Account[s] the face amount of any check deposited in and credited to
such Lockbox Account[s] which is subsequently returned for any reason. Your
compensation for providing the services contemplated herein shall be as
mutually agreed between you and us from time to time and we will continue to
pay such compensation.
<PAGE> 156
Please confirm your acknowledgment of and agreement to the foregoing
instructions by signing in the space provided below.
Very truly yours,
HOLLY CORPORATION
By
-----------------------------------------
Name:
Title:
Acknowledged and agreed to as of
this day of , 19 .
---- ------------ --
[LOCKBOX BANK]
By
----------------------------------
Name:
Title:
2
<PAGE> 157
EXHIBIT F
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of _________, 199_ among
[ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), HOLLY CORPORATION
(the "Company"), and CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative
Agent (the "Administrative Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Credit and Reimbursement Agreement dated as of October 10, 1997
among the Company and __________, as Borrowers and Guarantors, the Assignor and
the other Banks party thereto, as Banks, Canadian Imperial Bank of Commerce, as
Administrative Agent and CIBC Inc. as Collateral Agent and Morgan Guaranty
Trust Company of New York, as Documentation Agent (as amended from time to
time, the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans and participate in Letters of Credit so that the
Assignor's Exposure at any one time will not to exceed $__________;
WHEREAS, Loans made by the Assignor under the Credit Agreement in the
aggregate principal amount of $__________ are outstanding at the date hereof;
WHEREAS, at the date hereof the Assignor has Letter of Credit Liabilities
in the aggregate amount of $________________; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights
of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Loans and
its Letter of Credit Liabilities and the Assignee proposes to accept assignment
of such rights and assume the corresponding obligations from the Assignor on
such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
<PAGE> 158
SECTION 1. Definition. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Loans made by the Assignor outstanding at the date hereof on the date hereof
and the Letter of Credit Liabilities of the Assignor outstanding on the date
hereof. Upon the execution and delivery hereof by the Assignor, the Assignee,
[the Company and the Administrative Agent] and the payment of the amounts
specified in Section 3 required to be paid on the date hereof (i) the Assignee
shall, as of the date hereof, succeed to the rights and be obligated to perform
the obligations of a Bank under the Credit Agreement with a Commitment in an
amount equal to the Assigned Amount and a corresponding portion of the Loans
outstanding on the date hereof and the Letter of Credit Liabilities of the
Assignor on the date hereof, (ii) the Commitment of the Assignor shall, as of
the date hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement arising on or after the date hereof to
the extent such obligations have been assumed by the Assignee. The assignment
provided for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds an amount equal to $_________. (4) It is understood
that commitment fees accrued to the date hereof are for the account of the
Assignor and such fees accruing from and including the date hereof are for the
account of the Assignee. Each of the Assignor and the Assignee hereby agrees
that if it receives any amount under the Credit Agreement that is for the
account of the other party hereto, it shall receive the same for the account of
such other party to the extent of such other party's interest therein and shall
promptly pay the same to such other party.
SECTION 4. Non-reliance on Assignor. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility
- - --------
(4) Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion
of any upfront fee to be paid by the Assignor to the Assignee. It may be
preferable in an appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
2
<PAGE> 159
with respect to, the solvency, financial condition, or statements of the
Company, or the validity and enforceability of the obligations of any Borrower
in respect of the Credit Agreement or any Note or any other Financing Document.
The Assignee acknowledges that it has, independently and without reliance on
the Assignor, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and will continue to be responsible for making its own independent
appraisal of the business, affairs and financial condition of any Borrower.
SECTION 5. Consent of the Company and the Administrative Agent. This
Agreement is conditioned upon the consent of the Company and the Administrative
Agent pursuant to Section 9.06(c) of the Credit Agreement. (5)
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
- - --------
(5) Section not to be included if Assignee is a Bank of an affiliate of the
Assignor
3
<PAGE> 160
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
[ASSIGNOR]
By:
-------------------------------
Name:
Title:
[ASSIGNEE]
By:
-------------------------------
Name:
Title:
HOLLY CORPORATION
By:
-------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, as Administrative Agent
By:
-------------------------------
Name:
Title:
4
<PAGE> 161
EXHIBIT G-1
GOVERNMENT CONTRACTS
CONTRACT DATE CUSTOMER
- - -------- ---- --------
SPO600-97-D-0496 9/04/97 Defense Fuel Supply Center
<PAGE> 162
EXHIBIT G-2
[FORM OF ASSIGNMENT]
WHEREAS, the undersigned has entered into a Credit and Reimbursement
Agreement dated as of October 14, 1997 and a Security Agreement dated as of
October 14, 1997 pursuant to which various banks have agreed to make revolving
loans to the undersigned for the purpose, among others, of assisting the
undersigned in the performance of certain government contracts;
WHEREAS, in connection with the foregoing agreement, the undersigned
desires to assign all monies due or to become due under those certain
government contracts to CIBC Inc., as Collateral Agent for the banks that have
made commitments to the undersigned;
NOW, THEREFORE,
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
unto CIBC Inc., as Collateral Agent, all monies due or to become due under
[identifying eligible government contract].
IN WITNESS WHEREOF, the undersigned, through its duly authorized officer,
has caused this Assignment to be duly executed this _ day of ____, 199_.
[NAME OF BORROWER]
By:
-------------------------------
Name:
Title:
I hereby attest that I am the Secretary of [Name of Borrower] and that the
above Assignment has been executed by a duly authorized representative of [Name
of Borrower]. In attestation thereof I have this day impressed the corporate
seal of [Name of Borrower] hereon.
[CORPORATE SEAL]
Dated:
--------------------------- ------------------------------------
Name:
Secretary
[Name of Borrower]
<PAGE> 163
EXHIBIT G-3
[FORM OF NOTICE OF ASSIGNMENT]
TO: [Each party specified in FAR 32.802(e)].
Re: Contract No.____________________ entered into between [NAME OF
BORROWER] (the "Contractor"), [ADDRESS OF BORROWER] and
[GOVERNMENT AGENCY, NAME OF OFFICE AND ADDRESS] for
[DESCRIPTION OF NATURE OF THE ELIGIBLE GOVERNMENT
CONTRACT]
PLEASE TAKE NOTICE that moneys due or to become due under the contract
described above have been assigned to the undersigned under the provisions of
the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727, 41 U.S.C.
15).
One true copy of the instrument of assignment executed by the Contractor
on __________________, 199_ is attached hereto.
Until further notice, payments due or to become due under this contract
should be made payable to the undersigned assignee as follows:
IF BY MAIL, PLEASE REMIT TO:
CIBC Inc.
Assignee for [Name of Borrower]
c/o
IF BY ACH, PLEASE REMIT TO:
<PAGE> 164
Please return to the undersigned the three enclosed copies of this
original notice with appropriate notations showing the date and hour of receipt
and duly signed by the person acknowledging receipt on behalf of the addressee.
Very truly yours,
CIBC Inc. as Collateral Agent,
as Assignee
By:
-------------------------------
Name:
Title:
ACKNOWLEDGMENT
Receipt is acknowledged of the above notice and of a copy of the instrument of
assignment. They were received at (a.m.)(p.m.) on
, 199 . ---------------- ------------
- - -- --
----------------------------------
[signature]
----------------------------------
[title]
On behalf of:
-----------------------------------
[name of addressee of this notice]
2
<PAGE> 165
EXECUTION COPY
GUARANTEE AGREEMENT
AGREEMENT dated as of October 14, 1997 among Holly Corporation, a
Delaware corporation (the "COMPANY"), each other Guarantor listed on the
signature pages hereof under the caption "GUARANTORS" and each Person that
shall, at any time after the date hereof, become a Guarantor hereunder
(individually a "SUBSIDIARY GUARANTOR" and collectively the "GUARANTORS") and
Canadian Imperial Bank of Commerce, as Administrative Agent.
