UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 1-3473
TESORO PETROLEUM CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-0862768
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8700 Tesoro Drive, San Antonio, Texas 78217
(Address of Principal Executive Offices) (Zip Code)
210-828-8484
(Registrant's Telephone Number, Including Area Code)
=============================
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
==============================
There were 26,329,156 shares of the Registrant's Common Stock outstanding at
July 31, 1996.
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Consolidated Operations - Three
Months and Six Months Ended June 30, 1996 and 1995. . . . . 4
Condensed Statements of Consolidated Cash Flows - Six Months
Ended June 30, 1996 and 1995. . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 22
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 23
Item 4. Submission of Matters to a Vote of Security Holders . 24
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands except per share amounts)
June 30, December 31,
1996 1995 <F1>
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . $ 5,494 13,941
Receivables, less allowance for doubtful
accounts of $2,156 ($1,842 at
December 31, 1995). . . . . . . . . . . . . 94,525 77,534
Receivable from Tennessee Gas Pipeline
Company (Note 5). . . . . . . . . . . . . . 66,871 -
Inventories:
Crude oil and wholesale refined products,
at LIFO. . . . . . . . . . . . . . . . . . 72,734 70,406
Merchandise and retail refined products . . 5,393 5,153
Materials and supplies. . . . . . . . . . . 4,669 4,894
Prepayments and other. . . . . . . . . . . . 9,603 10,536
---------- ----------
Total Current Assets. . . . . . . . . . . . 259,289 182,464
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Refining and marketing . . . . . . . . . . . 325,707 322,023
Exploration and production:
Oil and gas (full cost method of accounting) 145,484 124,954
Gas transportation. . . . . . . . . . . . . 6,703 6,703
Marine services. . . . . . . . . . . . . . . 32,024 12,757
Corporate. . . . . . . . . . . . . . . . . . 12,347 12,443
---------- ----------
522,265 478,880
Less accumulated depreciation, depletion
and amortization . . . . . . . . . . . . . 237,396 217,191
---------- ----------
Net Property, Plant and Equipment . . . . 284,869 261,689
---------- ----------
RECEIVABLE FROM TENNESSEE GAS PIPELINE COMPANY
(Note 5). . . . . . . . . . . . . . . . . . . - 50,680
OTHER ASSETS . . . . . . . . . . . . . . . . . 28,652 24,320
---------- ----------
TOTAL ASSETS. . . . . . . . . . . . . . . $ 572,810 519,153
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . $ 60,867 61,389
Accrued liabilities. . . . . . . . . . . . . 37,101 34,073
Current portion of long-term debt and other
obligations. . . . . . . . . . . . . . . . 9,681 9,473
---------- ----------
Total Current Liabilities . . . . . . . . . 107,649 104,935
---------- ----------
DEFERRED INCOME TAXES. . . . . . . . . . . . . 11,682 5,389
---------- ----------
OTHER LIABILITIES. . . . . . . . . . . . . . . 38,428 37,308
---------- ----------
LONG-TERM DEBT AND OTHER OBLIGATIONS, LESS
CURRENT PORTION. . . . . . . . . . . . . . . 168,599 155,007
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common Stock, par value $.16-2/3; authorized
50,000,000 shares; 26,292,778 shares issued
and outstanding (24,780,134 in 1995). . . . 4,382 4,130
Additional paid-in capital . . . . . . . . . 188,305 176,599
Retained earnings. . . . . . . . . . . . . . 53,765 35,785
---------- ----------
Total Stockholders' Equity. . . . . . . . . 246,452 216,514
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 572,810 519,153
========== ==========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<F1> The balance sheet at December 31, 1995 has been taken from the audited
consolidated financial statements at that date and condensed.
</TABLE>
-3-
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Refining and marketing. . . . . . . $ 172,327 207,602 360,106 392,649
Exploration and production. . . . . 29,936 35,337 57,457 67,121
Marine services . . . . . . . . . . 31,525 21,216 54,807 38,381
Other income. . . . . . . . . . . . 98 6 5,103 22
--------- --------- --------- ---------
Total Revenues . . . . . . . . . . 233,886 264,161 477,473 498,173
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Refining and marketing. . . . . . . 163,890 207,224 351,147 393,955
Exploration and production. . . . . 2,945 4,951 6,351 9,797
Marine services . . . . . . . . . . 29,399 21,632 51,880 40,031
Depreciation, depletion and
amortization . . . . . . . . . . . 10,004 11,177 19,771 22,841
--------- --------- --------- ---------
Total Operating Costs and Expenses 206,238 244,984 429,149 466,624
--------- --------- --------- ---------
OPERATING PROFIT . . . . . . . . . . 27,648 19,177 48,324 31,549
General and Administrative . . . . . (2,933) (4,185) (5,904) (7,999)
Interest Expense . . . . . . . . . . (4,055) (5,368) (8,000) (10,661)
Interest Income. . . . . . . . . . . 172 188 581 424
Other Expense, Net . . . . . . . . . (2,116) (933) (7,548) (1,964)
--------- --------- --------- ---------
Earnings Before Income Taxes . . . . 18,716 8,879 27,453 11,349
Income Tax Provision . . . . . . . . 6,706 1,423 9,473 2,133
--------- --------- --------- ---------
NET EARNINGS . . . . . . . . . . . . $ 12,010 7,456 17,980 9,216
========= ========= ========= =========
EARNINGS PER SHARE . . . . . . . . . $ .45 .30 .69 .37
========= ========= ========= =========
WEIGHTED AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES. . . . 26,615 25,206 26,144 25,163
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
-4-
<TABLE>
<CAPTION>
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
----------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . $ 17,980 9,216
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation, depletion and amortization. . . 20,170 23,327
Amortization of deferred charges and other. . 703 788
Changes in operating assets and liabilities:
Receivable from Tennessee Gas Pipeline
Company. . . . . . . . . . . . . . . . . . (16,191) (17,647)
Receivables, other trade. . . . . . . . . . (9,053) 8,917
Inventories . . . . . . . . . . . . . . . . (1,098) 6,146
Other assets. . . . . . . . . . . . . . . . 613 (7,304)
Accounts payable and other current
liabilities. . . . . . . . . . . . . . . . (2,272) 5,855
Obligation payments to State of Alaska. . . (1,981) (1,316)
Other liabilities and obligations . . . . . 7,884 1,461
---------- ----------
Net cash from operating activities. . . . 16,755 29,443
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . (29,285) (32,758)
Acquisition of Coastwide Energy Services, Inc. (7,720) -
Other. . . . . . . . . . . . . . . . . . . . . (2,428) (2,157)
---------- ----------
Net cash used in investing activities . . (39,433) (34,915)
---------- ----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Borrowings, net of repayments of $45,400 in
1996 and $159,500 in 1995, under revolving
credit facilities. . . . . . . . . . . . . . 15,000 -
Payments of long-term debt . . . . . . . . . . (1,914) (1,200)
Other. . . . . . . . . . . . . . . . . . . . . 1,145 10
---------- ----------
Net cash from (used in) financing
activities . . . . . . . . . . . . . . . 14,231 (1,190)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . (8,447) (6,662)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. 13,941 14,018
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . $ 5,494 7,356
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid. . . . . . . . . . . . . . . . . $ 6,311 9,013
========== ==========
Income taxes paid . . . . . . . . . . . . . . $ 2,623 2,389
========== ==========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
-5-
TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The interim condensed consolidated financial statements of Tesoro Petroleum
Corporation and its subsidiaries (collectively, the "Company" or "Tesoro") are
unaudited but, in the opinion of management, incorporate all adjustments
necessary for a fair presentation of results for such periods. Such adjustments
are of a normal recurring nature. The preparation of these condensed
consolidated financial statements required the use of management's best
estimates and judgment that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the periods. Actual results could differ from those estimates. The
results of operations for any interim period are not necessarily indicative of
results for the full year. Certain reclassifications have been made to amounts
previously reported for the interim periods of 1995 to conform to the current
presentation of financial information. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
NOTE 2 - ACQUISITION
In February 1996, the Company purchased 100% of the capital stock of Coastwide
Energy Services, Inc. ("Coastwide"). The consideration for the stock of
Coastwide includes approximately 1.4 million shares of Tesoro's Common Stock and
$7.7 million in cash. The market price of Tesoro's Common Stock was $9.00 per
share at closing of this transaction. In addition, upon closing, Tesoro repaid
approximately $4.5 million of Coastwide's outstanding debt. Coastwide is
primarily a provider of services and a wholesale distributor of diesel fuel and
lubricants to the offshore petroleum industry in the Gulf of Mexico. The
Company has combined its existing marine petroleum distribution operations with
Coastwide, forming a Marine Services segment. The acquisition of Coastwide was
accounted for as a purchase whereby the purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the date of acquisition.
NOTE 3 - CREDIT FACILITY
In June 1996, the Company negotiated an amended and restated corporate revolving
credit agreement ("Credit Facility") which provides total commitments of $150
million from a consortium of nine banks and expires June 30, 1999. The Company,
at its option, has currently activated $100 million of these commitments, which
includes cash borrowing availability of $50 million at June 30, 1996. The
Credit Facility, which is subject to a borrowing base, provides for the issuance
of letters of credit and cash borrowings. Under the Credit Facility, cash
borrowings are limited to the lesser amount of (a) 50% of the active facility
amount or (b) the borrowing base attributable to domestic oil and gas reserves
(which has most recently been determined to be $45 million) plus $10 million.
At June 30, 1996, the Company had outstanding cash borrowings of $15 million and
letters of credit of $52 million. Outstanding obligations under the Credit
Facility are secured by liens on substantially all of the Company's trade
accounts receivable and product inventory and by mortgages on the Company's
refinery and South Texas natural gas reserves.
Cash borrowings under the Credit Facility bear interest at the prime rate plus
.75% per annum or the London Interbank Offered Rate ("LIBOR") plus 1.75%. Fees
on outstanding letters of credit under the Credit Facility are 1.75% per annum.
Under the terms of the Credit Facility, the Company is required to maintain
specified levels of consolidated working capital, tangible net worth, cash flow
and interest coverage. Among other matters, the Credit Facility contains
covenants which restrict the incurrence of additional indebtedness and a
restricted payment covenant which limits the payment of dividends.
The Credit Facility contains certain provisions that are contingent upon the
issuance of a mandate favorable to the Company by the Texas Supreme Court with
respect to the request for rehearing by Tennessee Gas ("Mandate Event") and
collection of the related bonded receivable ("Collection Event") (see Note 5).
In these regards, the Credit Facility provides, among other items, for an
extension of the expiration date to April 30, 2000 upon occurrence of the
Mandate Event and an increase in cash borrowing availability to $100 million
upon occurrence
6
of both the Mandate Event and the Collection Event. In addition, the Credit
Facility provides for reductions in fees on letters of credit and lower interest
rates on cash borrowings, subject to occurrence of the Mandate Event. After the
Mandate Event, the Credit Facility would allow dividends up to $5 million per
year, subject to the restricted payment covenant.
During the six months ended June 30,1996, the Company's gross borrowings under
its revolving credit line totaled $60 million which were used on a short-term
basis to finance working capital requirements and capital expenditures.
Repayments of these borrowings totaled $45 million for the six months ended June
30, 1996.
NOTE 4 - INCENTIVE COMPENSATION STRATEGY
In June 1996, the Company's Board of Directors unanimously approved an incentive
compensation strategy that provides eligible employees with added incentives to
achieve a significant increase in the market price of the Company's Common
Stock. Under the strategy, awards would be earned only if the market price of
the Company's Common Stock reaches an average price per share of $20 or higher
over any 20 consecutive trading days after June 30, 1997 and before December 31,
1998 (the "Performance Target"). In connection with this strategy,
non-executive employees will be able to earn cash bonuses equal to 25% of their
individual payroll amounts for the previous 12 complete months and certain
executives have been granted, from the Company's Executive Long-Term Incentive
Plan, a total of 340,000 stock options at an exercise price of $11.375 per share
and 350,000 shares of restricted Common Stock, all of which vest only upon
achieving the Performance Target.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Gas Purchase and Sales Contract
The Company is selling a portion of the gas produced from its Bob West Field to
Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales
Agreement ("Tennessee Gas Contract") which provides that the price of gas shall
be the maximum price as calculated in accordance with Section 102(b)(2)
("Contract Price") of the Natural Gas Policy Act of 1978 ("NGPA"). In August
1990, Tennessee Gas filed suit against the Company in the District Court of
Bexar County, Texas, alleging that the Tennessee Gas Contract is not applicable
to the Company's properties and that the gas sales price should be the price
calculated under the provisions of Section 101 of the NGPA rather than the
Contract Price. During the month of June 1996, the Contract Price was $8.56 per
Mcf and the average spot market price was $2.14 per Mcf. For the six months
ended June 30, 1996, approximately 16% of the Company's net U.S. natural gas
production was sold under the Tennessee Gas Contract. Tennessee Gas also
claimed that the contract should be considered an "output contract" under
Section 2.306 of the Texas Uniform Commercial Code ("UCC") and that the
increases in volumes tendered under the contract exceeded those allowable for an
output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee Gas Contract
as to the Company's properties and held that the price payable by Tennessee Gas
for the gas was the Contract Price. The Court of Appeals remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The appellate court decision was the first decision reported in
Texas holding that a take-or-pay contract was an output contract. The Supreme
Court of Texas heard arguments in December 1994 regarding the output contract
issue and certain of the issues raised by Tennessee Gas. On August 1, 1995, the
Supreme Court of Texas, in a divided opinion, affirmed the decision of the
appellate court on all issues, including that the price under the Tennessee Gas
Contract is the Contract Price, and determined that the Tennessee Gas Contract
was an output contract and remanded the case to the trial court for
determination of whether gas volumes tendered by the Company to Tennessee Gas
were tendered in good faith
7
and were not unreasonably disproportionate to any normal or otherwise comparable
prior output or stated estimates in accordance with the UCC. The Company filed
a motion for rehearing before the Texas Supreme Court on the issue of whether
the Tennessee Gas Contract is an output contract. On April 18, 1996, the Texas
Supreme Court reversed its earlier ruling on the output contract issue and held
that the Tennessee Gas Contract was not an output contract and affirmed its
earlier decision in favor of the Company on all other issues. On June 3, 1996,
Tennessee Gas filed a motion for rehearing and on June 10, 1996, the Company
filed its response to Tennessee Gas' motion for rehearing. An order from the
Texas Supreme Court on Tennessee Gas' motion for rehearing is pending. The
Company believes that, if this issue is tried, the gas volumes tendered to
Tennessee Gas will be found to have been in good faith and otherwise in
accordance with the requirements of the UCC. However, there can be no assurance
as to the ultimate outcome at trial.
In conjunction with the District Court judgment and on behalf of all sellers
under the Tennessee Gas Contract, Tennessee Gas is presently required to post a
supersedeas bond in the amount of $206 million. Under the terms of this bond,
for the period September 17, 1994 through April 30, 1996, Tennessee Gas was
required to take at least its entire monthly take-or-pay obligation and pay for
gas taken at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price").
The $206 million bond represents an amount which together with anticipated sales
of natural gas at the Bond Price will equal the anticipated value of the
Tennessee Gas Contract from September 17, 1994 through April 30, 1996. Except
for the period September 17, 1994 through August 13, 1995, the difference
between the spot market price and the Bond Price is refundable in the event
Tennessee Gas ultimately prevails in the litigation. The Company retains the
right to receive the Contract Price for all gas sold to Tennessee Gas. The bond
shall remain in place until the Supreme Court issues its mandate on Tennessee
Gas' motion for rehearing. Tennessee Gas continues to take its minimum monthly
required amount of gas and has resumed paying the Contract Price to the Company
for gas taken beginning with May 1996 volumes.
Through June 30, 1996, under the Tennessee Gas Contract, the Company recognized
cumulative net revenues in excess of spot market prices totaling approximately
$133.3 million. Of the $133.3 million incremental net revenues, the Company has
received $11.1 million that is nonrefundable and $62.6 million which the Company
could be required to repay in the event of an adverse ruling. The remaining
$59.6 million of incremental net revenues represents the unpaid difference
between the Contract Price and the Bond Price as described above and is included
in the $66.9 million classified in the Company's Consolidated Balance Sheet as a
current receivable at June 30, 1996. An adverse outcome of this litigation
could require the Company to reverse as much as $122.2 million of the
incremental revenues and could require the Company to repay as much as $62.6
million for amounts received above spot prices, plus interest if awarded by the
court.