WITNESSETH:
WHEREAS, the Company and certain other Guarantors has entered into a
Credit and Reimbursement Agreement (as the same may be amended from time to
time, the "CREDIT AGREEMENT") dated as of October 14, 1997 with Navajo Refining
Company, Black Eagle, Inc., Navajo Corp., Navajo Southern, Inc., Navajo
Northern, Inc., Lorefco, Inc., Navajo Crude Oil Purchasing, Inc., Navajo
Holdings, Inc., Holly Petroleum, Inc., Navajo Pipeline Co., Lea Refining
Company, Navajo Western Asphalt Company and Montana Refining Company, A
Partnership, (together with the Company, the "BORROWERS"), the banks listed on
the signature pages thereof (the "BANKS"), Canadian Imperial Bank of Commerce,
as Administrative Agent (the "ADMINISTRATIVE AGENT"), CIBC Inc., as Collateral
Agent (the "COLLATERAL AGENT") and Morgan Guaranty Trust Company of New York,
as Documentation Agent (the "DOCUMENTATION AGENT" and, together with the
Administrative Agent and the Collateral Agent, the "AGENTS");
WHEREAS, each Subsidiary Guarantor (as defined below) is a Subsidiary,
WHEREAS, in conjunction with the transactions contemplated by the
Credit Agreement and in consideration of the financial and other support that
the Company has provided, and such financial and other support as the Company
may in the future provide, to the Subsidiary Guarantors, and in order to induce
the Banks and the Agents to enter into the Credit Agreement and to make Loans
and issue Letters of Credit thereunder, the Subsidiary Guarantors are willing
to guarantee the obligations of the Borrowers under the Credit Agreement and
the Notes;
WHEREAS, the Credit Agreement provides, among other things, that one
condition to its effectiveness is the execution and delivery by the Company and
the Subsidiary Guarantors of this Agreement; and
<PAGE> 166
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Terms defined in the Credit Agreement and
not otherwise defined herein are used herein as therein defined. In addition
the following terms, as used herein, have the following respective meanings:
"OBLIGATIONS" means (i) all obligations of each Borrower in respect of
principal of and interest on the Loans and the Letter of Credit Liabilities
(including without limitation interest accruing subsequent to the commencement
of a bankruptcy or similar proceeding involving any Obligor, whether or not
allowed or allowable as a claim in such proceeding), (ii) all other amounts
payable by any Borrower under any Financing Document and (iii) all renewals or
extensions of the foregoing, in each case whether now outstanding or hereafter
arising.
"SUBSIDIARY GUARANTOR" means any Guarantor other than the Company.
ARTICLE II
The Guarantee
SECTION 2.01. The Guarantee. Subject to Section 2.03, the Guarantors
hereby unconditionally, irrevocably and jointly and severally guarantee to the
Banks and the Agents, and to each of them, the due and punctual payment of all
Obligations as and when the same shall become due and payable, whether at
maturity, by declaration or otherwise, according to the terms thereof. In case
of failure by any Borrower punctually to pay any Obligation, the Guarantors,
subject to Section 2.03, hereby unconditionally agree to cause such payment to
be made punctually as and when the same shall become due and payable, whether
at maturity or by declaration or otherwise, and as if such payment were made by
such Borrower.
SECTION 2.02. Guarantees Unconditional. The obligations of each
Guarantor under this Article II shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise,
waiver or release in respect of any obligation of any other Obligor
under any Financing Document, by operation of law or otherwise;
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(b) any modification or amendment of or supplement to any
Financing Document;
(c) any modification, amendment, waiver, release,
non-perfection or invalidity of any direct or indirect security, or of
any guarantee or other liability of any third party, for any
obligation of any Obligor under any Financing Document;
(d) any change in the corporate existence, structure or
ownership of any Borrower or its Subsidiaries, or any insolvency,
bankruptcy, reorganization or other similar proceeding affecting any
Borrower or its Subsidiaries or their assets or any resulting release
or discharge of any obligation of any other Obligor contained in any
Financing Document;
(e) the existence of any claim, set-off or other rights
which such Guarantor may have at any time against any other Obligor,
any Agent or any Bank or any other Person, whether or not arising in
connection with any Financing Document; provided that nothing herein
shall prevent the assertion of any such claim by separate suit or
compulsory counterclaim;
(f) any invalidity or unenforceability relating to or
against any other Obligor for any reason of any Financing Document or
any provision of applicable law or regulation purporting to prohibit
the payment by any other Obligor of any Obligation; or
(g) any other act or omission to act or delay of any kind
by any Obligor, any Agent, any Bank or any other Person or any other
circumstance whatsoever that might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of or defense to
the obligations of such Guarantor under this Article II.
SECTION 2.03. Limit of liability of subsidiary Guarantors. Each
Subsidiary Guarantor shall be liable under this Agreement only for amounts
aggregating up to the largest amount that would not render its obligations
hereunder subject to avoidance under Section 548 of the United States
Bankruptcy Code or any comparable provisions of any applicable state law.
SECTION 2.04. Discharge; Reinstatement in Certain Circumstances;
Release of Guarantors. (a) The Guarantors, obligations under this Article II
shall remain in full force and effect until the Commitments and all Letters of
Credit are terminated and all principal of and interest on the Notes and all
other amounts payable by the Borrowers under the Credit Agreement shall have
been paid in full. If at any time any payment of the principal of or interest
on any Note
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or any other amount payable by any Borrower under any Financing Document is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of such Borrower or otherwise, the Guarantors'
obligations under this Article II with respect to such payment shall be
reinstated at such time as though such payment had become due but had not been
made at such time.
(b) Upon the consummation of any Asset Sale of the equity
interests of any Guarantor permitted by Section 5.12 of the Credit Agreement
if, after giving effect to such Asset Sale, such Guarantor shall no longer be a
Subsidiary, the Administrative Agent shall release such Guarantor from its
obligations hereunder; provided that, if such Asset Sale is a Borrower Sale,
each of the conditions precedent set forth in Section 5.12(b) of the Credit
Agreement shall have been satisfied with respect thereto. The Administrative
Agent shall be fully protected in relying on a certificate of the Company as to
whether the conditions precedent set forth in Section 5.12 of the Credit
Agreement with respect thereto are applicable and have been satisfied.
(c) Upon the designation of any Guarantor as an Unrestricted
Subsidiary permitted by Section 5.17 of the Credit Agreement, the
Administrative Agent shall release such Guarantor from its obligations
hereunder; provided that, if such Guarantor is a Borrower, each of the
conditions precedent set forth in Section 5.17(a) of the Credit Agreement shall
have been satisfied with respect thereto. The Administrative Agent shall be
fully protected in relying on a certificate of the Company as to whether the
conditions precedent set forth in Section 5.17(a) of the Credit Agreement with
respect thereto are applicable and have been satisfied.
SECTION 2.05. Waiver of notice. Each Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against any other Obligor or any other Person.
SECTION 2.06. Subrogation. Upon making any payment with respect to any
Borrower hereunder, the Guarantor making such payment shall be subrogated to
the rights of the payee against such Borrower with respect to such payment;
provided that such Guarantor shall not enforce or accept any payment by way of
subrogation until all amounts of principal of and interest on the Notes and all
other amounts payable by all Borrowers under the Financing Documents have been
paid in full.
SECTION 2.07. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by any Borrower under the Credit Agreement is
stayed upon the insolvency, bankruptcy or reorganization of such Borrower, all
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such amounts otherwise subject to acceleration under the terms of the Credit
Agreement shall nonetheless be payable by the Guarantors hereunder forthwith on
demand by the Administrative Agent made at the request of the Required Banks.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Notices. Unless otherwise specified herein, all notices,
requests and other communications to any party hereunder shall be in writing
(including bank wire, telex, facsimile transmission or similar writing) and
shall be given to such party at its address or telex or facsimile number set
forth on the signature pages hereof or such other address or telex or facsimile
number as such party may hereafter specify for the purpose by notice to the
other party hereto. Each such notice, request or other communication shall be
effective (i) if given by telex, when such telex is transmitted to the telex
number specified in or pursuant to this Section 3.01 and the appropriate answer
back is received, (ii) if given by facsimile transmission, when such facsimile
is transmitted to the facsimile transmission number specified in or pursuant to
this Section 3.01 and telephonic confirmation of receipt thereof is received,
(iii) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (iv) if given
by any other means, when delivered at the address specified in this Section
3.01.
SECTION 3.02. No Waiver. No failure or delay by any Agent or Bank in
exercising any right, power or privilege under this Agreement or any other
Financing Document shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein and therein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.
SECTION 3.03. Amendments and Waivers. Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in
writing and is signed by each Guarantor affected thereby and by the
Administrative Agent with the prior written consent of the Required Banks under
the Credit Agreement.
SECTION 3.04. Governing Law; Submission to Jurisdiction; Waiver of a
Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAW OF THE STATE OF
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NEW YORK. EACH GUARANTOR AND THE ADMINISTRATIVE AGENT HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH GUARANTOR AND THE
ADMINISTRATIVE AGENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH GUARANTOR AND THE ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 3.05. Successors and Assigns. This Agreement is for the
benefit of the Agents and the Banks and their respective successors and
permitted assigns and in the event of an assignment of the Loans, the Notes or
other amounts payable under the Credit Agreement, the rights hereunder, to the
extent applicable to the indebtedness so assigned, shall be transferred with
such indebtedness. All the provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
SECTION 3.06. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, and
all of which taken together shall constitute a single instrument, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when the Administrative Agent shall have
received a counterpart hereof signed by each Guarantor listed on the signature
page hereof and when the Credit Agreement shall become effective in accordance
with its terms. Thereafter, upon execution and delivery of a counterpart of
this Agreement on behalf on any other Guarantor, this Agreement shall become
effective with respect to such Guarantor as of the date of such delivery.
SECTION 3.07. Severability. If any provision of this Agreement is
prohibited, unenforceable or not authorized, or to the extent that any portion
of the Obligations hereunder may be voidable or subject to avoidance, in any
jurisdiction, such provision or portion of the Obligations shall, as to such
jurisdiction, be ineffective to the extent of such prohibition,
unenforceability, nonauthorization or portion so subject without invalidating
or limiting the remaining
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provisions hereof or remaining portion of the Obligations or affecting the
validity, enforceability or legality of such provision or such portion of the
Obligations in any other jurisdiction.
8
<PAGE> 173
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date first
above written.
CIBC INC., as Administrative Agent
By /s/ MARY BETH ROSS
--------------------------------
Name: MARY BETH ROSS
Title: AUTHORIZED SIGNATORY
425 Lexington Avenue
New York, New York 10017
Attention:
Facsimile number:
GUARANTORS:
NAVAJO REFINING COMPANY
BLACK EAGLE, INC.
NAVAJO CORP.
NAVAJO SOUTHERN, INC.
NAVAJO NORTHERN, INC.
LOREFCO, INC.
NAVAJO CRUDE OIL PURCHASING,
INC.
NAVAJO HOLDINGS, INC.
HOLLY PETROLEUM, INC.
NAVAJO PIPELINE CO.
LEA REFINING COMPANY
NAVAJO WESTERN ASPHALT COMPANY
By /s/ HENRY A. TEICHHOLZ
--------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
I00 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
Attention: Henry A. Teichholz
Facsimile number: (214) 871-3560
9
<PAGE> 174
MONTANA REFINING COMPANY, A
PARTNERSHIP
By Navajo Northern, Inc., its General
Partner
By: /s/ HENRY A. TEICHHOLZ
-----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
100 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
Attention: Henry A. Teichholz
Facsimile number: (214) 871-3560
<PAGE> 175
EXHIBIT I
DESIGNATED CUSTOMERS
AIG TRADING
AMERADA HESS
AMOCO PRODUCTION
ARCO
BP OIL SUPPLY
CHEVRON USA, INC.
CITGO PETROLEUM CORP.
COASTAL
DIAMOND SHAMROCK
ENRON OIL T&T
EXXON USA
FINA OIL & CHEMICAL
JP MORGAN
KOCH OIL CO.
MARATHON
MOBIL OIL CORPORATION
MORGAN STANLEY
PENNZOIL
PHILLIPS PETROLEUM
SCURLOCK PERMIAN
SHELL OIL COMPANY
SUN REFINING & MARKETING
TEXACO TRADING & TRANS.
11
<PAGE> 1
EXHIBIT 4.28
GUARANTY
THIS GUARANTY, dated as of October 10, 1997, made separately
by each of the undersigned corporations (together with their successors and
assigns, each a "GUARANTOR" and collectively, the "GUARANTORS"), in favor of
each of the purchasers (together with their successors and assigns, including,
without limitation, any holder of a Note (as defined below), each a "HOLDER"
and collectively, the "HOLDERS") listed on Annex 1 to the separate Note
Agreements (collectively, as amended from time to time, the "NOTE AGREEMENT"),
dated as of June 15, 1991, between Holly Corporation (the "COMPANY"), a
Delaware corporation, and each of the Holders, pursuant to which the Company
has issued Twenty Eight Million Dollars ($28,000,000) in aggregate original
principal amount of its 9.72% Senior Notes due June 15, 1998 (the "9.72%
NOTES") and Fifty Two Million Dollars in aggregate original principal amount of
its 10.16% Senior Notes due June 15, 2001 (the "10.16% NOTES," the 9.72% Notes
and the 10.16% Notes outstanding as of the date hereof are referred to
collectively in this Guaranty as the "NOTES").
WITNESSETH:
WHEREAS, the Company owns directly, or indirectly through one
or more subsidiaries, all of the outstanding shares of stock of each Guarantor;
and
WHEREAS, the Company has issued and sold its 9.72% Notes and
its 10.16% Notes to the Holders pursuant to the Note Agreement; and
WHEREAS, pursuant to the terms of the Note Agreement, it is a
continuing obligation of the Company to cause each Restricted Subsidiary which
guaranties the obligations of the Company under the Revolving Credit Agreement
to execute and deliver to the Holders a satisfactory guaranty of the
obligations of the Company under the Note Agreement and the Notes; and
WHEREAS, each Guarantor a party hereto is a Restricted
Subsidiary and has guarantied the obligations of the Company under the
Revolving Credit Agreement;
WHEREAS, the board of directors of each Guarantor has
determined that such Guarantor's execution, delivery and performance of this
Guaranty may reasonably be expected to benefit such Guarantor, directly or
indirectly, and are in the best interests of such Guarantor;
NOW, THEREFORE, in consideration of the premises and of Ten
Dollars ($10) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to comply with the
terms and provisions of the Note Agreement and to avoid an Event of Default
thereunder, each Guarantor hereby agrees with the Holders as follows:
<PAGE> 2
1. DEFINITIONS.
Reference is hereby made to the Note Agreement for all
purposes. All terms used in this Guaranty that are defined in the Note
Agreement and not otherwise defined in this Guaranty have the same meanings
when used in this Guaranty. As used in this Guaranty, the following terms shall
have the following meanings:
"OBLIGATIONS" means collectively all of the indebtedness,
obligations, and undertakings that are guaranteed by Guarantor and
described in subsections (a) and (b) of Section 2 hereof.