Environmental
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which change frequently, regulate the discharge of
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of petroleum or chemical
substances at various sites or install additional controls or other
modifications or changes in use for certain emission sources. The Company is
currently involved with a waste disposal site near Abbeville, Louisiana, at
which it has been named a potentially responsible party under the Federal
Superfund law. Although this law might impose joint and several liability upon
each party at each site, the extent of the Company's allocated financial
contributions to the cleanup of the site is expected to be limited based upon
the number of companies, volumes of waste involved and an estimated total cost
of approximately $500,000 among all of the parties to close the site. The
Company is currently involved in settlement discussions with the Environmental
Protection Agency ("EPA") and other potentially responsible parties at the
Abbeville, Louisiana site. The Company expects, based on these discussions,
that its liability at the site will not exceed $25,000. The Company is also
involved in remedial responses and has incurred cleanup expenditures associated
with environmental matters at a number of sites, including certain of its own
properties.
At June 30, 1996, the Company's accruals for environmental matters amounted to
$10 million, which included a noncurrent liability of approximately $4 million
for remediation of Kenai Pipe Line Company's ("KPL")
8
properties that has been funded by the former owners of KPL through a restricted
escrow deposit. Based on currently available information, including the
participation of other parties or former owners in remediation actions, the
Company believes these accruals are adequate. In addition, to comply with
environmental laws and regulations, the Company anticipates that it will be
required to make capital improvements in 1996 of approximately $3 million,
primarily for the removal and upgrading of underground storage tanks.
Environmental regulations would also have required the Company to make capital
improvements starting in 1996 of approximately $9.5 million for the installation
of dike liners. However, on April 18, 1996 the Alaska Department of
Environmental Conservation ("ADEC") issued a memorandum stating that alternative
compliance schedules allowing for delayed implementation of the requirements for
dike liners in secondary containment systems for existing petroleum storage
tanks would be approved. The April 18, 1996 ADEC Memorandum recognizes that
secondary containment options other than synthetic dike liners are appropriate,
but essential ADEC guidelines addressing other options will not be available
before the end of 1996. The ADEC believes it will be three to five years before
all affected facilities fully implement the provisions of the regulations. The
Company has applied for an alternative compliance schedule with ADEC to maintain
the Company's existing storage tank facilities in compliance with the state
regulations. The Company cannot presently determine when an alternative
schedule will be granted.
Conditions that require additional expenditures may exist for various Company
sites, including, but not limited to, the Company's refinery, retail gasoline
outlets (current and closed locations) and petroleum product terminals, and for
compliance with the Clean Air Act. The amount of such future expenditures cannot
currently be determined by the Company.
NOTE 6 - SEVERANCE TAX EXEMPTION
In February 1996, the Texas Railroad Commission certified substantially all of
the Company's proved producing reserves in the Bob West Field as high-cost gas
from a designated tight formation. As a result of the Railroad Commission's
certification, the Texas Comptroller's office has issued certificates for the
majority of these wells, indicating that the wells have been classified as
high-cost gas wells that are exempt from state severance taxes from the date of
first production through August 2001. During the first quarter of 1996, based
on approved severance tax exemption certificates received to date by the Company
from the Texas Comptroller's office, the Company recorded $5 million of income
for retroactive refunds. These exemptions also had the effect of increasing the
pretax present value of the Company's 1995 year-end U.S. proved reserves by $7.7
million to $176.4 million. Current severance taxes will not be recorded for
production from exempt wells during 1996.
9
Item 2. TESORO PETROLEUM CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH
THREE AND SIX MONTHS ENDED JUNE 30, 1995
Net earnings of $12.0 million, or $.45 per share, for the three months ended
June 30, 1996 ("1996 quarter") compare with net earnings of $7.4 million, or
$.30 per share, for the three months ended June 30, 1995 ("1995 quarter"). Net
earnings of $18.0 million, or $.69 per share, for the six months ended June 30,
1996 ("1996 period") compare with net earnings of $9.2 million, or $.37 per
share, for the six months ended June 30, 1995 ("1995 period"). The increases in
net earnings during the 1996 quarter and period were attributable to improved
operating profit levels, together with reduced general and administrative
expenses and interest expense. Partly offsetting these improvements in the 1996
quarter and period were increased other expenses and a higher effective tax
rate. A discussion and analysis of the factors contributing to the Company's
results of operations are presented below.
10
<TABLE>
<CAPTION>
Refining and Marketing Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Dollars in millions except per unit 1996 1995 1996 1995
amounts) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Operating Revenues:
Refined products . . . . . . . . . . . $ 149.1 169.7 295.8 323.3
Other, primarily crude oil resales and
merchandise. . . . . . . . . . . . . 23.3 37.8 64.3 69.3
-------- -------- -------- --------
Gross Operating Revenues. . . . . . . $ 172.4 207.5 360.1 392.6
======== ======== ======== ========
Operating Profit (Loss):
Gross margin - refined products. . . . $ 27.9 18.9 47.6 34.0
Gross margin - other . . . . . . . . . 3.5 3.1 6.2 5.6
-------- -------- -------- --------
Gross margin. . . . . . . . . . . . . 31.4 22.0 53.8 39.6
Operating and other expenses . . . . . 23.0 21.7 44.8 40.9
Depreciation and amortization. . . . . 3.0 3.0 6.0 6.0
-------- -------- -------- --------
Operating Profit (Loss) . . . . . . . $ 5.4 (2.7) 3.0 (7.3)
======== ======== ======== ========
Capital Expenditures . . . . . . . . . . $ 2.0 3.0 3.8 5.3
======== ======== ======== ========
Refinery Operations - Throughput (average
daily barrels). . . . . . . . . . . . . 51,117 47,971 48,082 46,778
======== ======== ======== ========
Refinery Operations - Production (average
daily barrels):
Gasoline . . . . . . . . . . . . . . . 13,524 13,779 13,619 13,277
Middle distillates and other . . . . . 24,723 21,395 22,780 21,554
Heavy oils and residual product. . . . 14,633 14,347 13,477 13,391
-------- -------- -------- --------
Total Refinery Production . . . . . . 52,880 49,521 49,876 48,222
======== ======== ======== ========
Refinery Operations - Product Spread
($/barrel) <F1>:
Average yield value of products
manufactured. . . . . . . . . . . . . $ 25.14 20.70 23.58 20.22
Cost of raw materials. . . . . . . . . 19.35 17.87 18.68 17.33
-------- -------- -------- --------
Refinery Product Spread . . . . . . . $ 5.79 2.83 4.90 2.89
======== ======== ======== ========
Refining and Marketing - Total Product
Sales (average daily barrels):
Gasoline . . . . . . . . . . . . . . . 18,167 26,996 19,094 25,172
Middle distillates . . . . . . . . . . 28,978 37,725 29,167 37,970
Heavy oils and residual product. . . . 10,184 13,552 13,635 13,684
-------- -------- -------- --------
Total Product Sales . . . . . . . . . 57,329 78,273 61,896 76,826
======== ======== ======== ========
Refining and Marketing - Total Product
Sales Prices ($/barrel):
Gasoline . . . . . . . . . . . . . . . $ 35.35 28.76 31.32 27.87
Middle distillates . . . . . . . . . . $ 28.99 24.51 27.39 24.09
Heavy oils and residual product. . . . $ 15.30 12.35 16.76 12.50
Refining and Marketing - Gross Margins
on Total Product Sales ($/barrel) <F1>:
Average sales price. . . . . . . . . . $ 28.57 23.87 26.26 23.27
Average costs of sales . . . . . . . . 23.21 21.20 22.03 20.82
-------- -------- -------- --------
Gross margin . . . . . . . . . . . . $ 5.36 2.67 4.23 2.45
======== ======== ======== ========
<FN>
<F1> The refinery product spread presented above represents the excess of yield
value of the products manufactured at the refinery over the cost of raw
materials used to manufacture such products. Sources of total product
sales include products manufactured at the refinery, existing inventory
balances and products purchased from third parties. Margins on sales of
purchased products, together with the effect of changes in inventories, are
included in the gross margin on total product sales presented above. The
Company's purchases of refined products for resale approximated 11,900 and
28,700 average daily barrels for the three months ended June 30, 1996 and
1995, respectively, and 11,300 and 26,900 average daily barrels for the six
months ended June 30, 1996 and 1995, respectively.
</TABLE>
11
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995.
The Company's Refining and Marketing segment returned to profitability during
the 1996 quarter with operating profit of $5.4 million, as compared to a loss of
$2.7 million in the 1995 quarter. This improvement was due primarily to higher
product margins, as experienced generally by the industry and in part to
initiatives by the Company to reduce costs and improve marketing of its refined
products. The Company's refined product yield values increased by 21%, from
$20.70 per barrel in the 1995 quarter to $25.14 per barrel in the 1996 quarter,
while the Company's feedstock costs increased by only 8%, from $17.87 per barrel
in the 1995 quarter to $19.35 per barrel in the 1996 quarter.
In the Company's Refining and Marketing segment, revenues from sales of refined
products were lower in the 1996 quarter due to a 27% decrease in sales volumes.
Total refined product sales volumes averaged 57,329 barrels per day in the 1996
quarter as compared to 78,273 barrels per day in the 1995 quarter. This
decrease reflected the Company's withdrawal from certain West Coast markets,
which also reduced the Company's purchases from other refiners and suppliers to
11,900 barrels per day in the 1996 quarter as compared to 28,700 barrels per day
in the 1995 quarter. The Company plans to sell three Company-owned facilities
and is in the process of discontinuing certain operations in California. In
addition, resales of crude oil in the 1996 quarter declined to $15.2 million, as
compared to $29.7 million in the 1995 quarter, due primarily to increased
throughput levels at the Company's refinery during the current quarter. The
decrease in revenues was partially offset by a 20% increase in the Company's
average sales price of refined products. Costs of sales were lower in the 1996
quarter due to the lower volumes of refined products, partially offset by higher
prices for refined products and crude oil. The $1.3 million increase in
operating expenses was primarily related to environmental matters.
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995.
For the 1996 period, the Company's Refining and Marketing segment returned to
profitability with operating profit of $3.0 million, as compared to a loss of
$7.3 million in the 1995 period. This improvement was due primarily to higher
product margins, as experienced generally by the industry and in part to
initiatives by the Company to reduce costs and improve marketing of its refined
products. The Company's average yield value of refined products increased by
17%, from $20.22 per barrel in the 1995 period to $23.58 per barrel in the 1996
period, while the Company's average feedstock costs increased by only 8%, from
$17.33 per barrel in the 1995 period to $18.68 per barrel in the 1996 period.
In the Company's Refining and Marketing segment, revenues from sales of refined
products decreased in the 1996 period due primarily to a 19% decline in sales
volumes. Total refined product sales averaged 61,896 barrels per day in the
1996 period as compared to 76,826 barrels per day in the 1995 period. This
decline, as discussed above, reflected the Company's withdrawal from the West
Coast market, which also reduced refined product purchases from other refiners
and suppliers to 11,300 barrels per day in the 1996 period from 26,900 in the
1995 period. In addition, the Company resales of crude oil also decreased from
$54.8 million in the 1995 period to $49.7 million in the 1996 period. These
decreases in sales volumes were partially offset by a 13% increase in the
Company's average sales price of refined products. Costs of sales were lower in
the 1996 period due to lower volumes of refined product, partially offset by
higher prices for crude oil and refined products. Operating expenses increased
by $3.9 million primarily due to employee termination costs in the 1996 period
together with the impact of a reduction in an environmental accrual in the 1995
period.
Although the Company's results from its Refining and Marketing segment improved
during the 1996 quarter and period, future profitability of this segment will
continue to be dependent on market conditions, particularly as these conditions
influence costs of crude oil relative to prices received for sales of refined
products, and other additional factors that are beyond the control of the
Company.
12
<TABLE>
<CAPTION>
Exploration and Production Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Dollars in millions except per unit amounts) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. Oil and Gas:
Gross operating revenues . . . . . . . . . . $ 24.6 30.5 47.7 58.6
Other income - severance tax refunds . . . . - - 5.0 -
Production costs . . . . . . . . . . . . . . 1.1 3.3 2.5 6.7
Administrative support and other
operating expenses. . . . . . . . . . . . . .9 .7 1.9 1.2
Depreciation, depletion and amortization . . 6.3 8.0 12.6 16.6
-------- -------- -------- --------
Operating Profit - U.S. Oil and Gas. . . . 16.3 18.5 35.7 34.1
-------- -------- -------- --------
U.S. Gas Transportation:
Gross operating revenues . . . . . . . . . . 1.3 1.7 2.7 2.7
Operating expenses . . . . . . . . . . . . . - .1 .1 .1
Depreciation and amortization. . . . . . . . - .1 .1 .1
-------- -------- -------- --------
Operating Profit - U.S. Gas Transportation. 1.3 1.5 2.5 2.5
-------- -------- -------- --------
Bolivia:
Gross operating revenues . . . . . . . . . . 4.0 3.2 7.1 5.8
Production costs . . . . . . . . . . . . . . .2 .1 .4 .3
Administrative support and other
operating expenses. . . . . . . . . . . . . .8 .8 1.5 1.5
Depreciation, depletion and amortization . . .3 - .6 -
-------- -------- -------- --------
Operating Profit - Bolivia. . . . . . . . . 2.7 2.3 4.6 4.0
-------- -------- -------- --------
Total Operating Profit - Exploration and
Production. . . . . . . . . . . . . . . . . . $ 20.3 22.3 42.8 40.6
======== ======== ======== ========
U.S.:
Capital expenditures . . . . . . . . . . . . $ 5.9 13.0 15.4 27.0
======== ======== ======== ========
Net natural gas production (average daily Mcf) -
Spot market and other . . . . . . . . . . . 76,898 121,811 78,269 101,157
Tennessee Gas Contract<F1>. . . . . . . . . 14,653 20,401 14,553 22,988
-------- -------- -------- --------
Total production. . . . . . . . . . . . . 91,551 142,212 92,822 124,145
======== ======== ======== ========
Average natural gas sales ($/Mcf) -
Spot market<F2> . . . . . . . . . . . . . . $ 1.90 1.35 1.80 1.31
Tennessee Gas Contract<F1>. . . . . . . . . $ 8.45 8.36 8.31 8.30
Average . . . . . . . . . . . . . . . . . . $ 2.95 2.36 2.82 2.61
Average operating expenses ($/Mcf) -
Lease operating expenses. . . . . . . . . . $ .10 .09 .12 .12
Severance taxes . . . . . . . . . . . . . . .05 .16 .03 .18
-------- -------- -------- --------
Total production costs. . . . . . . . . . .15 .25 .15 .30
Administrative support. . . . . . . . . . . .09 .05 .11 .05
-------- -------- -------- --------
Total operating expenses. . . . . . . . . $ .24 .30 .26 .35
======== ======== ======== ========
Depletion ($/Mcf). . . . . . . . . . . . . . $ .75 .62 .74 .74
======== ======== ======== ========
Bolivia:
Capital expenditures . . . . . . . . . . . . $ 2.8 - 4.9 -
Net natural gas production (average daily Mcf) 24,067 19,715 21,563 18,321
Average natural gas sales price ($/Mcf). . . $ 1.36 1.30 1.34 1.28
Net condensate production
(average daily barrels) . . . . . . . . . . 679 610 614 581
Average condensate price ($/barrel). . . . . $ 16.75 15.69 16.29 15.22
Average operating expenses ($/Mcfe) -
Production costs. . . . . . . . . . . . . . $ .08 .09 .09 .09
Value-added taxes . . . . . . . . . . . . . .06 .05 .07 .04
Administrative support. . . . . . . . . . . .21 .30 .24 .32
-------- -------- -------- --------
Total operating expenses. . . . . . . . . $ .35 .44 .40 .45
======== ======== ======== ========
Depletion ($/Mcfe) . . . . . . . . . . . . . $ .13 - .13 -
======== ======== ======== ========
<FN>
<F1> The Company is involved in litigation with Tennessee Gas relating to a
natural gas sales contract. See "Capital Resources and
Liquidity--Tennessee Gas Contract," "Legal Proceedings--Tennessee Gas
Contract" and Note 5 of Notes
13
to Condensed Consolidated Financial Statements.
<F2> Includes effects of the Company's natural gas price swap agreements which
amounted to a loss of $.18 per Mcf and a gain of $.01 per Mcf for the
three months ended June 30, 1996 and 1995, respectively, and a loss of
$.12 per Mcf and a gain of $.03 per Mcf for the six months ended June 30,
1996 and 1995, respectively.
<F3> Mcf is defined as one thousand cubic feet; Mcfe is defined as net
equivalent one thousand cubic feet.
</TABLE>
United States
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995.
Operating profit of $16.3 million from the Company's U.S. oil and gas producing
operations in the 1996 quarter compares to $18.5 million in the 1995 quarter.
The comparability between these two quarters was impacted by several items,
including amounts recorded in the 1995 quarter related to certain interests that
have since been sold, while the 1996 quarter excludes current severance taxes on
production from exempt wells.
Operating profit from the Company's sales of natural gas in the spot market rose
19% during the 1996 quarter, as higher prices more than offset a reduction in
volumes. Prices for the Company's natural gas sales in the spot market
increased 41%, from $1.35 per Mcf in the 1995 quarter to $1.90 per Mcf in the
1996 quarter. The Company's weighted average sales price, including the
above-market pricing of the Tennessee Gas Contract, increased 25%, from $2.36
per Mcf in the 1995 quarter to $2.95 per Mcf in the 1996 quarter. Included in
the 1995 quarter were spot market natural gas production averaging 43.7 Mmcf per
day, revenues of $5.6 million and operating profit of $2.5 million related to
certain interests in the Bob West Field that were sold during the third quarter
of 1995. Excluding amounts related to the sold interests from the 1995 quarter,
operating profit from spot market sales rose 124% on essentially unchanged
volumes. Volumes sold under the above-market contract with Tennessee Gas
declined 28% during the 1996 quarter due to an expected decline in contract
deliverability.
Revenues from the Company's U.S. oil and gas operations decreased by $5.9
million during the 1996 quarter due to the lower production volumes sold into
the spot market and lower volumes sold to Tennessee Gas, partially offset by the
increases in the Company's sales prices. Total production costs were lower in
the 1996 quarter primarily due to the lower volumes and the exclusion of
severance taxes on exempt wells. On a per Mcf basis, production costs were
reduced to $.15 per Mcf compared to $.25 per Mcf due to the exemption of
severance taxes. Total operating expenses on a per Mcf basis decreased due to
the lower production costs, partially offset by higher expenses for
administrative support. Depreciation, depletion and amortization was lower in
the 1996 quarter, primarily due to lower production volumes partly offset by a
higher depletion rate.
The Company enters into commodity price swap agreements to reduce the risk
caused by fluctuations in the prices of natural gas in the spot market. During
the 1996 and 1995 quarters, the Company used such arrangements to set the price
of 33% and 25%, respectively, of the natural gas production that it sold in the
spot market. During the 1996 and 1995 quarters, the Company realized a loss of
$1.2 million (or $.18 per Mcf) and a gain of $.1 million (or $.01 per Mcf),
respectively, from these price swap arrangements.
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995.
Operating profit of $35.7 million from the Company's U.S. oil and gas operations
in the 1996 period benefited from retroactive state severance tax exemptions
totaling approximately $5 million from its Bob West Field production.
Substantially all of the Company's proved producing reserves in the Bob West
Field were certified by the Texas Railroad Commission as high-cost gas from a
designated tight formation, eligible for state severance tax exemptions from the
date of first production through August 2001. These exemptions also had the
effect of increasing the pretax present value of the Company's 1995 year-end
U.S. proved reserves by $7.7 million to $176.4 million. Current severance taxes
will not be recorded for production from exempt wells during 1996. Included in
the 1995 period were spot market natural gas production averaging 35.8 Mmcf per
day, revenues of $8.6 million and operating profit of $2.9 million related to
certain interests in the Bob West Field that were sold during the third quarter
of 1995. Excluding the income related to the severance tax refund from the 1996
period and the operating profit related to sold interests from the 1995 period,
operating profit from the U.S. oil and gas operations would have decreased $.5
million, relatively unchanged from the 1995 period.
Prices for sales of the Company's natural gas production into the spot market
increased 37%, from $1.31 per Mcf
14
in the 1995 period compared to $1.80 per Mcf in the 1996 period. The Company's
weighted average sales price, including the effect of the above-market pricing
of the Tennessee Gas Contract, increased from $2.61 per Mcf in the 1995 period
to $2.82 per Mcf in the 1996 period. The Company's U.S. natural gas production
sold into the spot market in the 1996 period was lower than the 1995 period due
to the sale of certain interests in the third quarter of 1995. Excluding the
impact of the sold interests, natural gas production sold into the spot market
would have increased by 20%, reflecting the effects of a voluntary curtailment
by the Company during the early part of the 1995 period in response to poor
market conditions during that time and reflecting initiatives by the Company
during the 1996 period to add production through drilling and acquisition
activities. Production sold under the Tennessee Gas Contract decreased by 37%,
reflecting higher takes by Tennessee Gas during the 1995 period together with a
decline in contract deliverability during the 1996 period.
Revenues from the Company's U.S. oil and gas operations decreased by $10.9
million due to the lower volumes, partly offset by increases in the Company's
sales prices. Total production costs were lower in the 1996 period primarily
due to exemptions from severance taxes discussed above and lower production
volumes. On a per Mcf basis, production costs were reduced to $.15 per Mcf
compared to $.30 per Mcf due to the exemption of severance taxes. Total
operating expenses on a per Mcf basis declined due to the lower production
costs, partially offset by increased expenses for administrative support.
Depreciation, depletion and amortization was lower in the 1996 period due to
lower production volumes.
The Company enters into commodity price swap agreements to reduce the risk
caused by fluctuations in the prices of natural gas in the spot market. During
the 1996 and 1995 periods, the Company used such arrangements to set the price
of 37% and 23%, respectively, of the natural gas production that it sold in the
spot market. During the 1996 and 1995 periods, the Company realized a loss of
$1.8 million (or $.12 per Mcf) and a gain of $.5 million (or $.03 per Mcf),
respectively, from these price swap arrangements. As of June 30, 1996, the
Company has remaining price swaps totaling 3.1 billion cubic feet at an average
Houston Ship Channel price of $1.73 per Mcf. In the 1996 period, the Company's
average spot market wellhead price per Mcf was approximately $.21 less than the
average Houston Ship Channel index, the difference representing transportation
and marketing costs from the wellhead in South Texas.
Bolivia
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995.
Operating profit from the Company's Bolivian operations improved by $.4 million
during the 1996 quarter primarily due to a 22% increase in natural gas
production, together with increases in the prices received for both natural gas
and condensate. The increase in the Company's natural gas production was
primarily related to increased demand from the Bolivian state-owned oil and gas
company for higher quality natural gas, in order to meet contract specifications
for its exports to Argentina, together with the inability of another producer to
meet supply requirements. Production costs and other operating expenses
remained relatively unchanged in total, but declined by 20% on a per unit basis
reflecting the Company's ability to increase volumes with minimal increases in
expenses. Partially offsetting these improvements was depreciation, depletion
and amortization of $.3 million recorded in the 1996 quarter.
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995.
Operating results from the Company's Bolivian operations increased by $.6
million during the 1996 period, primarily due to an 18% increase in production
of natural gas together with higher prices received for both natural gas and
condensate. Production costs and other operating expenses remained relatively
unchanged in total but declined by 11% on a per unit basis reflecting the
increase in volumes with minimal increases in expenses. Partially offsetting
these improvements was depreciation, depletion and amortization of $.6 million
recorded in the 1996 period.
Bolivian Hydrocarbons Law. On April 30, 1996, a new Hydrocarbons Law that
significantly impacts the Company's operations in Bolivia was enacted by the
Bolivian government. Among other matters, the new law granted the Company the
option to convert its Contracts of Operation to new Shared Risk Contracts. On
July 29, 1996, the Company signed new agreements converting its Contracts of
Operation to Shared Risk Contracts subject to recision at the option of the
Company if the Company is not satisfied with modifications to Bolivian fiscal
law
15
to be enacted not later than January 31, 1997. The Shared Risk Contracts extend
the term of operation, provide more favorable acreage relinquishment terms and a
revised fiscal regime of taxes and tariffs. The new contracts will extend the
Company's operations on Block 18 and Block 20 to 2017 and 2029 from their
current expiration dates of 2007 and 2008, respectively, except for an
Exploitation Area in Block 20 which will have an expiration date of 2018. The
new contract provisions will result in an immediate increase, possibly as high
as 35%, of the Company's proved Bolivian reserves that have been previously
limited by the contract termination dates. In connection with the conversion to
Shared Risk Contracts, the Company selected certain acreage to be relinquished
in Block 20, retained its producing fields and discoveries, and continues to
hold approximately two-thirds of the remaining unexplored Block 20 acreage.
Block 20 is subject to a seven-year exploration period, certain future acreage
relinquishments and exploration drilling obligations required by government
regulations.
<TABLE>
<CAPTION>
Marine Services Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
(Dollars in millions) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Operating Revenues . . . . . . . . . $ 31.5 21.2 54.8 38.4
Costs of Sales . . . . . . . . . . . . . . 23.6 18.3 42.2 33.4
-------- -------- -------- --------
Gross Margin . . . . . . . . . . . . . . 7.9 2.9 12.6 5.0
Operating and Other Expenses . . . . . . . 5.6 3.3 9.6 6.6
Depreciation and Amortization. . . . . . . .4 .1 .5 .2
-------- -------- -------- --------
Operating Profit (Loss). . . . . . . . . $ 1.9 (.5) 2.5 (1.8)
======== ======== ======== ========
Capital Expenditures . . . . . . . . . . . $ 4.3 .1 5.0 .1
======== ======== ======== ========
Refined Product Sales, Primarily Diesel
Fuel (thousands of gallons). . . . . . . 39,147 32,176 69,547 58,373
======== ======== ======== ========
</TABLE>
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995.
On February 20, 1996, the Company acquired Coastwide Energy Services, Inc.
("Coastwide") and combined Coastwide's operations with the Company's marine
petroleum products distribution business, forming a Marine Services segment. As
a combined operation, the Marine Services segment is a wholesale distributor of
diesel fuel and lubricants and a provider of services to the offshore petroleum
industry in the Gulf of Mexico. Operating results from Coastwide have been
included in the Company's Marine Services segment since the date of acquisition.
The improvement in operating results of the Marine Services segment in the 1996
quarter was largely attributable to a 22% increase in volumes, mainly related to
the acquisition, and improved margins, partially offset by higher operating
expenses associated with the increased activity.
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995. As
discussed above, during the 1996 period, the Company acquired Coastwide and
combined Coastwide's operations with the Company's marine petroleum products
distribution business. Operating results of Coastwide have been included in the
Company's Marine Services segment, since acquisition, or approximately four
months of the 1996 period, which contributed to a 19% increase in volumes. This
increase in volumes together with improved margins were partially offset by
higher operating expenses associated with the increased activity.
General and Administrative Expenses
General and administrative expenses decreased by $1.3 million, or 31%, during
the 1996 quarter and by $2.1 million, or 26%, during the 1996 period. These
decreases were primarily due to reduced professional fees and lower employee and
labor costs resulting from cost reduction measures implemented by the Company in
late 1995.
16
Interest Expense
Interest expense decreased by $1.3 million, or 24%, during the 1996 quarter and
by $2.7 million, or 25%, during the 1996 period. In December 1995, the Company
redeemed $34.6 million of its 12-3/4% Subordinated Debentures which, together
with lower borrowings under the Company's revolving credit facility, resulted in
interest expense savings of approximately $1.4 million and $2.7 million during
the 1996 quarter and period, respectively.
Other Expense
The increase of $1.2 million in other expense during the 1996 quarter was
primarily due to environmental and other expenses related to the Company's
former operations. For the 1996 period, other expense increased by $5.6
million, primarily due to costs of $2.3 million related to a shareholder consent
solicitation, which was resolved in April 1996, together with employee
termination costs and write-off of deferred financing costs.
Income Taxes
Income taxes increased by $5.3 million and $7.4 million during the 1996 quarter
and period, respectively. These increases were primarily due to a higher
effective tax rate for the Company during the 1996 quarter and period as
earnings subject to U.S. tax exceeded available net operating loss and tax
credit carryforwards.
IMPACT OF CHANGING PRICES
The Company's operating results and cash flows are sensitive to the volatile
changes in energy prices. Major shifts in the cost of crude oil used for
refinery feedstocks and the price of refined products can result in a change in
gross margin from the refining and marketing operations, as prices received for
refined products may or may not keep pace with changes in crude oil costs.
These energy prices, together with volume levels, also determine the carrying
value of crude oil and refined product inventory.
Likewise, changes in natural gas prices impact revenues and the present value of
estimated future net revenues and cash flows from the Company's exploration and
production operations. From time to time, the Company may increase or decrease
its natural gas production in response to market conditions. The carrying value
of natural gas assets may also be subject to noncash write-downs based on
changes in natural gas prices and other determining factors.
CAPITAL RESOURCES AND LIQUIDITY
The Company operates in an environment where its liquidity and capital resources
are impacted by changes in the supply of and demand for crude oil, natural gas
and refined petroleum products, market uncertainty and a variety of additional
factors that are beyond the control of the Company. These factors include,
among others, the level of consumer product demand, weather conditions, the
proximity of the Company's natural gas reserves to pipelines, the capacities of
such pipelines, fluctuations in seasonal demand, governmental regulations, the
price and availability of alternative fuels and overall market and economic
conditions. The Company's future capital expenditures, borrowings under its
credit facility and other sources of capital will be affected by these
conditions. During the 1996 period, the Company achieved improvement in
profitability from each of its business segments as well as cost savings at the
corporate level. Furthermore, the Texas Supreme Court's decision in April 1996,
which is subject to a motion for rehearing, may remove a major financial
uncertainty from the Company's capital structure that could improve the
predictability of the Company's cash flow and provide for additional financial
flexibility. See "Capital Resources and Liquidity - Tennessee Gas Contract."
The Company continues to assess its existing asset base in order to maximize
returns and financial flexibility through diversification, acquisitions and
divestitures in all of its operating segments. This ongoing assessment
includes, in the Exploration and Production segment, evaluating ways in which
the Company might diversify the mix of its oil and gas assets and reduce the
asset concentration associated with the Bob West Field through
17
domestic development, exploration and acquisition activity outside of this area.
In the Refining and Marketing segment, the Company has been engaged in an
ongoing effort to evaluate these assets and operations and has considered
possible joint ventures, strategic alliances or business combinations; however,
such evaluations have not resulted in any transaction. The Company continues to
assess its Marine Services segment, pursuing opportunities to consolidate
operations and improve efficiencies. In these regards, during the 1996 period,
the Company completed its acquisition of Coastwide for approximately 1.4 million
shares of Tesoro's Common Stock and $7.7 million in cash (see Note 2 of Notes to
Condensed Consolidated Financial Statements).
Credit Arrangements
In June 1996, the Company negotiated an amended and restated corporate revolving
credit agreement ("Credit Facility") which provides total commitments of $150
million from a consortium of nine banks and expires June 30, 1999. The Credit
Facility, which replaced a previous higher-cost $90 million facility, provides
more financial flexibility for the Company, including lower interest rates,
reduced fees on letters of credit, elimination of certain restrictive financial
tests, an increased borrowing base, increased cash borrowing availability, and
the right to restructure non-recourse or limited financings for certain
subsidiaries. The Company, at its option, has currently activated $100 million
of the available commitments under the Credit Facility, which includes cash
borrowing availability of $50 million at June 30, 1996. The Credit Facility,
which is subject to a borrowing base, provides for the issuance of letters of
credit and cash borrowings. Under the Credit Facility, cash borrowings are
limited to the lesser amount of (a) 50% of the active facility amount or (b) the
borrowing base attributable to domestic oil and gas reserves (which has most
recently been determined to be $45 million) plus $10 million. At June 30, 1996,
the Company had outstanding cash borrowings of $15 million and letters of credit
of $52 million. Outstanding obligations under the Credit Facility are secured
by liens on substantially all of the Company's trade accounts receivable and
product inventory and by mortgages on the Company's refinery and South Texas
natural gas reserves. Under the terms of the Credit Facility, the Company is
required to maintain specified levels of consolidated working capital, tangible
net worth, cash flow and interest coverage. Among other matters, the Credit
Facility contains covenants which restrict the incurrence of additional
indebtedness and a restricted payment covenant which limits the payment of
dividends.
The Credit Facility contains certain provisions that are contingent upon the
issuance of a mandate favorable to the Company by the Texas Supreme Court with
respect to the request for rehearing by Tennessee Gas and collection of the
related bonded receivable. In these regards, the Credit Facility provides,
among other items, for an extension of the expiration date to April 30, 2000, an
increase in cash borrowing availability to $100 million, reductions in fees on
letters of credit, lower interest rates on cash borrowings and favorable changes
in certain restrictions and limitations. For further information regarding the
Tennessee Gas litigation and the Credit Facility, see Notes 3 and 5 of Notes to
Condensed Consolidated Financial Statements.