"OBLIGATION DOCUMENTS" means this Guaranty, the Note Agreement,
the Notes, all other documents and instruments under, by reason of
which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with, heretofore or
hereafter delivered.
"OBLIGORS" means the Company, the Guarantors, and any other
endorsers, guarantors or obligors, primary or secondary, of any or all
of the Obligations.
"SECURITY" means any rights, properties, or interests of the
Holders under the Obligation Documents or otherwise, that provide
recourse or other benefits to the Holders in connection with the
Obligations or the non-payment or non-performance thereof, including,
without limitation, collateral (whether real or personal, tangible or
intangible) in which the Holders have rights under or pursuant to any
Obligation Documents, guaranties of the payments or performance of any
Obligation, bonds, surety agreements, keep-well agreements, letters of
credit, rights of subrogation, rights of offset, and rights pursuant
to which other claims are subordinated to the Obligations.
2. GUARANTY.
(a) Each Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees, jointly and severally, to the Holders the
prompt, complete, and full payment when due, and no matter how the same
shall become due, of:
(i) the Notes, including all principal, all
interest thereon and all other sums payable thereunder; and
(ii) all other sums payable under the other
Obligation Documents, whether for principal, interest, fees,
delivery of cash collateral, costs, expenses or otherwise.
(b) Each Guarantor, hereby irrevocably, absolutely, and
unconditionally guarantees, jointly and severally, to the Holders the
prompt, complete and full performance,
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<PAGE> 3
when due, and no matter how the same shall become due, of all
obligations and undertakings of the Company to the Holder under, by
reason of, or pursuant to any of the Obligation Documents.
(c) If the Company shall for any reason fail to pay any
Obligation, as and when such Obligation shall become due and payable,
whether at its stated maturity, as a result of the exercise of any
power to accelerate, or otherwise, then each Guarantor will, forthwith
upon demand by the Required Holders, pay such Obligation in full to
the Holders. If the Company shall for any reason fail to perform
promptly any Obligation, then Guarantor will, forthwith upon demand by
the Required Holders, cause such Obligation to be performed or, if
specified by the Required Holders, provide sufficient funds, in such
amount and manner as the Required Holders shall in good faith
determine, for the prompt, full and faithful performance of such
Obligation by the Required Holders or such other Person as the
Required Holders shall designate.
(d) If either the Company or any Guarantor fails to pay
or perform upon demand any Obligation as described in the immediately
preceding subsections (a), (b) or (c), then each Guarantor will incur
the additional obligation to pay to the Holders and each Guarantor
will forthwith upon demand by the Required Holders pay to the Holders,
the amount of any and all expenses, including fees and disbursements
of any counsel and of any experts or agents, in each case, retained by
the Required Holders on behalf of the Holders that the Holders may
incur as a result of such failure, such expenses to be incurred in
accordance with paragraph 11B of the Note Agreement.
(e) Each Guarantor shall be primarily liable hereunder
for the payment and performance of the Obligations, from each other
Guarantor.
3. UNCONDITIONAL GUARANTY.
(a) No action that any one or more Holder may take or
omit to take in connection with any of the Obligation Documents, any
of the Obligations (or any other indebtedness owing by Guarantor to
the Holders), or any Security, and no course of dealing of any one or
more Holder with any Obligor or any other Person, shall release or
diminish any Guarantor's obligations, liabilities, agreements or
duties under this Guaranty, affect this Guaranty in any way, or afford
any Guarantor any recourse against any Holder, regardless of whether
any such action or inaction may increase any risks to or liabilities
of the Holders or any Obligor or increase any risk to or diminish any
safeguard of any Security. Without limiting the foregoing, each
Guarantor hereby expressly agrees that, except as may be provided in
the Note Agreement, any Holder may, from time to time, without notice
to or the consent of Guarantor:
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<PAGE> 4
(i) Amend, change or modify, in whole or in part, any one
or more of the Obligation Documents and give or refuse to give any
waivers or other indulgences with respect thereto;
(ii) Neglect, delay, fail, or refuse to take or prosecute
any action for the collection or enforcement of any of the
Obligations, to foreclose or take or prosecute any action in
connection with any Security or Obligation Document, to bring suit
against any Obligor or any other Person, or to take any other action
concerning the Obligations or the Obligation Documents;
(iii) Accelerate, change, rearrange, extend, or renew the
time, terms, or manner for payment or performance of any one or more
of the Obligations;
(iv) Compromise or settle any unpaid or unperformed
Obligation or any other obligation or amount due or owing, or claimed
to be due or owing, under any one or more of the Obligation Documents;
(v) Take, exchange, amend, eliminate, surrender, release,
or subordinate any or all Security for any or all of the Obligations,
accept additional or substituted Security therefor, and perfect or
fail to perfect the Holders' rights in any or all Security;
(vi) Discharge, release, substitute or add Obligors; and
(vii) Apply all monies received from Obligors or others, or
from any Security for any of the Obligations, as such Holder may
determine to be in its best interest, without in any way being
required to marshall Security or assets or to apply all or any part of
such monies upon any particular Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish any Guarantor's
obligations, liabilities, agreements, or duties under this Guaranty, affect this
Guaranty in any way, or afford any Guarantor any recourse against any Holder.
Without limiting the foregoing, the obligations, liabilities, agreements, and
duties of each Guarantor under this Guaranty shall not be released, diminished,
impaired, reduced, or affected by the occurrence of any of the following from
time to time, even if occurring without notice to or without the consent of such
Guarantor:
(i) Any voluntary or involuntary liquidation,
dissolution, sale of all or substantially all assets, marshalling of
assets of liabilities, receivership, conservatorship, assignment for
the benefit of creditors, insolvency, bankruptcy, reorganization,
arrangement, or composition of any Obligor or any other proceedings
involving any Obligor or any of the assets of any Obligor under laws
for the
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<PAGE> 5
protection of debtors, or any discharge, impairment, modification,
release, or limitation of the liability of, or stay of actions or lien
enforcement proceedings against, any Obligor, any properties of any
Obligor, or the estate in bankruptcy of any Obligor in the course of
or resulting from any such proceedings;
(ii) The failure by any Holder or the Required Holders to
file or enforce a claim in any proceeding described in the immediately
preceding subsection (i) or to take any other action in any proceeding
to which any Obligor is a party;
(iii) The release by operation of law of any Obligor from
any of the Obligations or any other obligations to the Holders;
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation
Documents, in whole or in part, any bar by any statute of limitations
or other law of recovery on any of the Obligations, or any defense or
excuse for failure to perform on account of force majeure, act of God,
casualty, impossibility, impracticability, or other defense or excuse
whatsoever;
(v) The failure of any Obligor or any other Person to
sign any guaranty or other instrument or agreement within the
contemplation of any Obligor or the Holders;
(vi) The fact that any Guarantor may have incurred
directly part of the Obligations or is otherwise primarily liable
therefor; or
(vii) Without limiting any of the foregoing, any fact or
event (whether or not similar to any of the foregoing) that in the
absence of this provision would or might constitute or afford a legal
or equitable discharge or release of or defense to a guarantor or
surety other than the actual payment and performance by each Guarantor
under this Guaranty.
(c) The Required Holders may invoke the benefits of this Guaranty
before pursuing any remedies against any Obligor or any other Person and before
proceeding against any Security now or hereafter existing for the payment or
performance of any of the Obligations. The Required Holders may maintain an
action against any Guarantor on this Guaranty without joining any other Obligor
therein and without bringing separate action against any other Obligor. The
obligations of each Guarantor under this Guaranty are not joint, but are
separate and distinct from the obligations of each other Guarantor and all
other Obligors.
(d) If any payment to the Holders by any Obligor is held to
constitute a preference or a voidable transfer under applicable state or
federal laws, or if for any other reason the Holders are required to refund
such payment to the payor thereof or to pay the
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<PAGE> 6
amount thereof to any other Person, then such payment to the Holders
shall not constitute a release of any Guarantor from any liability
under this Guaranty, and each Guarantor agrees to pay such amount to
the Holders on demand and agrees and acknowledges that this Guaranty
shall continue to be effective or shall be reinstated, as the case may
be, to the extent of any such payment or payments.
(e) This is a continuing guaranty and shall apply to and cover
all obligations and renewals and extensions thereof and substitutions
therefor from time to time.
4. WAIVER.
Each Guarantor hereby waives, with respect to the Obligations,
this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by the Company;
(b) notice that the Holders, any Obligor, or any other Person
has taken or omitted to take any action under any Obligation Document
or any other agreement or instrument relating thereto or relating to
any Obligation;
(c) notice of acceptance of this Guaranty and all rights of
the Guarantor under Section 34.02 of the Texas Business and Commerce
Code;
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance;
(e) notice of intention to accelerate, notice of acceleration,
protest, and notice of protest; and
(f) all other notices whatsoever.
5. EXERCISE OF REMEDIES.
Each Holder and the Required Holders, on behalf of the
Holders, as provided in the Note Agreement, shall have the right to enforce,
from time to time, in any order and at the sole discretion of the Required
Holders' or such Holder, as the case may be, any rights, powers and remedies
that the Holders may have under the Obligation Documents or otherwise,
including, but not limited to, judicial foreclosure, the exercise of rights
power of sale, the taking of a deed or assignment in lieu of foreclosure, the
appointment of a receiver to collect rents, issues and profits, the exercise of
remedies against personal property, or the enforcement of any assignment of
leases, rentals, oil or gas production, or other properties or rights, whether
real or personal, tangible or intangible. and each Guarantor shall be liable to
the Holders under this Guaranty for any deficiency resulting from the exercise
by any Holder of any such right or remedy even though any rights that
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such Guarantor may have against the Company or others may be destroyed or
diminished by exercise of any such right or remedy. No failure on the part of
any Holder or the Required Holders to exercise, and no delay in exercising, any
right under this Guaranty or under any other Obligation Document shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
preclude any other or further exercise thereof or the exercise of any other
right. The rights, powers and remedies of each Holder and the Required Holders
provided in this Guaranty and in the other Obligation Documents are cumulative
and are in addition to, and not exclusive of, any other rights, powers or
remedies provided by law or in equity. The rights of each Holder and the
Required Holders under this Guaranty are not conditional or contingent on any
attempt by any Holder and the Required Holders to exercise any of their rights
under any other Obligation Document against any Obligor or any other Person.
6. SUBROGATION.
Until all of the Obligations have been paid and performed in
full, no Guarantor shall have the right to exercise any right of subrogation
with respect hereto (including without limitation any right of subrogation
under Section 34.04 of the Texas Business and Commerce Code), and each
Guarantor hereby waives any rights to enforce any remedy that such Guarantor
may have against the Company and any right to participate in any Security until
such time. If any amount shall be paid to any Guarantor on account of any
subrogation rights or other remedy or Security at any time when all of the
Obligations and all other expenses guaranteed pursuant to this Guaranty shall
not have been paid in full, then such amount shall be held in trust for the
benefit of the Holders, shall be segregated from the other funds of Guarantor
and shall forthwith be paid over to the Holders as collateral for, or then or
at any time thereafter applied in whole or in part by the Holders against, all
or any portion of the Obligations, whether matured or unmatured, in such order
as each Holder shall elect. If Guarantor shall make payment to the Holders of
all or any portion of the Obligations and if all of the Obligations shall be
finally paid in full, then each Holder will, at each Guarantor's request and
expense, execute and deliver to such Guarantor (without recourse,
representation or warranty) appropriate documents necessary to evidence the
transfer by subrogation to Guarantor of an interest in the Obligations
resulting from such payment by such Guarantor.
7. SUCCESSORS AND ASSIGNS.
No Guarantor's rights or obligations under this Guaranty may be
assigned or delegated. This Guaranty shall apply to and inure to the benefit of
each Holder and such Holder's successors and assigns, including, without
limitation, any subsequent holder of Notes. Without limiting the generality of
the immediately preceding sentence, any Holder may assign its rights under this
Guaranty or grant a participation in such rights in connection with the
assignment of or the granting of a participation in the Obligations.
8. REPRESENTATIONS AND WARRANTIES.
Each Guarantor hereby represents and warrants as follows:
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(a) The recitals at the beginning of this Guaranty are
true and correct in all respects as to such Guarantor.
(b) The value of the consideration received and to be
received by such Guarantor in connection herewith is reasonably worth
at least as much as the liability and obligations of such Guarantor
under this Guaranty, and the incurrence of such liability and
obligations in return for such consideration may reasonably be
expected to benefit such Guarantor, directly or indirectly.
(c) Such Guarantor is not "insolvent" on the date of the
execution and delivery by such Guarantor of this Guaranty (that is,
the sum of Guarantor's absolute and contingent liabilities, including
the Obligations, does not exceed the Fair Market Value of Guarantor's
assets). Such Guarantor's capital is adequate for the businesses in
which Guarantor is engaged and intends to be engaged. Such Guarantor
has not by this Guaranty incurred, nor does such Guarantor intend to
incur or believe that it will incur, debts that will be beyond its
ability to pay as such debts mature.
9. NO ORAL CHANGE.
No amendment of any provision of this Guaranty shall be effective
unless it is in writing and signed by each Guarantor and the Required Holders,
and no waiver of any provision of this Guaranty, and no consent to any
departure by any Guarantor from this Guaranty, shall be effective unless it is
in writing and signed by the Required Holders, and then such waiver or consent
shall be effective only in the specific instance and for the specified purposes
for which given.
10. GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE
STATE OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
(b) JURISDICTION. EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS
ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE OF NEW YORK AND
FEDERAL COURTS OF THE STATE OF NEW YORK AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATING HERETO BY SERVING THE SECRETARY OF STATE OF THE STATE OF
TEXAS (OR BY OTHER SERVICE) IN ACCORDANCE WITH ANY APPLICABLE
PROVISIONS OF THE TEXAS REVISED CIVIL STATUTES, AS AMENDED, GOVERNING
SERVICE OF PROCESS UPON FOREIGN CORPORATIONS.
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11. INVALIDITY OF PARTICULAR PROVISION.
If any term or provision of this Guaranty shall be determined
to be illegal or unenforceable, then all other terms and provisions hereof shall
nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable law.
12. HEADINGS AND REFERENCES.
The headings used in this Guaranty are for purposes of
convenience shall not be used in construing the provisions of this Guaranty.
The words "this Guaranty," "this instrument," "herein," "hereof," "hereby" and
words of similar import refer to this Guaranty as a whole and not to any
particular subdivision unless so limited. The word "or" is not exclusive.