Debt and Other Obligations
The Company's funded debt obligations at June 30, 1996 include $30 million
principal amount of 12-3/4% Subordinated Debentures ("Subordinated Debentures"),
which is due March 15, 2001 and bears interest at 12-3/4% per annum, and $44.1
million principal amount of 13% Exchange Notes ("Exchange Notes"), which bear
interest at 13% per annum and become due December 1, 2000. The Subordinated
Debentures and Exchange Notes are redeemable at the option of the Company at
100% of principal amount, plus accrued interest. The Company continuously
reviews financing alternatives with respect to its Subordinated Debentures and
Exchange Notes and currently intends, upon a final resolution of the Tennessee
Gas litigation, to redeem the Subordinated Debentures and Exchange Notes.
However, there can be no assurance whether or when the Company would propose
other refinancings or would be able to retire such indebtedness.
The indenture governing the Subordinated Debentures contains certain covenants,
including a restriction that prevents the current payment of cash dividends on
Common Stock and currently limits the Company's ability to purchase or redeem
any shares of its capital stock. The limitation of dividend payments included
in the indenture governing the Exchange Notes is less restrictive than the
limitation imposed by the Subordinated Debentures.
18
Capital Expenditures
For the year 1996, the Company's total capital budget is approximately $84
million (excluding amounts related to the purchase of Coastwide), based upon an
outlook which includes a favorable resolution of the Tennessee Gas litigation.
The exploration and production segment accounts for $64 million of the budgeted
expenditures with $56 million planned for U.S. activities and $8 million for
Bolivia. The planned U.S. expenditures include $39 million for exploration,
development and acquisition outside of the Bob West Field and $17 million for
development drilling and facilities in the Bob West Field. In Bolivia, the
drilling program includes two exploratory wells and workovers of current
producing wells to increase deliverability. Capital spending for the refining
and marketing segment is projected to be $13 million, which includes amounts for
installation of facilities to allow the Company to produce and market asphalt in
Alaska, improvements and upgrades at the Company's refinery and convenience
store operations, and environmental projects. Capital spending for 1996 is
expected to be financed through a combination of cash flows from operations and
borrowings under the Credit Facility.
During the six months ended June 30, 1996, total capital expenditures of $29
million (excluding amounts related to Coastwide) were funded primarily by cash
flows from operations, available cash reserves and borrowings under the Credit
Facility. Capital expenditures for U.S. oil and gas activities totaled $15
million for the 1996 period, principally for participation in the drilling of
eight development wells, seven of which were completed, and four exploratory
wells, all of which were in progress at quarter-end, and the acquisition of
other working interests. In Bolivia, the Company's capital expenditures of $5
million during the 1996 period, related primarily to one exploratory well which
was completed and resulted in a discovery of oil and gas reserves, and another
exploratory well currently being completed. Capital expenditures for the
Company's refining and marketing segment totaled $4 million for the 1996 period,
primarily for installation of facilities to produce and market asphalt and for
expansion of its retail marketing facilities. The Marine Services segment's
capital spending totaled $5 million for the 1996 period primarily reflecting
efforts to improve operating efficiencies.
Cash Flows From Operating, Investing and Financing
At June 30, 1996, the Company's working capital totaled $151.6 million, which
included a receivable from Tennessee Gas of $66.9 million and cash of $5.5
million. For information on litigation related to a natural gas sales contract
and the related impact on the Company's cash flows from operations, see
"Tennessee Gas Contract" below and Note 5 of Notes to Condensed Consolidated
Financial Statements. Components of the Company's cash flows are set forth
below (in millions):
Six Months Ended
June 30,
----------------
1996 1995
---- ----
Cash Flows From (Used In):
Operating Activities . . . . . . . . . . . . . . $ 16.7 29.4
Investing Activities . . . . . . . . . . . . . . (39.4) (34.9)
Financing Activities . . . . . . . . . . . . . . 14.2 (1.2)
------- -------
Decrease in Cash and Cash Equivalents. . . . . . . $ (8.5) (6.7)
======= =======
Net cash from operating activities of $17 million during the 1996 period, which
compares to $29 million for the 1995 period, included higher net earnings
partially offset by increased working capital balances. Net cash used in
investing activities during the 1996 period of $39 million included capital
expenditures of $29 million and cash consideration of $7.7 million for the
acquisition of Coastwide. Capital expenditures for the 1996 period included $20
million for the Company's exploration and production activities in South Texas
and Bolivia. Net cash from financing activities of $14 million during the 1996
period was primarily related to an outstanding borrowing of $15 million under
the Company's Credit Facility, partially offset by payments of other long-term
debt. During the 1996 period, the Company's gross borrowings under its
revolving credit line amounted to $60 million, with repayments of $45 million.
19
Tennessee Gas Contract
The Company is selling a portion of the gas produced from its Bob West Field to
Tennessee Gas Pipeline Company ("Tennessee Gas") under a Gas Purchase and Sales
Agreement ("Tennessee Gas Contract") which provides that the price of gas shall
be the maximum price as calculated in accordance with Section 102(b)(2)
("Contract Price") of the Natural Gas Policy Act of 1978 ("NGPA"). In August
1990, Tennessee Gas filed suit against the Company in the District Court of
Bexar County, Texas, alleging that the Tennessee Gas Contract is not applicable
to the Company's properties and that the gas sales price should be the price
calculated under the provisions of Section 101 of the NGPA rather than the
Contract Price. During the month of June 1996, the Contract Price was $8.56 per
Mcf and the average spot market price was $2.14 per Mcf. For the six months
ended June 30, 1996, approximately 16% of the Company's net U.S. natural gas
production was sold under the Tennessee Gas Contract. Tennessee Gas also
claimed that the contract should be considered an "output contract" under
Section 2.306 of the Texas Uniform Commercial Code ("UCC") and that the
increases in volumes tendered under the contract exceeded those allowable for an
output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee Gas Contract
as to the Company's properties and held that the price payable by Tennessee Gas
for the gas was the Contract Price. The Court of Appeals remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The appellate court decision was the first decision reported in
Texas holding that a take-or-pay contract was an output contract. The Supreme
Court of Texas heard arguments in December 1994 regarding the output contract
issue and certain of the issues raised by Tennessee Gas. On August 1, 1995, the
Supreme Court of Texas, in a divided opinion, affirmed the decision of the
appellate court on all issues, including that the price under the Tennessee Gas
Contract is the Contract Price, and determined that the Tennessee Gas Contract
was an output contract and remanded the case to the trial court for
determination of whether gas volumes tendered by the Company to Tennessee Gas
were tendered in good faith and were not unreasonably disproportionate to any
normal or otherwise comparable prior output or stated estimates in accordance
with the UCC. The Company filed a motion for rehearing before the Texas Supreme
Court on the issue of whether the Tennessee Gas Contract is an output contract.
On April 18, 1996, the Texas Supreme Court reversed its earlier ruling on the
output contract issue and held that the Tennessee Gas Contract was not an output
contract and affirmed its earlier decision in favor of the Company on all other
issues. On June 3, 1996, Tennessee Gas filed a motion for rehearing and on June
10, 1996, the Company filed its response to Tennessee Gas' motion for rehearing.
An order from the Texas Supreme Court on Tennessee Gas' motion for rehearing is
pending. The Company believes that, if this issue is tried, the gas volumes
tendered to Tennessee Gas will be found to have been in good faith and otherwise
in accordance with the requirements of the UCC. However, there can be no
assurance as to the ultimate outcome at trial.
In conjunction with the District Court judgment and on behalf of all sellers
under the Tennessee Gas Contract, Tennessee Gas is presently required to post a
supersedeas bond in the amount of $206 million. Under the terms of this bond,
for the period September 17, 1994 through April 30, 1996, Tennessee Gas was
required to take at least its entire monthly take-or-pay obligation and pay for
gas taken at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price").
The $206 million bond represents an amount which together with anticipated sales
of natural gas at the Bond Price will equal the anticipated value of the
Tennessee Gas Contract from September 17, 1994 through April 30, 1996. Except
for the period September 17, 1994 through August 13, 1995, the difference
between the spot market price and the Bond Price is refundable in the event
Tennessee Gas ultimately prevails in the litigation. The Company retains the
right to receive the Contract Price for all gas sold to Tennessee Gas. The bond
shall remain in place until the Supreme Court issues its mandate on Tennessee
Gas' motion for rehearing. Tennessee Gas continues to take its minimum monthly
required amount of gas and has resumed paying the Contract Price to the Company
for gas taken beginning with May 1996 volumes.
20
Through June 30, 1996, under the Tennessee Gas Contract, the Company recognized
cumulative net revenues in excess of spot market prices totaling approximately
$133.3 million. Of the $133.3 million incremental net revenues, the Company has
received $11.1 million that is nonrefundable and $62.6 million which the Company
could be required to repay in the event of an adverse ruling. The remaining
$59.6 million of incremental net revenues represents the unpaid difference
between the Contract Price and the Bond Price as described above and is included
in the $66.9 million classified in the Company's Consolidated Balance Sheet as a
current receivable at June 30, 1996. An adverse outcome of this litigation
could require the Company to reverse as much as $122.2 million of the
incremental revenues and could require the Company to repay as much as $62.6
million for amounts received above spot prices, plus interest if awarded by the
court.
Environmental and Other Matters
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which change frequently, regulate the discharge of
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of petroleum or chemical
substances at various sites or install additional controls or other
modifications or changes in use for certain emission sources. The Company is
currently involved in remedial responses and has incurred cleanup expenditures
associated with environmental matters at a number of sites, including certain of
its own properties. At June 30, 1996, the Company's accruals for environmental
matters amounted to $10 million, which included a noncurrent liability of
approximately $4 million for remediation of Kenai Pipe Line Company's ("KPL")
properties that has been funded by the former owners of KPL through a restricted
escrow deposit. Based on currently available information, including the
participation of other parties or former owners in remediation actions, the
Company believes these accruals are adequate. In addition, to comply with
environmental laws and regulations, the Company anticipates that it will be
required to make capital improvements in 1996 of approximately $3 million,
primarily for the removal and upgrading of underground storage tanks.
Environmental regulations would also have required the Company to make capital
improvements starting in 1996 of approximately $9.5 million for the installation
of dike liners. However, on April 18, 1996, the Alaska Department of
Environmental Conservation ("ADEC") issued a memorandum stating that alternative
compliance schedules allowing for delayed implementation of the requirements for
dike liners in secondary containment systems for existing petroleum storage
tanks would be approved. The April 18, 1996 ADEC Memorandum recognizes that
secondary containment options other than synthetic dike liners are appropriate,
but essential ADEC guidelines addressing other options will not be available
before the end of 1996. The ADEC believes it will be three to five years before
all affected facilities fully implement the provisions of the regulations. The
Company has applied for an alternative compliance schedule with ADEC to maintain
the Company's existing storage tank facilities in compliance with the state
regulations. The Company cannot presently determine when an alternative
schedule will be granted.
Conditions that require additional expenditures may exist for various Company
sites, including, but not limited to, the Company's refinery, retail gasoline
outlets (current and closed locations) and petroleum product terminals, and for
compliance with the Clean Air Act. The amount of such future expenditures cannot
currently be determined by the Company. For further information on
environmental contingencies, see Note 5 of Notes to Condensed Consolidated
Financial Statements.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Tennessee Gas Contract. The Company is selling a portion of the gas produced
from its Bob West Field to Tennessee Gas Pipeline Company ("Tennessee Gas")
under a Gas Purchase and Sales Agreement ("Tennessee Gas Contract") which
provides that the price of gas shall be the maximum price as calculated in
accordance with Section 102(b)(2) ("Contract Price") of the Natural Gas Policy
Act of 1978 ("NGPA"). In August 1990, Tennessee Gas filed suit against the
Company in the District Court of Bexar County, Texas, alleging that the
Tennessee Gas Contract is not applicable to the Company's properties and that
the gas sales price should be the price calculated under the provisions of
Section 101 of the NGPA rather than the Contract Price. During the month of
June 1996, the Contract Price was $8.56 per Mcf and the average spot market
price was $2.14 per Mcf. For the six months ended June 30, 1996, approximately
16% of the Company's net U.S. natural gas production was sold under the
Tennessee Gas Contract. Tennessee Gas also claimed that the contract should be
considered an "output contract" under Section 2.306 of the Texas Uniform
Commercial Code ("UCC") and that the increases in volumes tendered under the
contract exceeded those allowable for an output contract.
The District Court judge returned a verdict in favor of the Company on all
issues. On appeal by Tennessee Gas, the Court of Appeals for the Fourth Supreme
Judicial District of Texas affirmed the validity of the Tennessee Gas Contract
as to the Company's properties and held that the price payable by Tennessee Gas
for the gas was the Contract Price. The Court of Appeals remanded the case to
the trial court based on its determination (i) that the Tennessee Gas Contract
was an output contract and (ii) that a fact issue existed as to whether the
increases in the volumes of gas tendered to Tennessee Gas under the contract
were made in bad faith or were unreasonably disproportionate to prior tenders.
The Company sought review of the appellate court ruling on the output contract
issue in the Supreme Court of Texas. Tennessee Gas also sought review of the
appellate court ruling denying the remaining Tennessee Gas claims in the Supreme
Court of Texas. The appellate court decision was the first decision reported in
Texas holding that a take-or-pay contract was an output contract. The Supreme
Court of Texas heard arguments in December 1994 regarding the output contract
issue and certain of the issues raised by Tennessee Gas. On August 1, 1995, the
Supreme Court of Texas, in a divided opinion, affirmed the decision of the
appellate court on all issues, including that the price under the Tennessee Gas
Contract is the Contract Price, and determined that the Tennessee Gas Contract
was an output contract and remanded the case to the trial court for
determination of whether gas volumes tendered by the Company to Tennessee Gas
were tendered in good faith and were not unreasonably disproportionate to any
normal or otherwise comparable prior output or stated estimates in accordance
with the UCC. The Company filed a motion for rehearing before the Texas Supreme
Court on the issue of whether the Tennessee Gas Contract is an output contract.
On April 18, 1996, the Texas Supreme Court reversed its earlier ruling on the
output contract issue and held that the Tennessee Gas Contract was not an output
contract and affirmed its earlier decision in favor of the Company on all other
issues. On June 3, 1996, Tennessee Gas filed a motion for rehearing and on June
10, 1996, the Company filed its response to Tennessee Gas' motion for rehearing.
An order from the Texas Supreme Court on Tennessee Gas' motion for rehearing is
pending. The Company believes that, if this issue is tried, the gas volumes
tendered to Tennessee Gas will be found to have been in good faith and otherwise
in accordance with the requirements of the UCC. However, there can be no
assurance as to the ultimate outcome at trial.
In conjunction with the District Court judgment and on behalf of all sellers
under the Tennessee Gas Contract, Tennessee Gas is presently required to post a
supersedeas bond in the amount of $206 million. Under the terms of this bond,
for the period September 17, 1994 through April 30, 1996, Tennessee Gas was
required to take at least its entire monthly take-or-pay obligation and pay for
gas taken at $3.00 per Mmbtu, which approximates $3.00 per Mcf ("Bond Price").
The $206 million bond represents an amount which together with anticipated sales
of natural gas at the Bond Price will equal the anticipated value of the
Tennessee Gas Contract from September 17, 1994 through April 30, 1996. Except
for the period September 17, 1994 through August 13, 1995, the difference
between the spot market price and the Bond Price is refundable in the event
Tennessee Gas ultimately prevails in the litigation. The Company retains the
right to receive the Contract Price for all gas sold to Tennessee Gas. The bond
shall remain in place until the Supreme Court issues its mandate on Tennessee
Gas' motion for rehearing. Tennessee Gas continues to take its minimum monthly
required amount of gas and has resumed paying the Contract Price to the Company
for gas taken beginning with May 1996 volumes.
Through June 30, 1996, under the Tennessee Gas Contract, the Company recognized
cumulative net revenues in excess of spot market prices totaling approximately
$133.3 million. Of the $133.3 million incremental net revenues, the Company has
received $11.1 million that is nonrefundable and $62.6 million which the Company
22
could be required to repay in the event of an adverse ruling. The remaining
$59.6 million of incremental net revenues represents the unpaid difference
between the Contract Price and the Bond Price as described above and is included
in the $66.9 million classified in the Company's Consolidated Balance Sheet as a
current receivable at June 30, 1996. An adverse outcome of this litigation
could require the Company to reverse as much as $122.2 million of the
incremental revenues and could require the Company to repay as much as $62.6
million for amounts received above spot prices, plus interest if awarded by the
court.
Environmental Matters. As previously reported, in March 1992, the Company
received a Compliance Order and Notice of Violation from the Environmental
Protection Agency ("EPA") alleging violations by the Company of the New Source
Performance Standards under the Clean Air Act at its Alaska refinery. The
allegations included failure to install, maintain and operate monitoring
equipment over a period of approximately six years, failure to perform accuracy
testing on monitoring equipment, and failure to install certain pollution
control equipment. The Company denied these allegations. From March 1992 to
July 1993, the EPA and the Company exchanged information relevant to these
allegations. In addition, the EPA conducted an environmental audit of the
Company's refinery in May 1992. As a result of this audit, the EPA alleged
violation of certain regulations related to asbestos materials. In October
1993, the EPA referred these matters to the Department of Justice ("DOJ"). On
June 4, 1996, the U.S. District Court of Alaska approved a consent decree
between the Company and the DOJ. The decree included a penalty assessment of
$1.3 million, which was paid on July 3, 1996, and the agreement by the Company
to incur $200,000 in costs to complete a supplemental environmental project.
As previously reported, the Company, along with numerous other parties, has been
identified by the EPA as a potentially responsible party ("PRP") pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
for the Mud Superfund site in Abbeville, Louisiana (the "Site"). The Company
arranged for the disposal of a minimal amount of materials at the Site, but
CERCLA might impose joint and several liability on each PRP at the Site. The
EPA is seeking reimbursement for its response costs incurred to date at the
Site, as well as a commitment from the PRPs either to conduct future remedial
activities or to finance such activities. The extent of the Company's allocated
financial contributions to the cleanup of the Site is expected to be limited
based upon the number of companies, volumes of waste involved and an estimated
total cost of approximately $500,000 among all of the parties to close the Site.
The Company is currently involved in settlement discussions with the EPA and
other PRPs involved at the Site. The Company expects, based on these
discussions, that its liability at the Site will not exceed $25,000.
Refund Claim. As previously reported, in July 1994, a former customer of the
Company ("Customer") filed suit against the Company in the United States
District Court for the District of New Mexico for a refund in the amount of
approximately $1.2 million, plus interest of approximately $4.4 million and
attorney's fees, related to a gasoline purchase from the Company in 1979. The
Customer also alleges entitlement to treble damages and punitive damages in the
aggregate amount of $16.8 million. The refund claim is based on allegations
that the Company renegotiated the acquisition price of gasoline sold to the
Customer and failed to pass on the benefit of the renegotiated price to the
Customer in violation of Department of Energy price and allocation controls then
in effect. In May 1995, the court issued an order granting the Company's motion
for summary judgment and dismissed with prejudice all the claims in the
Customer's complaint. In June 1995, the Customer filed a notice of appeal with
the U.S. Court of Appeals for the Federal Circuit. On June 13, 1996, the U.S.
Court of Appeals for the Federal Circuit issued its decision affirming the lower
court's ruling in favor of the Company.
Item 2. Changes in Securities
In June 1996, the Company entered into an Amended and Restated Credit Agreement
("Credit Facility") under which the Company is required to maintain specified
levels of consolidated working capital, tangible net worth, cash flow and
interest coverage. The Credit Facility has certain restrictions with respect to
dividends on its capital stock. For further information on the Credit Facility,
see Note 3 of Notes to Condensed Consolidated Financial Statements in Part I,
Item 1.
23
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1996 annual meeting of stockholders of the Company was held on June
6, 1996.
(b) The names of the directors elected at the meeting and a tabulation of
the number of votes cast for or withheld with respect to each such
director are set forth below:
Votes Votes
Name For Withheld
---- ------------ -------------
Robert J. Caverly 22,748,535 679,648
Steven H. Grapstein 22,793,629 634,554
Alan J. Kaufman 22,769,092 659,091
Raymond K. Mason, Sr. 22,748,925 679,258
Sanford B. Prater 22,771,425 656,758
Bruce A. Smith 22,691,524 736,659
Patrick J. Ward 22,800,367 627,816
Murray L. Weidenbaum 22,751,313 676,870
Effective June 6, 1996, the Company's Board of Directors elected Mr.
William J. Johnson as a director.
(c) A brief description of each matter, other than the election of
directors, voted upon at the meeting and the number of votes cast for,
against or withheld, as well as the number of abstentions and broker
non-votes as to each matter, is set forth below:
With respect to a proposal to increase the number of shares which can
be granted under the Executive Long-Term Incentive Plan and limit the
awards of restricted stock under such plan, there were 11,207,150 votes
for; 6,174,725 votes against; 5,805,905 broker non-votes; and 240,403
abstentions.
With respect to the ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the Company for fiscal year
1996, there were 23,252,961 votes for; 128,568 votes against; and
46,654 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index immediately preceding the exhibits filed
herewith.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TESORO PETROLEUM CORPORATION
Registrant
Date: August 14, 1996 /s/ BRUCE A. SMITH
Bruce A. Smith
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: August 14, 1996 /s/ WILLIAM T. VAN KLEEF
William T. Van Kleef
Senior Vice President
and Chief Financial Officer
25
EXHIBIT INDEX
Exhibit
Number
4.1 Amended and Restated Credit Agreement ("Credit Facility") dated as of
June 7, 1996 among the Company and Banque Paribas, individually, as
an Issuing Bank and as Administrative Agent, and The Bank of Nova
Scotia, individually and as Documentation Agent, and certain other
financial institutions named therein.
4.2 Amended and Restated Guaranty Agreement dated as of June 7, 1996
among various subsidiaries of the Company and Banque Paribas,
individually, as Administrative Agent and as an Issuing Bank, and
certain other financial institutions named therein, entered into in
connection with the Credit Facility.
4.3 Amended and Restated Security Agreement (Accounts and Inventory)
dated as of June 7, 1996 between the Company and Banque Paribas,
entered into in connection with the Credit Facility.
4.4 Amended and Restated Security Agreement (Accounts and Inventory)
dated as of June 7, 1996 between Tesoro Alaska Petroleum Company and
Banque Paribas, entered into in connection with the Credit Facility.
4.5 Amended and Restated Security Agreement (Accounts and Inventory)
dated as of June 7, 1996 between Tesoro Refining, Marketing & Supply
Company and Banque Paribas, entered into in connection with the
Credit Facility.
4.6 Security Agreement (Accounts and Inventory) dated as of June 7, 1996
between Kenai Pipe Line Company and Banque Paribas, entered into in
connection with the Credit Facility.
4.7 Security Agreement (Accounts and Inventory) dated as of June 7, 1996
between Tesoro Coastwide Services Company and Banque Paribas, entered
into in connection with the Credit Facility.
4.8 Security Agreement (Accounts and Inventory) dated as of June 7, 1996
between Coastwide Marine Services, Inc. and Banque Paribas, entered
into in connection with the Credit Facility.
4.9 Security Agreement (Accounts) dated as of June 7, 1996 between Tesoro
Vostok Company and Banque Paribas, entered into in connection with
the Credit Facility.
4.10 Amended and Restated Security Agreement (Pledge) dated as of June 7,
1996 by the Company in favor of Banque Paribas, entered into in
connection with the Credit Facility.
4.11 First Amendment to Deed of Trust, Security Agreement and Financing
Statement dated as of June 7, 1996 among Tesoro Alaska Petroleum
Company, TransAlaska Title Insurance Agency, Inc., as Trustee, and
Banque Paribas, as Administrative Agent, entered into in connection
with the Credit Facility.
4.12 First Amendment to Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement dated as of June 7, 1996
from Tesoro E&P Company, L.P., entered into in connection with the
Credit Facility.
4.13 Mortgage, Deed of Trust, Assignment of Production, Security Agreement
and Financing Statement dated as of June 7, 1996 from Tesoro E&P
Company, L.P., entered into in connection with the Credit Facility.
27 Financial Data Schedule.
26
AMENDED AND RESTATED CREDIT AGREEMENT
Among
TESORO PETROLEUM CORPORATION
as the Company
and
BANQUE PARIBAS
Individually, as an Issuing Bank and as Administrative Agent,
THE BANK OF NOVA SCOTIA
Individually and as Documentation Agent
and
FINANCIAL INSTITUTIONS
NOW OR HEREAFTER PARTIES HERETO
$150,000,000 Revolving Credit Facility
June 7, 1996
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01 Definitions . . . . . . . . . . . . . . . . .1
Section 1.02 Accounting Terms and Determinations . . . . 21
Section 1.03 Other Definitional Terms. . . . . . . . . . 21
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 Commitments . . . . . . . . . . . . . . . . 21
Section 2.02 Borrowing Requests. . . . . . . . . . . . . 22
Section 2.03 Letters of Credit . . . . . . . . . . . . . 23
Section 2.04 Disbursement of Funds . . . . . . . . . . . 27
Section 2.05 Notes.. . . . . . . . . . . . . . . . . . . 27
Section 2.06 Interest. . . . . . . . . . . . . . . . . . 28
Section 2.07 Interest Periods. . . . . . . . . . . . . . 29
Section 2.08 Repayment of Loans. . . . . . . . . . . . . 29
Section 2.09 Termination or Reduction of Revolving
Credit Commitments . . . . . . . . . . . 30
Section 2.10 Prepayments . . . . . . . . . . . . . . . . 30
Section 2.11 Continuation and Conversion Options . . . . 31
Section 2.12 Fees. . . . . . . . . . . . . . . . . . . . 32
Section 2.13 Payments, etc . . . . . . . . . . . . . . . 33
Section 2.14 Interest Rate Not Ascertainable, etc. . . . 33
Section 2.15 Illegality. . . . . . . . . . . . . . . . . 34
Section 2.16 Increased Costs . . . . . . . . . . . . . . 34
Section 2.17 Change of Lending Office. . . . . . . . . . 36
Section 2.18 Funding Losses. . . . . . . . . . . . . . . 36
Section 2.19 Sharing of Payments, etc. . . . . . . . . . 36
Section 2.20 E&P Borrowing Base. . . . . . . . . . . . . 37
Section 2.21 Taxes . . . . . . . . . . . . . . . . . . . 38
Section 2.22 Pro Rata Treatment. . . . . . . . . . . . . 40
Section 2.23 Disposition of Proceeds . . . . . . . . . . 41
Section 2.24 Senior Debt . . . . . . . . . . . . . . . . 41
ARTICLE III
CONDITIONS TO BORROWINGS AND TOPURCHASE, RENEWAL AND RE
Section 3.01 Closing . . . . . . . . . . . . . . . . . . 41
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Section 3.02 Conditions Precedent to Initial Loan. . . . 41
Section 3.03 Conditions Precedent to Each Loan . . . . . 44
Section 3.04 Recordings. . . . . . . . . . . . . . . . . 44
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Corporate Existence . . . . . . . . . . . . 45
Section 4.02 Corporate Power and Authorization . . . . . 45
Section 4.03 Binding Obligations . . . . . . . . . . . . 45
Section 4.04 No Legal Bar or Resultant Lien. . . . . . . 45
Section 4.05 No Consent. . . . . . . . . . . . . . . . . 45
Section 4.06 Financial Information . . . . . . . . . . . 45
Section 4.07 Investments and Guaranties. . . . . . . . . 46
Section 4.08 Litigation. . . . . . . . . . . . . . . . . 46
Section 4.09 Use of Proceeds . . . . . . . . . . . . . . 46
Section 4.10 Compliance with ERISA . . . . . . . . . . . 46
Section 4.11 Taxes; Governmental Charges . . . . . . . . 46
Section 4.12 Titles, etc . . . . . . . . . . . . . . . . 47
Section 4.13 Defaults. . . . . . . . . . . . . . . . . . 47
Section 4.14 Casualties; Taking of Properties. . . . . . 47
Section 4.15 Compliance with the Law . . . . . . . . . . 47
Section 4.16 No Material Misstatements . . . . . . . . . 47
Section 4.17 Investment Company Act. . . . . . . . . . . 48
Section 4.18 Public Utility Holding Company Act. . . . . 48
Section 4.19 Subsidiaries. . . . . . . . . . . . . . . . 48
Section 4.20 Insurance . . . . . . . . . . . . . . . . . 48
Section 4.21 Mortgaged Property. . . . . . . . . . . . . 48
Section 4.22 Gas Imbalances. . . . . . . . . . . . . . . 48
Section 4.23 Environmental Matters . . . . . . . . . . . 48
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.01 Maintenance and Compliance, etc.. . . . . . 50
Section 5.02 Payment of Taxes and Claims, etc. . . . . . 50
Section 5.03 Further Assurances. . . . . . . . . . . . . 50
Section 5.04 Performance of Obligations. . . . . . . . . 51
Section 5.05 Insurance.. . . . . . . . . . . . . . . . . 51
Section 5.06 Accounts and Records. . . . . . . . . . . . 51
Section 5.07 Right of Inspection.. . . . . . . . . . . . 51
Section 5.08 Operation and Maintenance of Mortgaged
Property and Compliance with Leases. . . 52
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Section 5.09 Stock of Subsidiaries.. . . . . . . . . . . 52
Section 5.10 Certain Additional Assurances Regarding
Maintenance and Operation of Properties. 52
Section 5.11 Designation of Subsidiaries as Additional
Guarantors . . . . . . . . . . . . . . . 52
Section 5.12 Minimum Capital Expenditures. . . . . . . . 52
Section 5.13 Payment of Charters and Tariffs.. . . . . . 52
Section 5.14 Title Opinions. . . . . . . . . . . . . . . 52
Section 5.15 Reporting Covenants . . . . . . . . . . . . 52
ARTICLE V
INEGATIVE COVENANTS
Section 6.01 Consolidated Tangible Net Worth.. . . . . . 56
Section 6.02 Consolidated Current Ratio. . . . . . . . . 56
Section 6.03 Consolidated Cash Flow Coverage Ratio.. . . 56
Section 6.04 Consolidated Interest Coverage Ratio. . . . 57
Section 6.05 Indebtedness. . . . . . . . . . . . . . . . 57
Section 6.06 Liens.. . . . . . . . . . . . . . . . . . . 59
Section 6.07 Mergers, Sales, etc.. . . . . . . . . . . . 61
Section 6.08 Restricted Payments.. . . . . . . . . . . . 61
Section 6.09 Investments, Loans, etc.. . . . . . . . . . 62
Section 6.10 Lease Payments. . . . . . . . . . . . . . . 64
Section 6.11 Sales and Leasebacks. . . . . . . . . . . . 64
Section 6.12 Nature of Business. . . . . . . . . . . . . 64
Section 6.13 ERISA Compliance. . . . . . . . . . . . . . 64
Section 6.14 Sale or Discount of Receivables.. . . . . . 65
Section 6.15 Negative Pledge Agreements. . . . . . . . . 65
Section 6.16 Transactions with Affiliates. . . . . . . . 65
Section 6.17 Unconditional Purchase Obligations. . . . . 66
Section 6.18 Stock.. . . . . . . . . . . . . . . . . . . 66
Section 6.19 Non-Recourse Indebtedness . . . . . . . . . 66
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01 Payments. . . . . . . . . . . . . . . . . . 66
Section 7.02 Covenants Without Notice. . . . . . . . . . 66
Section 7.03 Other Covenants . . . . . . . . . . . . . . 66
Section 7.04 Other Financing Document Obligations. . . . 67
Section 7.05 Representations . . . . . . . . . . . . . . 67
Section 7.06 Non-Payments of Other Indebtedness. . . . . 67
Section 7.07 Defaults Under Other Agreements . . . . . . 67
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Section 7.08 Bankruptcy. . . . . . . . . . . . . . . . . 67
Section 7.09 ERISA . . . . . . . . . . . . . . . . . . . 68
Section 7.10 Money Judgment. . . . . . . . . . . . . . . 68
Section 7.11 Discontinuance of Business. . . . . . . . . 68
Section 7.12 Security Instruments. . . . . . . . . . . . 68
Section 7.13 Change of Control . . . . . . . . . . . . . 68
Section 7.14 Mandatory Prepayments . . . . . . . . . . . 68
Section 7.15 Material Adverse Event. . . . . . . . . . . 68
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.01 Appointment of Administrative Agent . . . . 69
Section 8.02 Nature of Duties of Administrative Agent
and Documentation Agent. . . . . . . . . 69
Section 8.03 Lack of Reliance on the Administrative
Agent and the Documentation Agent. . . . 69
Section 8.04 Certain Rights of the Administrative Agent. 70
Section 8.05 Reliance by Administrative Agent. . . . . . 70
Section 8.06 Indemnification of Administrative Agent
and the Documentation Agent. . . . . . . 70
Section 8.07 The Administrative Agent and Documentation
Agent in their Individual Capacity . . . 70
Section 8.08 Lender as Owner . . . . . . . . . . . . . . 71
Section 8.09 Successor Administrative Agent. . . . . . . 71
ARTICLE IX
MISCELLANEOUS
Section 9.01 Notices . . . . . . . . . . . . . . . . . . 71
Section 9.02 Amendments, etc . . . . . . . . . . . . . . 72
Section 9.03 No Waiver; Remedies Cumulative. . . . . . . 72
Section 9.04 Payment of Expenses, Indemnities, etc . . . 72
Section 9.05 Right of Setoff . . . . . . . . . . . . . . 74
Section 9.06 Benefit of Agreement. . . . . . . . . . . . 75
Section 9.07 Assignments and Participations. . . . . . . 75
Section 9.08 Governing Law; Submission to Jurisdiction;
Etc. . . . . . . . . . . . . . . . . . . 77
Section 9.09 Independent Nature of Lenders' Rights . . . 78
Section 9.10 Invalidity. . . . . . . . . . . . . . . . . 78
Section 9.11 Survival of Agreements. . . . . . . . . . . 78
Section 9.12 Renewal, Extension or Rearrangement . . . . 78
Section 9.13 Interest. . . . . . . . . . . . . . . . . . 78
Section 9.14 Taxes, etc. . . . . . . . . . . . . . . . . 79
Section 9.15 Confidential Information. . . . . . . . . . 79
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Section 9.16 Entire Agreement. . . . . . . . . . . . . . 80
Section 9.17 Attachments . . . . . . . . . . . . . . . . 80
Section 9.18 Counterparts. . . . . . . . . . . . . . . . 80
Section 9.19 Survival of Indemnities . . . . . . . . . . 80
Section 9.20 Headings Descriptive. . . . . . . . . . . . 80
Section 9.21 Satisfaction Requirement. . . . . . . . . . 80
Section 9.22 Effectiveness . . . . . . . . . . . . . . . 81
Section 9.23 Conflict with E&P Mortgage. . . . . . . . . 81
Section 9.24 Exculpation Provisions. . . . . . . . . . . 81
ANNEXES
Annex I - Commitments
Annex II - Eligible Inventory Valuation
SCHEDULES
Schedule 1.01 - Outstanding Letters of Credit
Schedule 4.05 - Consents
Schedule 4.07 - Investment and Guaranties
Schedule 4.08 - Litigation
Schedule 4.10 - ERISA
Schedule 4.12 - Titles
Schedule 4.13 - Defaults
Schedule 4.20 - Insurance
Schedule 4.22 - Gas Imbalances
Schedule 4.23 - Environmental Matters
Schedule 6.05 - Existing Indebtedness
Schedule 6.06 - Liens
Schedule 6.15 - Negative Pledge Agreements
EXHIBITS
Exhibit A - Form of Revolving Note
Exhibit B - Form of Borrowing Request
Exhibit C - Subsidiaries/Guarantors
Exhibit D - Form of Assignment and Acceptance
Exhibit E - Form of Borrowing Base Report
Exhibit F - Form of Letter to Hydrocarbon Purchasers
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CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into as of
the 7th day of June, 1996, among TESORO PETROLEUM CORPORATION, a Delaware
corporation (the "Company"); BANQUE PARIBAS, individually, as an Issuing Bank
and as Administrative Agent, THE BANK OF NOVA SCOTIA, individually and as
Documentation Agent, and each of the lenders that is a signatory hereto or which
becomes a party hereto as provided in Section 9.07 (individually, a "Lender"
and, collectively, the "Lenders").