Pronouns in masculine, feminine and neuter genders shall be construed to
include any other gender, and words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
13. TERM.
This Guaranty shall be irrevocable and shall terminate when all
of the Obligations have been completely and finally paid and performed, the
Holders have no obligation to make any loans or other advances to the Company,
and all obligations and undertakings of the Company under, by reason of, or
pursuant to the Obligation Documents have been completely performed, and this
Guaranty is thereafter subject to reinstatement as provided in Section 3(d) of
this Guaranty. All extensions of credit and financial accommodations
heretofore or hereafter made by the Holders to the Company pursuant to the
terms of the Note Agreement, the Notes or any amendment or waiver of any
provision thereof, shall be conclusively presumed to have been made in
acceptance of this Guaranty and in reliance on this Guaranty.
14. NOTICES.
Any notice of communication required or permitted under this
Guaranty shall be given as provided in the Note Agreement.
15. LIMITATION ON INTEREST.
The Holders and each Guarantor intend to contract in strict
compliance with applicable usury law from time to time in effect, and the
provisions of the Note Agreement limiting the interest for which each Guarantor
is obligated are expressly incorporated in this Guaranty by reference.
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16. COUNTERPARTS.
This Guaranty may be executed in any number of counterparts,
each of which when so executed shall be deemed to constitute one and the same
Guaranty.
17. ENTIRE AGREEMENT.
THIS WRITTEN GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGES FOLLOW.]
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IN WITNESS WHEREOF, each Guarantor has executed and delivered
this Guaranty as of the date first above written.
NAVAJO CORP.
By: /s/ HENRY A. TEICHHOLZ
----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO SOUTHERN, INC.
By: /s/ HENRY A. TEICHHOLZ
----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO CRUDE OIL PURCHASING, INC.
By: /s/ HENRY A. TEICHHOLZ
----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
LOREFCO, INC.
By: /s/ HENRY A. TEICHHOLZ
----------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
<PAGE> 1
EXHIBIT 4.29
GUARANTY
THIS GUARANTY, dated as of October 10, 1997, made separately by
each of the undersigned corporations (together with their successors and
assigns, each a "GUARANTOR" and collectively, the "GUARANTORS"), in favor of
each of the purchasers (together with their successors and assigns, including,
without limitation, any holder of a Note (as defined below), each a "HOLDER" and
collectively, the "HOLDERS") listed on Annex 1 to the separate Note Agreements
(collectively, as amended from time to time, the "NOTE AGREEMENT"), dated as of
November 15, 1995, between Holly Corporation (the "COMPANY"), a Delaware
corporation, and each of the Holders, pursuant to which the Company has issued
Thirty-Nine Million Dollars ($39,000,000) in aggregate original principal amount
of its 7.62% Series C Senior Notes due December 15, 2005 (the "SERIES C NOTES")
and Twenty-One Million Dollars ($21,000,000) in aggregate original principal
amount of its its Series D Notes due December 15, 2005 (the "SERIES D NOTES",
the Series C Notes and the Series D Notes outstanding as of the date hereof
referred to collectively in this Guaranty as the "NOTES").
WITNESSETH:
WHEREAS, the Company owns directly, or indirectly through one
or more subsidiaries, all of the outstanding shares of stock of each Guarantor;
and
WHEREAS, the Company has issued and sold its Series C Notes
and its Series D Notes to the Holders pursuant to the Note Agreement; and
WHEREAS, pursuant to the terms of the Note Agreement, it is a
continuing obligation of the Company to cause each Restricted Subsidiary which
guaranties the obligations of the Company under the Revolving Credit Agreement
to execute and deliver to the Holders a satisfactory guaranty of the
obligations of the Company under the Note Agreement and the Notes; and
WHEREAS, each Guarantor a party hereto is a Restricted
Subsidiary and has guarantied the obligations of the Company under the
Revolving Credit Agreement;
WHEREAS, the board of directors of each Guarantor has
determined that such Guarantor's execution, delivery and performance of this
Guaranty may reasonably be expected to benefit such Guarantor, directly or
indirectly, and are in the best interests of such Guarantor;
NOW, THEREFORE, in consideration of the premises and of Ten
Dollars ($10) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to comply with the
terms and provisions of the Note Agreement and to avoid an Event of Default
thereunder, each Guarantor hereby agrees with the Holders as follows:
<PAGE> 2
1. DEFINITIONS.
Reference is hereby made to the Note Agreement for all
purposes. All terms used in this Guaranty that are defined in the Note
Agreement and not otherwise defined in this Guaranty have the same meanings
when used in this Guaranty. As used in this Guaranty, the following terms shall
have the following meanings:
"OBLIGATIONS" means collectively all of the indebtedness,
obligations, and undertakings that are guaranteed by Guarantor and
described in subsections (a) and (b) of Section 2 hereof.
"OBLIGATION DOCUMENTS" means this Guaranty, the Note
Agreement, the Notes, all other documents and instruments under,
by reason of which, or pursuant to which any or all of the Obligations
are evidenced, governed, secured, or otherwise dealt with,
heretofore or hereafter delivered.
"OBLIGORS" means the Company, the Guarantors, and any other
endorsers, guarantors or obligors, primary or secondary, of any or all
of the Obligations.
"SECURITY" means any rights, properties, or interests of the
Holders under the Obligation Documents or otherwise, that provide
recourse or other benefits to the Holders in connection with the
Obligations or the non-payment or non-performance thereof, including,
without limitation, collateral (whether real or personal, tangible or
intangible) in which the Holders have rights under or pursuant to any
Obligation Documents, guaranties of the payments or performance of any
Obligation, bonds, surety agreements, keep-well agreements, letters of
credit, rights of subrogation, rights of offset, and rights pursuant
to which other claims are subordinated to the Obligations.
2. GUARANTY.
(a) Each Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees, jointly and severally, to the Holders the
prompt, complete, and full payment when due, and no matter how the same
shall become due, of:
(i) the Notes, including all principal, all
interest thereon and all other sums payable thereunder; and
(ii) all other sums payable under the other
Obligation Documents. whether for principal, interest, fees,
delivery of cash collateral, costs, expenses or otherwise.
(b) Each Guarantor, hereby irrevocably, absolutely, and
unconditionally guarantees, jointly and severally, to the Holders the
prompt, complete and full performance.
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when due, and no matter how the same shall become due, of all
obligations and undertakings of the Company to the Holder under, by
reason of, or pursuant to any of the Obligation Documents.
(c) If the Company shall for any reason fail to pay any
Obligation, as and when such Obligation shall become due and payable,
whether at its stated maturity, as a result of the exercise of any
power to accelerate, or otherwise, then each Guarantor will, forthwith
upon demand by the Required Holders, pay such Obligation in fall to
the Holders. If the Company shall for any reason fail to perform
promptly any Obligation, then Guarantor will, forthwith upon demand by
the Required Holders, cause such Obligation to be performed or, if
specified by the Required Holders, provide sufficient funds, in such
amount and manner as the Required Holders shall in good faith
determine, for the prompt, full and faithful performance of such
Obligation by the Required Holders or such other Person as the
Required Holders shall designate.
(d) If either the Company or any Guarantor fails to pay
or perform upon demand any Obligation as described in the immediately
preceding subsections (a), (b) or (c), then each Guarantor will incur
the additional obligation to pay to the Holders and each Guarantor
will forthwith upon demand by the Required Holders pay to the Holders,
the amount of any and all expenses, including fees and disbursements
of any counsel and of any experts or agents, in each case, retained by
the Required Holders on behalf of the Holders that the Holders may
incur as a result of such failure, such expenses to be incurred in
accordance with paragraph 11B of the Note Agreement.
(e) Each Guarantor shall be primarily liable hereunder
for the payment and performance of the Obligations, from each other
Guarantor.