RECITALS
A. The Company has requested that the Lenders amend, extend and rearrange
all of the Existing Indebtedness (as defined in Section 1.01) and provide
certain loans to and extensions of credit on behalf of the Company; and
B. The Lenders have agreed to amend, extend and rearrange the Existing
Indebtedness and to make such loans and extensions of credit subject to the
terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree to amend and restate the Existing Credit
Agreement (as defined in Section 1.01) as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used herein, the following terms shall have
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
"Account Borrowing Base Parties" shall mean Tesoro Alaska, KPL, Tesoro
Vostok, Tesoro Coastwide and Tesoro R&M, and "Account Borrowing Base Party"
shall mean any one of them.
"Active Facility Amount" shall mean $100,000,000 or such other amount
in excess thereof not to exceed the Aggregate Revolving Credit Commitments
as the Company may from time to time request in writing pursuant to Section
2.01(d).
"Administrative Agent" shall mean Banque Paribas, acting in the manner
and to the extent described in Article VIII.
"Advance Notice" shall mean written or telecopy notice (or telephonic
notice promptly confirmed in writing), which in each case shall be
irrevocable, from the Company to be received by the Administrative Agent
before 11:00 a.m. (Houston time), by the number of Business Days in advance
of any borrowing, conversion, continuation or prepayment of any Loan
pursuant to this Agreement as respectively indicated below:
(i) Eurodollar Loans - 3 Business Days; and
(ii) Base Rate Loans - same Business Day.
For the purpose of determining the respectively applicable Loan in the case
of the conversion from one type of Loan into another, the Loan into which
there is to be a conversion shall control. The Administrative Agent, each
Issuing Bank and each Lender are entitled to rely upon and act upon telecopy
notice made or purportedly made by the Company, and the Company hereby
waives the right to dispute the authenticity and validity of any such
transaction once the Administrative Agent or any Lender has advanced funds
or the Issuing Bank has issued Letters of Credit, absent manifest error.
"Affiliate" of any Person shall mean any other Person directly or
indirectly controlling, controlled by, or under common control with, such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Revolving Credit Commitments" shall mean the sum of each
Lender's Revolving Credit Commitment.
"Aggregate Revolving Credit Exposure" shall mean the sum of each
Lender's Revolving Credit Exposure.
"Agreement" shall mean this Credit Agreement, as amended, supplemented
or modified from time to time.
"Alaska Deed of Trust" shall mean the Deed of Trust and Security
Agreement covering the Kenai Refinery executed by Tesoro Alaska in favor of
TransAlaska Title Insurance Agency, Inc., as trustee, recorded in Book 0441,
Pages 848 through 873 of the Kenai Recording District, Third Judicial
District, State of Alaska, as security for the Lender Indebtedness, as the
same may be amended, modified or supplemented from time to time.
"Applicable Margin" shall mean (i) .75% per annum with respect to Base
Rate Loans, and (ii) 1.75% per annum with respect to Eurodollar Loans;
provided, however, at any time (a) while the Company's senior unsecured debt
(or implied senior unsecured debt) is rated BB- or better by Standard and
Poors Corporation or Ba3 or better by Moody's Investors Service, Inc. or (b)
from and after the occurrence of the Mandate Event, then the "Applicable
Margin" shall be (i) .50% per annum for Base Rate Loans and (ii) 1.5% per
annum for Eurodollar Loans; and, further provided, however, that during any
Deficiency Period, the "Applicable Margin" as would otherwise be in effect
shall be increased by 2.0% per annum for both Base Rate Loans and Eurodollar
Loans.
Application" shall mean an "Application and Agreement for Letters of
Credit," or similar instruments or agreements, entered into between the
Company and the Issuing Bank in connection with any Letter of Credit.
"Assignment and Acceptance" shall have the meaning assigned such term
in Section 9.07(b).
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"BB Properties" shall mean at any time the Oil and Gas Properties and
other assets of the Company or a Subsidiary of the Company evaluated by the
Lenders and to which the Lenders gave loan value in determining the most
recent E&P Borrowing Base.
"Bankruptcy Code" shall have the meaning provided in Section 7.08.
"Base Rate" shall have the meaning provided in Section 2.06(a).
"Base Rate Loan" shall mean a Revolving Credit Loan bearing interest at
the rate provided in Section 2.06(a).
"Borrowing" shall mean a borrowing pursuant to a Borrowing Request or a
continuation or a conversion pursuant to Section 2.11 consisting, in each
case, of the same Type of Loans having, in the case of Eurodollar Loans, the
same Interest Period (except as otherwise provided in Sections 2.16 and
2.18) and made previously or being made concurrently by all of the Lenders.
"Borrowing Base" shall mean at any time the amount equal to the sum of
(i) eighty percent (80%) of Eligible Accounts plus (ii) sixty percent (60%)
of the Loan Value of Eligible Inventory; plus (iii) one hundred percent
(100%) of the E&P Borrowing Base.
"Borrowing Base Report" shall mean the report of the Company concerning
the amount of the Borrowing Base, to be delivered pursuant to Section
5.15(h), substantially in the form attached as Exhibit E.
"Borrowing Request" shall mean a request for a Borrowing pursuant to
Section 2.02, substantially in the form attached as Exhibit B.
"BP" shall mean Banque Paribas, in its individual capacity or as an
Issuing Bank, as the case may be and not as Administrative Agent.
"Business Day" shall mean any day excluding Saturday, Sunday and any
other day on which banks are required or authorized to close in New York,
New York or Houston, Texas and, if the applicable Business Day relates to
Eurodollar Loans, on which trading is carried on by and between banks in
Dollar deposits in the applicable interbank Eurodollar market.
"Capital Expenditures" shall mean capital expenditures for capital or
fixed assets, whether by way of acquisition or otherwise.
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property
which obligations are required to be classified and accounted for as a
liability for a capital lease on a balance sheet of such Person in
accordance with GAAP.
"Cash Flow" shall mean, as to any Person, the sum of the net income of
such Person after taxes for any period plus, to the extent deducted from net
income, all non-cash items, including, but not limited to, depreciation,
depletion and impairment, amortization of leasehold and intangibles,
deferred taxes and write-offs of exploration costs and producing lease
abandonments and write-offs
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of original issue discount and deferred financing costs on existing
Indebtedness that has been retired or replaced by Indebtedness permitted by
Section 6.05(b), minus, to the extent included in the net income of Tesoro
E&P, revenues (net of deferred taxes) attributable to the supersedeas bond
posted pursuant to the Memorandum of Binding Agreement relating to Lenape
Resources Corp. v. Tennessee Gas Pipeline Company, 39 Tex Sup. Ct. J. 496
(April 18, 1996), as the same may be amended, supplemented, modified or
replaced from time to time, provided that such revenues may be included in
the net income of Tesoro E&P at the time of the Collection Event; in each
case for such period and determined as to such Person.
"Change of Control" shall mean either (i) a change resulting when any
Unrelated Person or any Unrelated Persons acting together which would
constitute a Group together with any Affiliates thereof (in each case also
constituting Unrelated Persons) shall at any time Beneficially Own more than
40% of the aggregate voting power of all classes of Voting Stock of the
Company. As used herein (a) "Beneficially Own" means "beneficially own" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or
any successor provision thereto; provided, however, that, for purposes of
this definition, a Person shall not be deemed to Beneficially Own securities
tendered pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates until such tendered securities are
accepted for purchase or exchange; (b) "Group" means a "group" for purposes
of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c)
"Unrelated Person" means at any time any Person other than the Company or
any Subsidiary and other than any trust for any employee benefit plan of the
Company or any Subsidiary of the Company; and (d) "Voting Stock" of any
Person shall mean capital stock of such Person which ordinarily has voting
power for the election of directors (or persons performing similar
functions) of such Person, whether at all times or only so long as no senior
class of securities has such voting power by reason of any contingency or
(ii) during any consecutive 12 month period, Continuing Directors cease to
constitute a majority of the Board of Directors then in office.
"Closing Date" shall mean the as of date of this Agreement set forth in
the first paragraph hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Collection Event" shall mean the receipt by the Company or Tesoro E&P
from or on behalf of Tennessee Gas Pipeline Company (or its successor) of at
least $59,000,000 cash (whether in one or more payments) in payment for past
tenders, which funds the Company or Tesoro E&P should previously have
received under the terms of the gas purchase agreement with Tennessee Gas
Pipeline Company.
"Commitment" shall mean, with respect to each Lender, the obligation of
such Lender to make loans to the Company under Section 2.01, up to the
maximum amount set forth opposite such Lender's name on Annex I under the
caption "Revolving Credit Commitment."
"Company" shall mean Tesoro Petroleum Corporation, a Delaware
corporation.
"Continuing Directors" shall mean any member of the Board of Directors
of the Company on the Closing Date, any director elected since the date
thereof in an annual meeting of the
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stockholders upon the recommendation of the Board of Directors of the
Company and any other member of the Board of Directors of the Company who
will be recommended or elected to succeed to a Continuing Director by a
majority of Continuing Directors who are then members of the Board of
Directors of the Company.
"Consolidating Statement Entities" shall mean, for the purpose of
identifying the Persons or groups of Persons for whom consolidating
financial statements shall be prepared, all of the consolidated Subsidiaries
of the Company reported as a single consolidated group.
"Consolidated Tangible Net Worth" shall mean, at any time and from time
to time, the sum of preferred or common stock not subject to a mandatory
redemption obligation (other than a mandatory redemption obligation that can
be satisfied by the tendering of common stock of the Company) as of the date
of determination, par value of common stock, additional paid-in capital of
common stock and retained earnings less treasury stock (if any), less
goodwill, cost in excess of net assets acquired and all other assets as are
properly classified as intangible assets, all as determined as to the
Company and its Subsidiaries on a consolidated basis.
"Cover" for Letter of Credit Liabilities shall be effected by paying to
the Administrative Agent in immediately available funds, to be held by the
Administrative Agent in a collateral account maintained by the
Administrative Agent at its Payment Office and collaterally assigned as
security pursuant to the Cash Collateral Account Agreement dated as of the
Closing Date between the Company and the Administrative Agent, an amount
equal to the maximum amount of each applicable Letter of Credit available
for drawing at any time. Such amount shall be retained by the
Administrative Agent in such collateral account until such time as the
applicable Letter of Credit shall have expired and Reimburse- ment
Obligations, if any, with respect thereto shall have been fully satisfied.
"Cumulative Amount Available for Restricted Payments" shall mean:
(i) prior to the occurrence of the Mandate Event the difference
of (a) the sum, since December 31, 1995, of (A) $5,000,000, (B) ten
percent of consolidated net income up to $25,000,000 and (C) twenty
percent of consolidated net income in excess of $25,000,000 of the
Company and its Subsidiaries in any calendar year (provided, however
consolidated net income shall not include any revenues (net of deferred
taxes) attributable to the supersedeas bond posted pursuant to the
Memorandum of Binding Agreement relating to Lenape Resources Corp. v.
Tennessee Gas Pipeline Company, 39 Tex Sup. Ct. J. 496 (April 18,
1996), as the same may be amended, supplemented, modified or replaced
from time to time, provided that such revenues may be included in the
net income of Tesoro E&P at the time of the Collection Event) and (b)
any amount previously paid, prepaid, redeemed or repurchased as
permitted by the terms of clause (ii) and subclause (D) of clause (iii)
of Section 6.08 since the Closing Date; or
(ii) after the occurrence of the Mandate Event, the difference of
(a) the sum, since December 31, 1995, of (A) $5,000,000 and (B) fifty
percent of consolidated net income of the Company and its Subsidiaries
in any calendar year and (b) any amount previously paid, prepaid,
redeemed or repurchased as permitted by the terms of clause (ii) and
subclause (D) of clause (iii) of Section 6.08 since the Closing Date.
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"Default" shall mean an Event of Default or any condition or event
which, with notice or lapse of time or both, would constitute an Event of
Default.
"Deficiency Period" shall have the meaning assigned to such term in
Section 2.10(d).
"Developed" shall mean Proved Hydrocarbon reserves recoverable through
existing wells.
"Documentary Letter of Credit" shall mean a letter of credit
denominated in Dollars issued pursuant to this Credit Agreement (i) the
terms of which are in the reasonable judgment of the Issuing Bank for such
letter of credit, standard in the petroleum industry, and (ii) which
supports payment or performance for a single identified purchase or exchange
of crude oil, condensate and/or other petroleum products.
"Documentation Agent" shall mean The Bank of Nova Scotia.
"Dollar" and the sign "$" shall mean lawful money of the United States
of America.
"E&P Borrowing Base" shall mean at any time an amount equal to the
amount determined, pursuant to Section 2.20.