3. UNCONDITIONAL GUARANTY.
(a) No action that any one or more Holder may take or
omit to take in connection with any of the Obligation Documents, any
of the Obligations (or any other indebtedness owing by Guarantor to
the Holders), or any Security, and no course of dealing of any one or
more Holder with any Obligor or any other Person, shall release or
diminish any Guarantor's obligations, liabilities, agreements or
duties under this Guaranty, affect this Guaranty in any way, or afford
any Guarantor any recourse against any Holder, regardless of whether
any such action or inaction may increase any risks to or liabilities
of the Holders or any Obligor or increase any risk to or diminish any
safeguard of any Security. Without limiting the foregoing, each
Guarantor hereby expressly agrees that, except as may be provided in
the Note Agreement, any Holder may, from time to time, without notice
to or the consent of Guarantor:
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(i) Amend, change or modify, in whole or in part, any one
or more of the Obligation Documents and give or refuse to give any
waivers or other indulgences with respect thereto;
(ii) Neglect, delay, fail, or refuse to take or prosecute
any action for the collection or enforcement of any of the
Obligations, to foreclose or take or prosecute any action in
connection with any Security or Obligation Document, to bring suit
against any Obligor or any other Person, or to take any other action
concerning the Obligations or the Obligation Documents;
(iii) Accelerate, change, rearrange, extend, or renew the
time, terms, or manner for payment or performance of any one or more
of the Obligations;
(iv) Compromise or settle any unpaid or unperformed
Obligation or any other obligation or amount due or owing, or claimed
to be due or owing, under any one or more of the Obligation Documents;
(v) Take, exchange, amend, eliminate, surrender, release,
or subordinate any or all Security for any or all of the Obligations,
accept additional or substituted Security therefor, and perfect or
fail to perfect the Holders' rights in any or all Security;
(vi) Discharge, release, substitute or add Obligors; and
(vii) Apply all monies received from Obligors or others, or
from any Security for any of the Obligations, as such Holder may
determine to be in its best interest, without in any way being
required to marshall Security or assets or to apply all or any part of
such monies upon any particular Obligations.
(b) No action or inaction of any Obligor or any other Person, and
obligations, liabilities, agreements, or duties under this Guaranty, affect
this Guaranty in any way, or afford any Guarantor any recourse against any
Holder. Without limiting the foregoing, the obligations, liabilities,
agreements, and duties of each Guarantor under this Guaranty shall not be
released, diminished, impaired, reduced, or affected by the occurrence of any
of the following from time to time, even if occurring without notice to or
without the consent of such Guarantor:
(i) Any voluntary or involuntary liquidation,
dissolution, sale of all or substantially all assets, marshalling of
assets of liabilities, receivership, conservatorship, assignment for
the benefit of creditors, insolvency, bankruptcy, reorganization,
arrangement, or composition of any Obligor or any other proceedings
involving any Obligor or any of the assets of any Obligor under laws
for the
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protection of debtors, or any discharge, impairment, modification,
release, or limitation of the liability of, or stay of actions or lien
enforcement proceedings against, any Obligor, any properties of any
Obligor, or the estate in bankruptcy of any Obligor in the course of
or resulting from any such proceedings;
(ii) The failure by any Holder or the Required Holders to
file or enforce a claim in any proceeding described in the immediately
preceding subsection (i) or to take any other action in any proceeding
to which any Obligor is a party;
(iii) The release by operation of law of any Obligor from
any of the Obligations or any other obligations to the Holders;
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation
Documents, in whole or in part, any bar by any statute of limitations
or other law of recovery on any of the Obligations, or any defense or
excuse for failure to perform on account of force majeure, act of God,
casualty, impossibility, impracticability, or other defense or excuse
whatsoever;
(v) The failure of any Obligor or any other Person to
sign any guaranty or other instrument or agreement within the
contemplation of any Obligor or the Holders;
(vi) The fact that any Guarantor may have incurred
directly part of the Obligations or is otherwise primarily liable
therefor; or
(vii) Without limiting any of the foregoing, any fact or
event (whether or not similar to any of the foregoing) that in the
absence of this provision would or might constitute or afford a legal
or equitable discharge or release of or defense to a guarantor or
surety other than the actual payment and performance by each Guarantor
under this Guaranty.
(c) The Required Holders may invoke the benefits of this Guaranty
before pursuing any remedies against any Obligor or any other Person and before
proceeding against any Security now or hereafter existing for the payment or
performance of any of the Obligations. The Required Holders may maintain an
action against any Guarantor on this Guaranty without joining any other Obligor
therein and without bringing separate action against any other Obligor. The
obligations of each Guarantor under this Guaranty are not joint, but are
separate and distinct from the obligations of each other Guarantor and all
other Obligors.
(d) If any payment to the Holders by any Obligor is held to
constitute a preference or a voidable transfer under applicable state or
federal laws, or if for any other reason the Holders are required to refund
such payment to the payor thereof or to pay the
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amount thereof to any other Person, then such payment to the Holders
shall not constitute a release of any Guarantor from any liability
under this Guaranty, and each Guarantor agrees to pay such amount to
the Holders on demand and agrees and acknowledges that this Guaranty
shall continue to be effective or shall be reinstated, as the case may
be, to the extent of any such payment or payments.
(e) This is a continuing guaranty and shall apply to and cover
all obligations and renewals and extensions thereof and substitutions
therefor from time to time.
4. WAIVER.
Each Guarantor hereby waives, with respect to the Obligations,
this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by the Company;
(b) notice that the Holders, any Obligor, or any other Person
has taken or omitted to take any action under any Obligation Document
or any other agreement or instrument relating thereto or relating to
any Obligation;
(c) notice of acceptance of this Guaranty and all rights of
the Guarantor under Section 34.02 of the Texas Business and Commerce
Code;
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance;
(e) notice of intention to accelerate, notice of acceleration,
protest, and notice of protest; and (f) all other notices whatsoever.
5. EXERCISE OF REMEDIES.
Each Holder and the Required Holders, on behalf of the
Holders, as provided in the Note Agreement, shall have the right to enforce,
from time to time, in any order and at the sole discretion of the Required
Holders' or such Holder, as the case may be, any rights, powers and remedies
that the Holders may have under the Obligation Documents or otherwise,
including, but not limited to, judicial foreclosure, the exercise of rights
power of sale, the taking of a deed or assignment in lieu of foreclosure, the
appointment of a receiver to collect rents, issues and profits, the exercise of
remedies against personal property, or the enforcement of any assignment of
leases, rentals, oil or gas production, or other properties or rights, whether
real or personal, tangible or intangible. and each Guarantor shall be liable to
the Holders under this Guaranty for any deficiency resulting from the exercise
by any Holder of any such right or remedy even though any rights that
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such Guarantor may have against the Company or others may be destroyed or
diminished by exercise of any such right or remedy. No failure on the part of
any Holder or the Required Holders to exercise, and no delay in exercising, any
right under this Guaranty or under any other Obligation Document shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
preclude any other or further exercise thereof or the exercise of any other
right. The rights, powers and remedies of each Holder and the Required Holders
provided in this Guaranty and in the other Obligation Documents are cumulative
and are in addition to, and not exclusive of, any other rights, powers or
remedies provided by law or in equity. The rights of each Holder and the
Required Holders under this Guaranty are not conditional or contingent on any
attempt by any Holder and the Required Holders to exercise any of their rights
under any other Obligation Document against any Obligor or any other Person.