"E&P Mortgage" shall mean the Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of April 20,
1994 granted by Tesoro Exploration and Production Company, to Stephen H.
Field, as trustee, recorded in Volume 0692, Page 523 of the Real Property
Records of Starr County, Texas and Volume 497, Page 340 of the Real Property
Records of Zapata County, Texas granting a Lien on the Oil and Gas
Properties of Tesoro LP, as security for the indebtedness defined therein as
"Indebtedness", as the same has been or may from time to time be amended,
supplemented or otherwise modified and the Mortgage Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated
as of the Closing Date granted by Tesoro LP, to Brian Malone as trustee,
granting a Lien on the Oil and Gas Properties of Tesoro LP situated in the
Lopeno Field and Tea Jay Field, as security for the indebtedness defined
therein as "Indebtedness", as the same may from time to time be amended,
supplemented or otherwise modified.
"EBITDA" shall mean, as to the Company and its Subsidiaries on a
consolidated basis and, for each Rolling Period, the amount equal to net
income of the Company and its Subsidiaries, less any non-cash income
included in net income to the extent the applicable cash was not received at
any time during such Rolling Period, plus, to the extent deducted from net
income, interest expense, depreciation, depletion and impairment,
amortization of leasehold and intangibles, other non-cash expenses
(including, but not limited to, write-offs of original issue discount and
deferred financing costs on existing Indebtedness that has been retired or
replaced by Indebtedness permitted by Section 6.05(b), and taxes (excluding
Bolivian taxes paid in kind), provided, that, gains or losses on the
disposition of assets shall not be included in EBITDA.
"Effective Date" shall mean the date on which (i) each of the
conditions precedent set forth in Article III have been satisfied or waived
by each of the Lenders, (ii) the conditions to effectiveness set forth in
Section 9.22 have been satisfied and (iii) the initial Loans have been made,
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the Outstanding Letters of Credit have been assumed, or the initial Letter
of Credit has been issued. Subject to Section 3.01, the Effective Date and
Closing Date may be the same date.
"Eligible Account" shall mean at any time the net invoice or ledger
amount owing on each account (which shall mean any "account" as such term is
defined in Section 9-106 of the UCC and any "chattel paper" as such term is
defined in Section 9-105(b) of the UCC) of any Account Borrowing Base Party
(net of any credit balance, returns, trade discounts, or unbilled amounts or
retention) for which each of the following statements is accurate and
complete (and the Company by including such account in any computation of
the Borrowing Base shall be deemed to represent and warrant to the
Administrative Agent, the Issuing Banks and the Lenders the accuracy and
completeness of such statements):
(a) Said account is a binding and valid obligation of the obligor
thereon in full force and effect;
(b) Said account is genuine as appearing on its face or as
represented in the books and records of the applicable Account
Borrowing Base Party;
(c) Said account is free from claims regarding rescission,
cancellation or avoidance, whether by operation of law or otherwise;
(d) Payment of said account is not more than 90 days past the
invoice date thereof and is less than 60 days past due;
(e) Said account is net of concessions, offset (excluding any
accounts payable offset supported by a Letter of Credit) or
understandings with the obligor thereon of any kind;
(f) Said account is, and at all times will be, free and clear of
all Liens, except in favor of the Administrative Agent, and the
Administrative Agent has a first priority, perfected security interest
in such account;
(g) Said account is derived from goods sold or leased or services
rendered to the obligor in the ordinary course of the applicable
Account Borrowing Base Party's business (other than the sale of
minerals or the like, including oil and gas, at the wellhead or
minehead);
(h) Said account is not (i) carried on the books of such Account
Borrowing Base Party as an "exchange account receivable" or (ii)
subject to an exchange agreement with another Person except for cash
exchange account receivables net of any corresponding payables;
(i) Said account is not payable by an obligor who is more than 60
days past due with regard to 20% or more of the total accounts owed by
such obligor;
(j) The account debtor has sent an invoice within 10 days after
said account has been entered on the financial records of the
appropriate Account Borrowing Base Party;
-7-
(k) All consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority required
to be obtained, effected or given in connection with the execution,
delivery and performance of said account by each party obligated
thereunder have been duly obtained, effected or given and are in full
force and effect;
(l) The obligor on said account (i) is not the subject of any
bankruptcy or insolvency proceeding, has not had a trustee or receiver
appointed for all or a substantial part of its property, has not made
an assignment for the benefit of creditors, admitted its inability to
pay its debts as they mature or suspended its business; and (ii) is not
affiliated, directly or indirectly, with the Company, as a Subsidiary
or other Affiliate, employee or otherwise;
(m) The obligor on said account may be the United States of
America or any branch or agency thereof; provided that no Default has
occurred and is continuing and the Administrative Agent, in its sole
discretion, has determined that said account has been properly assigned
to the Administrative Agent pursuant to the Federal Assignment of
Claims Act;
(n) The goods sold or leased or services rendered resulting in
the right to payment in connection with said account were sold, leased
or rendered in a state or territory of the United States of America
(excluding however, such goods which are sold or leased for export
outside of the United States of America), which is payable in the
United States of America, and the obligor of which is subject to the
jurisdiction of federal or state courts in the United States of
America, unless said account is backed by a letter of credit in form
and substance, and issued by an issuer, acceptable to the
Administrative Agent;
(o) If said account, when added to all other accounts that are
obligations of the same obligor, results in a total sum that exceeds
10% of the total balance then due on all of the applicable Account
Borrowing Base Party's accounts, the amount of said account in excess
of 10% of such total balance then due shall be excluded from Eligible
Accounts; provided, however, if the obligor of said account is Texaco
Inc., Exxon Corporation, Chevron U.S.A. Inc. Shell, Amoco, Arco,
Unocal, Federal Express and Mapco or any wholly owned Subsidiary of any
one of them, or other obligors approved for such purpose by the
Administrative Agent and Documentation Agent in writing (with such
approval being reported to the Lenders), and so long as such obligor
maintains a rating of Baa3 or better with Moody's Investor Services,
Inc., or BBB- or better with Standard & Poors Corporation, then said
account shall be included as an Eligible Account; provided, however,
with respect to any such obligor whose rating drops below the limits
stated above, then during such time, said account shall be included as
an Eligible Account to the extent that the total sum due to any of such
obligors is less than 15% of the total balance then due on all
applicable Account Borrowing Base Party's accounts, and the amount of
said account in excess of 15% of such total balance then due shall be
excluded from Eligible Accounts; and
(p) Said account has not been otherwise determined by the
Administrative Agent or Documentation Agent, in its good faith
discretion, to be unacceptable in accordance with its customary
practices for facilities of this nature.
-8-
"Eligible Inventory" shall mean, at any time, all inventory (as such
term is defined in Section 9-109(4) of the UCC) of the Inventory Borrowing
Base Parties, including, without limitation, but without duplication, the In
Transit Inventory, inventory in the Tesoro Terminals, and inventory at the
KPL Facility (as defined in clause (x) below) for which each of the
following statements is accurate and complete (and the Company by including
such inventory in any computation of the Borrowing Base shall be deemed to
represent and warrant to the Administrative Agent, each Issuing Bank and
each Lender the accuracy and completeness of such statements):
(a) Said inventory is, and at all times will be, free and clear
of all Liens (except for perfected Liens in favor of the Administrative
Agent and, in the case of In Transit Inventory described in the
definition of In Transit Inventory below, Liens securing the payment of
tariffs owed by Tesoro Alaska to a common carrier transporting
feedstocks or blendstocks through the Trans-Alaska Pipeline System or
the KPL Facility, as defined below), and the Administrative Agent has a
first priority, perfected security interest in such inventory;
(b) Said inventory does not include capitalized goods which are
part of inventory of any Inventory Borrowing Base Party;
(c) Said inventory is located in Alaska, California, Texas,
Louisiana or Washington, or to the extent that it qualifies as In
Transit Inventory, is located in the territorial waters of Alaska,
California, Oregon, Texas, Louisiana, Washington or British Columbia,
Canada (and not in international waters); and
(d) Said inventory is not stored at any terminal other than a
Tesoro Terminal.
For purposes of this definition, "In Transit Inventory" shall mean, at any
time, feedstocks, blendstocks or refined products, including asphalt, solely
owned by an Inventory Borrowing Base Party that are in transit:
(x) to the Kenai Refinery (i) from Pump Station No. 1 on the
Trans-Alaska Pipeline System, including feedstocks or blendstocks in
storage at the Valdez Terminal in Valdez, Alaska, (ii) in a tanker or
barge located within Alaska, California, Washington or British
Columbia, Canada or their respective territorial waters (and not in
international waters) that has been time chartered by any Inventory
Borrowing Base Party, (iii) in or on any pipeline, terminal, dock or
storage tank of the KPL in the area of Cook Inlet, Alaska (the "KPL
Facility"), or (iv) in the Cook Inlet Pipeline Company System in the
area of Cook Inlet, Alaska, including feedstocks or blendstocks in
storage at the Drift River Terminal in Drift River, Alaska;
(y) from the Kenai Refinery (i) in a tanker or barge located
within Alaska, California, Oregon, Washington or British Columbia,
Canada or their respective territorial waters (and not in international
waters) that has been time chartered by any Inventory Borrowing Base
Party, (ii) in the Anchorage Pipeline owned by Tesoro Alaska Pipeline
Company (formerly known as the Nikiski Alaska Pipeline), or (iii) in
the KPL Facility (as defined in Clause (x) above); or
-9-
(z) between Alaska, California, Washington, Texas, Louisiana
Oregon or British Columbia, Canada and in their respective territorial
waters (and not in international waters) and is inventory in which the
Administrative Agent has been granted a first priority perfected Lien
which is in effect at such time.
"Eligible Transferee" shall mean any financial institution which is a
Lender as of the Effective Date or which is a commercial bank, a financial
institution or an "accredited investor" (as defined in Regulation D) which
makes loans in the ordinary course of its business and that makes or
acquires Loans for its own account in the ordinary course of its business
and which has capital, surplus and undivided profits aggregating at least
$250,000,000 (as of the date of its most recent financial statements).
"Environmental Laws" shall mean any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all
jurisdictions in which the Company or its Subsidiaries are conducting or at
any time have conducted business, or where any Property of the Company or
its Subsidiaries is located, or where any hazardous substances generated by
or disposed of by the Company or its Subsidiaries are located, including but
not limited to the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as
amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, and other environmental conservation or protection laws.
The term "oil" shall have the meaning specified in OPA; the terms "hazardous
substance," "release" and "threatened release" have the meanings specified
in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have
the meanings specified in RCRA; provided, however, in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date
of such amendment, and provided, further, that, to the extent the laws of
the state in which any Property of the Company or its Subsidiaries is
located establish a meaning for "oil," "hazardous substance," "release,"
"solid waste" or "disposal" which is broader than that specified in either
OPA, CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section
4001(b)(1) of ERISA or Subsections 414(b), (c), (m) or (o) of the Code.
"ERISA Termination Event" shall mean (i) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the
PBGC under Subsections .14, .18, .19 or .20 of Part 2615 of the PBGC
regulations), (ii) the withdrawal of the Company, a Subsidiary of the
Company or any ERISA Affiliate from a Plan during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA,
(iii) the filing of a notice of intent to terminate a Plan or the treatment
-10-
of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC, or (v) any other
event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Plan.
"Eurodollar Loan" shall mean a Revolving Credit Loan bearing interest
at the rate provided in Subsection 2.06(b).
"Eurodollar Rate" shall mean the offered quotation, if any, to
first-class banks in the Eurodollar market by the Administrative Agent for
Dollar deposits of amounts in funds comparable to the principal amount of
the Eurodollar Loan to which such Eurodollar Rate is to be applicable with
maturities comparable to the Interest Period for which such Eurodollar Rate
will apply as of approximately 10:00 a.m. (Houston time) two Business Days
prior to the commencement of such Interest Period.
"Event of Default" shall have the meaning provided in Article VII.
"Exchange Notes" shall mean the 13% Exchange Notes due December 1,
2000, issued by the Company.
"Existing Credit Agreement" shall mean the Credit Agreement dated as of
April 20, 1994 among the Company, Texas Commerce Bank National Association,
as agent, Banque Paribas, as co-agent, and the lenders party thereto, as
amended.
"Existing Indebtedness" shall mean the outstanding Indebtedness under
the Existing Credit Agreement.
"Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by
it.
"Financial Statements" shall mean the consolidated financial statements
of the Company and its Subsidiaries described or referred to in Section
4.06.
"Financing Documents" shall mean this Agreement, the Notes, the
Guaranty Agreement, the Security Instruments, the Applications, the Letters
of Credit, Borrowing Requests, Borrowing Base Reports, and the other
documents, instruments or agreements described in Subsection 3.02(d),
together with any other document, instrument or agreement (other than
participation, agency or similar agreements among the Lenders or between any
Lender and any other bank or creditor with respect to any indebtedness or
obligations of the Company hereunder) now or hereafter entered into in
connection with the Loans, the Indebtedness or the Mortgaged Properties, as
such documents, instruments or agreements may be amended, modified or
supplemented from time to time.
-11-
"Form 1001 Certification" shall have the meaning provided in Section
2.21(f).
"Form 4224 Certification" shall have the meaning provided in Section
2.21(f).
"Funded Indebtedness" shall mean all Indebtedness for borrowed money,
any Capital Lease Obligations and any guaranty with respect to Funded
Indebtedness of another Person, excluding any intercompany Indebtedness
between Consolidating Statement Entities.
"GAAP" shall mean generally accepted accounting principles as applied
in accordance with Section 1.02.
"Governmental Authority" shall mean any (domestic or foreign) federal,
state, province, county, city, municipal or other political subdivision or
government, department, commission, board, bureau, court, agency or any
other instrumentality of any of them, which exercises jurisdiction over the
Company or any of its Property or any Subsidiary of the Company or any of
such Subsidiary's Property.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other direction or
requirement (including but not limited to any of the foregoing which relate
to Environmental Laws, energy regulations and occupational, safety and
health standards or controls) of any Governmental Authority.
"Guaranty Agreement" shall mean the Amended and Restated Guaranty
Agreement dated as of even date herewith executed by the Guarantors.
"Guarantors" shall mean those Subsidiaries designated as Guarantors on
Exhibit C and any other Subsidiary of the Company, other than a
Non-Guarantor Subsidiary, designated as a Guarantor by (i) the Company with
the approval of the Administrative Agent or (ii) the Majority Lenders, in
each case pursuant to Section 5.11.
"Hedge Agreement" shall mean (i) any Hydrocarbon Swap Agreement or (ii)
any Interest Rate Swap Agreement.
"Highest Lawful Rate" shall mean, with respect to each Lender, the
maximum nonusurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the
Notes or on other Lender Indebtedness, as the case may be, owed to it under
the law of any jurisdiction whose laws may be mandatorily applicable to such
Lender notwithstanding other provisions of this Agreement, or law of the
United States of America applicable to such Lender and the Transactions
which would permit such Lender to contract for, charge, take, reserve or
receive a greater amount of interest than under such jurisdiction's law.
"Hydrocarbon Interests" shall mean all rights, titles, leasehold and
other interests and estates in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests
and production payment interests, including any reserve or residual interest
of whatever nature.
-12-
"Hydrocarbon Swap Agreement" shall mean any contract for sale for
future delivery of Hydrocarbons (whether or not the subject Hydrocarbons are
to be delivered), hedging contract, forward contract, swap agreement,
futures contract or other hydrocarbon pricing protection agreement or option
with respect to any such transaction, designed to hedge against fluctuations
in Hydrocarbon prices.
"Hydrocarbons" shall mean oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all products
refined therefrom.
"Improvements" shall mean all improvements owned by Tesoro Alaska now
or hereafter attached to or placed, erected, constructed or developed on the
Refinery Premises (excluding the Property leased pursuant to the Solar
Turbine Lease).
"Indebtedness" of any Person shall mean:
(i) all obligations of such Person which, in accordance with
GAAP, are or should be shown on the balance sheet of such Person as a
liability (including, but not limited to, obligations for borrowed
money and for the deferred purchase price of property or services, and
obligations evidenced by bonds, debentures, notes or other similar
instruments);
(ii) all Capital Lease Obligations;
(iii) all guaranties (direct or indirect), all contingent
reimbursement obligations under undrawn letters of credit and other
contingent obligations of such Person in respect of, or obligations to
purchase or otherwise acquire or to assure payment of, Indebtedness of
others;
(iv) Indebtedness of others secured by any Lien upon Property
owned by such Person, whether or not assumed; and
(v) obligations of such Person under agreements of the types
described in the definitions of Hydrocarbon Swap Agreement and Interest
Rate Swap Agreement.