6. SUBROGATION.
Until all of the Obligations have been paid and performed in
full, no Guarantor shall have the right to exercise any right of subrogation
with respect hereto (including without limitation any right of subrogation
under Section 34.04 of the Texas Business and Commerce Code), and each
Guarantor hereby waives any rights to enforce any remedy that such Guarantor
may have against the Company and any right to participate in any Security until
such time. If any amount shall be paid to any Guarantor on account of any
subrogation rights or other remedy or Security at any time when all of the
Obligations and all other expenses guaranteed pursuant to this Guaranty shall
not have been paid in full, then such amount shall be held in trust for the
benefit of the Holders, shall be segregated from the other funds of Guarantor
and shall forthwith be paid over to the Holders as collateral for, or then or
at any time thereafter applied in whole or in part by the Holders against, all
or any portion of the Obligations, whether matured or unmatured, in such order
as each Holder shall elect. If Guarantor shall make payment to the Holders of
all or any portion of the Obligations and if all of the Obligations shall be
finally paid in full, then each Holder will, at each Guarantor's request and
expense, execute and deliver to such Guarantor (without recourse,
representation or warranty) appropriate documents necessary to evidence the
transfer by subrogation to Guarantor of an interest in the Obligations
resulting from such payment by such Guarantor.
7. SUCCESSORS AND ASSIGNS.
No Guarantor's rights or obligations under this Guaranty may be
assigned or delegated. This Guaranty shall apply to and inure to the benefit of
each Holder and such Holder's successors and assigns, including, without
limitation, any subsequent holder of Notes. Without limiting the generality of
the immediately preceding sentence, any Holder may assign its rights under this
Guaranty or grant a participation in such rights in connection with the
assignment of or the granting of a participation in the Obligations.
8. REPRESENTATIONS AND WARRANTIES.
Each Guarantor hereby represents and warrants as follows:
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(a) The recitals at the beginning of this Guaranty are
true and correct in all respects as to such Guarantor.
(b) The value of the consideration received and to be
received by such Guarantor in connection herewith is reasonably worth
at least as much as the liability and obligations of such Guarantor
under this Guaranty, and the incurrence of such liability and
obligations in return for such consideration may reasonably be
expected to benefit such Guarantor, directly or indirectly.
(c) Such Guarantor is not "insolvent" on the date of the
execution and delivery by such Guarantor of this Guaranty (that is,
the sum of Guarantor's absolute and contingent liabilities, including
the Obligations, does not exceed the Fair Market Value of Guarantor's
assets). Such Guarantor's capital is adequate for the businesses in
which Guarantor is engaged and intends to be engaged. Such Guarantor
has not by this Guaranty incurred, nor does such Guarantor intend to
incur or believe that it will incur, debts that will be beyond its
ability to pay as such debts mature.
9. NO ORAL CHANGE.
No amendment of any provision of this Guaranty shall be
effective unless it is in writing and signed by each Guarantor and the Required
Holders, and no waiver of any provision of this Guaranty, and no consent to any
departure by any Guarantor from this Guaranty, shall be effective unless it is
in writing and signed by the Required Holders, and then such waiver or consent
shall be effective only in the specific instance and for the specified purposes
for which given.
10. GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE
STATE OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
(b) JURISDICTION. EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS
ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE OF NEW YORK AND
FEDERAL COURTS OF THE STATE OF NEW YORK AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATING HERETO BY SERVING THE SECRETARY OF STATE OF THE STATE OF
TEXAS (OR BY OTHER SERVICE) IN ACCORDANCE WITH ANY APPLICABLE
PROVISIONS OF THE TEXAS REVISED CIVIL STATUTES, AS AMENDED, GOVERNING
SERVICE OF PROCESS UPON FOREIGN CORPORATIONS.
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11. INVALIDITY OF PARTICULAR PROVISIONS.
If any term or provision of this Guaranty shall be determined
to be illegal or unenforceable, then all other terms and provisions hereof shall
nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable law.
12. HEADINGS AND REFERENCES.
The headings used in this Guaranty are for purposes of
convenience shall not be used in constructing the provisions of this Guaranty.
The words "This Guaranty," "this instrument," "herein," "hereof," "hereby" and
words of similar import refer to this Guaranty as a whole and not to any
particular subdivision unless so limited. The word "or" is not exclusive.
Pronouns in masculine, feminine and neuter genders shall be construed to
include any other gender, and words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
13. TERM
This Guaranty shall be irrevocable and shall terminate when all
of the Obligations have been completely and finally paid and performed, the
Holders have no obligation to make any loans or other advances to the Company,
and all obligations and undertakings of the Company under, by reason of, or
pursuant to the Obligation Documents have been completely performed, and this
Guaranty is thereafter subject to reinstatement as provided in Section 3(d) of
this Guaranty. All extensions of credit and financial accommodations
heretofore or hereafter made by the Holders to the Company pursuant to the
terms of the Note Agreement, the Notes or any amendment or waiver of any
provision thereof, shall be conclusively presumed to have been made in
acceptance of this Guaranty and in reliance on this Guaranty.
14. NOTICES.
Any notice of communication required or permitted under this
Guaranty shall be given as provided in the Note Agreement.
15. LIMITATION ON INTEREST.
The Holders and each Guarantor intend to contract in strict
compliance with applicable usury law from time to time in effect, and the
provisions of the Note Agreement limiting the interest for which each Guarantor
is obligated are expressly incorporated in this Guaranty by reference.
9
<PAGE> 10
16. COUNTERPARTS.
This Guaranty may be executed in any number of counterparts,
each of which when so executed shall be deemed to constitute one and the same
Guaranty.
17. ENTIRE AGREEMENT.
THIS WRITTEN GUARANTY AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGES FOLLOW.]
10
<PAGE> 11
IN WITNESS WHEREOF, each Guarantor has executed and delivered
this Guaranty as of the date first above written.
NAVAJO CORP.
By: /s/ HENRY A. TEICHHOLZ
---------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO SOUTHERN, INC.
By: /s/ HENRY A. TEICHHOLZ
---------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
NAVAJO CRUDE OIL PURCHASING, INC.
By: /s/ HENRY A. TEICHHOLZ
---------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
LOREFCO, INC.
By: /s/ HENRY A. TEICHHOLZ
---------------------------------
Name: Henry A. Teichholz
Title: Vice President and Treasurer
<PAGE> 1
EXHIBIT 21
HOLLY CORPORATION
SUBSIDIARIES OF REGISTRANT
Holly Corporation owns 100% of the capital stock of the following
subsidiaries (state of respective incorporation shown in parentheses):
Navajo Corp. (Del.)
Navajo Holdings, Inc. (N.M.)
Holly Petroleum, Inc. (Del.)
Black Eagle, Inc. (Del.)
Holly Corporation owns 57.5% and Navajo Corp. owns 42.5% of the capital
stock of Navajo Refining Company (Del.).
Navajo Refining Company owns 100% of the stock of Navajo Northern, Inc.
(Nev.), Lorefco, Inc. (Del.), and Navajo Western Asphalt Company (N.M.).
Navajo Holdings, Inc. owns 100% of the stock of Navajo Pipeline Co. (Del.).
Navajo Pipeline Co. owns 100% of the stock of Navajo Southern, Inc. (Del).
Lorefco, Inc. owns 100% of the stock of Lea Refining Company (Del.).
Black Eagle, Inc. and Navajo Northern, Inc. are the general partners of
Montana Refining Company, a Partnership.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-74856) pertaining to the Holly Corporation Incentive Stock
Option Plan, Holly Corporation Stock Option Plan, and Holly Corporation Stock
Appreciation Rights Plan and in the related Prospectus of our report dated
September 23, 1997 with respect to the consolidated financial statements of
Holly Corporation included in the Annual Report (Form 10-K) for the year ended
July 31, 1997.
ERNST & YOUNG LLP
Dallas, Texas
October 27, 1997
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<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
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0
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