"Interest Period" shall mean, with respect to each Borrowing of
Eurodollar Loans, an interest period complying with the terms and provisions
of Section 2.07.
"Interest Rate Swap Agreement" shall mean any rate swap, rate cap, rate
floor, rate collar, forward rate agreement or other rate protection
agreement or option with respect to any such transaction, designed to hedge
against fluctuations in interest rates.
"Interior Fuels" shall mean Interior Fuels Company, an Alaska
corporation.
"Inventory Borrowing Base Parties" shall mean Tesoro Alaska, KPL,
Tesoro Coastwide and Tesoro R&M, and "Inventory Borrowing Base Party" shall
mean any one of them.
-13-
"Issuing Bank" shall mean, for each Letter of Credit, BP or The First
National Bank of Chicago as the issuing bank for such Letter of Credit at
the option of the Company.
"Kenai Refinery" shall mean the refinery of Tesoro Alaska located in
the area of Kenai, Alaska, consisting of the Refinery Premises and the Kenai
Refinery Related Property.
"Kenai Refinery Related Property" shall mean (i) all Improvements; (ii)
all Refinery Personal Property; (iii) all water and water rights pertaining
to the Refinery Premises; (iv) all building materials and equipment now or
hereafter delivered to and intended to be installed in or on the Refinery
Premises or on the Improvements; (v) all plans and specifications for the
Improvements; (vi) all rights of Tesoro Alaska (but not its obligations)
under any contracts relating to the Refinery Premises, the Improvements or
the Refinery Personal Property, including without limitation, the Solar
Turbine Lease, but excluding contract rights under contracts containing
prohibitions against assignment of or the granting of a security interest in
the rights of a party thereunder; (vii) all rights of Tesoro Alaska (but not
its obligations) under any accounts, construction contracts, architectural
agreements and general intangibles, other than contract rights under
contracts containing prohibitions against assignment of or the granting of a
security interest in the rights of a party thereunder, (but excluding
trademarks, trade names and symbols) arising from or by virtue of any
transactions related to the Refinery Premises, Improvements or Refinery
Personal Property; (viii) all permits, licenses, franchises, certificates,
and other rights and privileges obtained in connection with the Refinery
Premises, the Improvements and the Refinery Personal Property; (ix) all
proceeds arising from or by virtue of the sale, lease or other disposition
of the Refinery Premises, the Improvements or the Refinery Personal
Property; (x) all proceeds of each policy of insurance relating to the
Refinery Premises, the Improvements or the Refinery Personal Property; (xi)
all proceeds from the taking of any of the Refinery Premises, the
Improvements, the Refinery Personal Property or any rights appurtenant
thereto by right of eminent domain or by private or other purchase in lieu
thereof, including change of grade of streets, curb cuts or other rights of
access, for any public or quasi-public use under any Governmental
Requirement; (xii) all right, title and interest of Tesoro Alaska in and to
all streets, roads, public places, easements and rights-of-way, existing or
proposed, public or private, adjacent to or used in connection with,
belonging or pertaining to the Refinery Premises; (xiii) all of the leases,
rents, royalties, bonuses, issues, profits, revenues or other benefits of
the Refinery Premises, the Improvements or the Refinery Personal Property,
including without limitation, cash or securities deposited pursuant to
leases to secure performance by the lessees of their obligations thereunder;
(xiv) all consumer goods located in, on or about the Refinery Premises or
the Improvements or used in connection with the use or operation thereof;
(xv) all rights, hereditaments and appurtenances pertaining to the
foregoing; and (xvi) all other interests of every kind and character that
Tesoro Alaska now has or at any time hereafter acquires in and to the
Refinery Premises, Improvements and Refinery Personal Property described
herein and all Property that is used or useful in connection therewith,
including, without limitation, rights of ingress and egress and all
reversionary rights or interests of Tesoro Alaska with respect to such
Refinery Premises, Improvements or Refinery Personal Property.
"KPL" shall mean Kenai Pipe Line Company, a Delaware corporation.
"Lender Indebtedness" shall mean any and all amounts owing or to be
owing by the Company to the Administrative Agent, the Issuing Banks or the
Lenders with respect to or in
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connection with the Loans, any Letter of Credit Liabilities, the Notes,
Hedge Agreements permitted hereby with any Lenders or their Affiliates, this
Agreement, or any other Financing Document.
"Lender" shall have the meaning assigned such term in the opening
paragraph of this Agreement.
"Lending Office" shall mean for each Lender the office specified
opposite such Lender's name on the signature pages hereof, or in the
Assignment and Acceptance pursuant to which it became a Lender, with respect
to each Type of Loan, or such other office as such Lender may designate in
writing from time to time to the Company and the Administrative Agent with
respect to such Type of Loan.
"Letters of Credit" shall have the meaning assigned such term in
Section 2.03(a) and shall include the Outstanding Letters of Credit which
are hereby deemed to be issued under this Agreement.
"Letter of Credit Liabilities" shall mean, at any time and in respect
of any Letter of Credit, the sum of (i) the amount available for drawings
under such Letter of Credit as of the date of determination plus (ii) the
aggregate unpaid amount of all Reimbursement Obligations due and payable as
of the date of determination in respect of previous drawings made under such
Letter of Credit.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and including
but not limited to the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purposes of this Agreement,
the Company or any Subsidiary of the Company shall be deemed to be the owner
of any Property which it has acquired or holds subject to a conditional sale
agreement, financing lease or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person for
security purposes.
"Loan" shall mean a Revolving Credit Loan.
"Loan Parties" shall mean the Company and the Guarantors and "Loan
Party" shall mean any one of them.
"Loan Value of Eligible Inventory" shall mean, at a particular date, an
amount equal to the Eligible Inventory at such date, valued at current
market as described on Annex II of the Credit Agreement or valued at current
market as may otherwise be mutually agreed upon from time to time between
the Company and the Administrative Agent.
"Majority Lenders" shall mean at any time (a) prior to the Commitments
expiring or being terminated in full, Lenders holding at least 66-2/3% of
the Commitments in effect at such time, or (b) thereafter, Lenders holding
at least 66-2/3% of the then Aggregate Revolving Credit Exposure.
-15-
"Mandate Event" shall mean the issuance of a mandate favorable to the
Company by the Texas Supreme Court in the case of Lenape Resources Corp. v.
Tennessee Gas Pipeline Company, 39 Tex Sup. Ct. J. 496 (April 18, 1996)
after denying the request, if any, for rehearing requested by Tennessee Gas
Pipeline Company.
"Margin Stock" shall have the meaning provided in Regulation U and
Regulation X.
"Material Adverse Effect" shall mean any material and adverse effect on
the business, financial condition, results of operations or prospects of the
Company and its Subsidiaries taken as a whole.
"Maximum Available Amount" shall mean, at any date, an amount equal to
the lesser of (a) the Borrowing Base as of such date or (b) the Active
Facility Amount as of such date.
"Maximum Revolving Credit Loan Available Amount" shall mean:
(i) prior to the occurrence of both the Mandate Event and the
Collection Event, at any date, an amount equal to the lesser of (a)
fifty percent (50%) of the Active Facility Amount as of such date and
(b) the E&P Borrowing Base as of such date plus $10,000,000; or
(ii) from and after the occurrence of both the Mandate Event and
the Collection Event, $100,000,000.
"Mortgaged Property" shall mean the Company's and the Guarantors'
Properties described in and subject to the Liens, privileges, priorities and
security interests existing and to exist under the terms of the Security
Instruments, including but not limited to the Kenai Refinery and the Oil and
Gas Properties owned by the Company or the Guarantors which have been or are
hereafter mortgaged to the Administrative Agent for the benefit of the
Lenders pursuant to the Security Instruments.
"Non-Guarantor Subsidiary" shall mean a Subsidiary of the Company that
is not indicated as a Guarantor on Exhibit C.
"Non-Recourse Indebtedness" shall mean Indebtedness of a Subsidiary
which is non-recourse to the Company and the other Subsidiaries on terms
satisfactory to the Majority Lenders.
"Notes" shall mean the Revolving Credit Notes.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
properties now or hereafter pooled or unitized with Hydrocarbon Interests;
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including, but
not limited to, units created under orders, regulations and rules of any
Governmental Authority having jurisdiction) which may affect all or any
portion of the Hydrocarbon Interests; all operating agreements, contracts
and other agreements which relate to any of the Hydrocarbon Interests or the
production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; all Hydrocarbons in and under
and which may be produced and saved or
-16-
attributable to the Hydrocarbon Interests, the lands covered thereby and all
oil in tanks and all rents, issues, profits, proceeds, products, revenues
and other incomes from or attributable to the Hydrocarbon Interests; all
tenements, hereditaments, appurtenances and Properties in anywise
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests,
Properties, rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned or
hereafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such
Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and
including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements,
cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and all of
the foregoing.
"Other Taxes" shall have the meaning provided in Subsection 2.21(b).
"Outstanding Letters of Credit" shall mean the Letters of Credit set
forth on Schedule 1.01.
"Payment Office" shall mean the Administrative Agent's office located
at 1200 Smith, Suite 3100, Houston, Texas, 77002; Attention: Ms. Leah
Evans-Hughes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Percentage Share" shall mean, as to any Lender, the fraction,
expressed as a percentage, the numerator of which is the amount of such
Lender's Revolving Credit Commitment and the denominator of which is the
amount of the Aggregate Revolving Credit Commitments.
"Permitted Dividends" shall mean those dividends that the Company is
permitted to declare and pay pursuant to Section 6.08.
"Person" shall mean any individual, partnership, firm, corporation
(including, but not limited to the Company), association, joint venture,
trust or other entity, or any government or political subdivision or agency,
department or instrumentality thereof; provided, however, for the purpose of
the definition of "Change of Control," "Person" shall mean a "person" or
group of persons within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended.
"Plan" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (i) is currently or hereafter sponsored,
maintained or contributed to by the Company, a Subsidiary or an ERISA
Affiliate, or (ii) was at any time during the six calendar years preceding
the date of this Agreement sponsored, maintained or contributed to by the
Company, a Subsidiary or an ERISA Affiliate.
"Prime Rate" shall mean the rate which the Documentation Agent
announces from time to time as its prime rate. Without notice to the
Company or any other Person, the Prime Rate shall change automatically from
time to time as and in the amount by which such prime rate shall
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fluctuate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer. The
Documentation Agent may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proved" shall mean Hydrocarbon reserves which geological and
engineering data demonstrate with reasonable certainty to be economically
recoverable in future years with present operating methods and expenses.
"Proved Undeveloped Hydrocarbon Reserves" shall mean Proved Hydrocarbon
reserves which are not Developed.
"Quarterly Dates" shall mean the last day of each March, June,
September, and December, in each year, the first of which shall be June 30,
1996; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
"Refinery Personal Property" shall mean all equipment, fixtures,
furnishings, inventory and articles of personal property of Tesoro Alaska
(excluding from the foregoing the Property leased pursuant to the Solar
Turbine Lease) now or hereafter attached to or used in or about the
Improvements or that are necessary or useful for the complete and
comfortable use and occupancy of the Improvements for the purposes for which
they were or are to be attached, placed, erected, constructed or developed,
or which are or may be used in or related to the planning, development,
financing or operation of the Improvements, and all renewals of or
replacements or substitutions for any of the foregoing, whether or not the
same are or shall be attached to the Refinery Premises or the Improvements.
"Refinery Premises" shall mean the real property owned by Tesoro Alaska
described on Exhibit A attached to the Alaska Deed of Trust.
"Register" shall mean the register maintained by the Administrative
Agent at its Payment Office showing the name and address of each Lender, its
Commitment, and the principal amount of the Loans owing to each Lender from
time to time.
"Regulation D", "Regulation U" and "Regulation X" shall mean Regulation
D, Regulation U, and Regulation X, respectively, of the Board of Governors
of the Federal Reserve System as from time to time in effect and any
successor thereto.
"Reimbursement Obligations" shall mean, at any date, the obligations of
the Company then outstanding in respect of the Letters of Credit, to
reimburse the Administrative Agent for the account of the Issuing Bank for
the amount paid by the Issuing Bank in respect of any drawings under the
Letters of Credit.
"Reserve Report" shall mean an engineering report meeting the
requirements set forth in Subsection 5.15(e) (and as to scheduled
redeterminations, provided on the dates set forth in such Subsection) and
such other reports, data and supplemental information as may from time to
time be
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reasonably requested by the Administrative Agent in connection with any
redetermination of the E&P Borrowing Base.
"Responsible Officer" shall mean the Chief Executive Officer, the Chief
Financial Officer, the Treasurer, the Controller, the Secretary or the
Assistant Treasurer in each case of the Company.
"Revolving Credit Commitment" shall mean for any Lender, the amount set
forth opposite such Lender's name on Annex I under the caption "Revolving
Credit Commitment", as such amount may be reduced pursuant to Section 2.09
or otherwise from time to time modified pursuant to Section 9.07(b).
"Revolving Credit Exposure" shall mean, at any time and as to each
Lender, the sum of (a) the aggregate principal amount of the Revolving
Credit Loans made by such Lender as of such date plus (b) such Lender's
Percentage Share of the aggregate amount of all Letter of Credit Liabilities
as of such date.
"Revolving Credit Loan" shall have the meaning provided in Subsection
2.01(a); the Revolving Credit Loans shall not include any Letter of Credit
Liabilities.
"Revolving Credit Maturity Date" shall mean June 30, 1999; provided,
however, upon the occurrence of the Mandate Event, it shall mean April 30,
2000.
"Revolving Credit Note" shall mean a promissory note of the Company
described in Section 2.05(a) payable to any Lender and being substantially
in the form of Exhibit A, evidencing the aggregate Indebtedness of the
Company to such Lender resulting from Revolving Credit Loans made by such
Lender.
"Rolling Period" shall mean for each calendar quarter, such quarter and
the three preceding calendar quarters.
"Scheduled Redetermination Date" shall have the meaning assigned to
such term in Section 2.20(d).
"Scotiabank" shall mean The Bank of Nova Scotia, in its individual
capacity and not as Documentation Agent.
"Security Instruments" shall mean the agreements or instruments
described or referred to in Subsections 3.02(d)(ii) through (vii) and any
and all other agreements or instruments now or hereafter executed and
delivered by the Company, any Subsidiary of the Company or any other Person
as security for the payment or performance of the Lender Indebtedness or
previously executed in connection with the Existing Indebtedness.
"Simple Majority Lenders" shall mean at any time (a) prior to the
Commitments expiring or being terminated in full, Lenders holding at least
51% of the Commitments in effect at such time, or (b) thereafter, Lenders
holding at least 51% of the then Aggregate Revolving Credit Exposure.
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"Solar Turbine Lease" shall mean that certain Lease Agreement dated as
of October 1, 1987, from Solar Turbines Incorporated, as lessor, to the
Company, as lessee.
"Standby Letter of Credit" shall mean a letter of credit denominated in
Dollars (i) the terms of which are in the reasonable judgment of the Issuing
Bank for such Letter of Credit standard in the petroleum industry, (ii)
which is used in lieu or in support of performance guarantees or
performance, surety or other similar bonds (but expressly excluding stay and
appeal bonds) arising in the ordinary course of business, (iii) which is
used in lieu or in support of stay or appeal bonds; provided all such
letters of credit used in lieu or in support of stay or appeal bonds shall
not exceed $5,000,000 in aggregate amount at any time outstanding, (iv)
which supports the payment of insurance premiums for reasonably necessary
casualty insurance carried by the Company or any of its consolidated
Subsidiaries, or (v) which supports payment or performance for identified
purchases or exchanges of crude oil, condensate and/or petroleum products.
"Subordinated Debentures" shall mean the 12 % Subordinated Debentures
due March 15, 2001, issued by the Company.
"Subsidiary" of any Person shall mean (a) a corporation of which a
majority of the outstanding shares of stock of each class having ordinary
voting power is owned by such Person, by one or more Subsidiaries of such
Person, or by such Person and one or more of its Subsidiaries and (b) Tesoro
LP.
"TAPL" shall mean Tesoro Alaska Pipeline Company, a Delaware
corporation.
"Taxes" shall have the meaning provided in Subsection 2.21(a).
"Tesoro Alaska" shall mean Tesoro Alaska Petroleum Company, a Delaware
corporation.
"Tesoro Bolivia" shall mean Tesoro Bolivia Petroleum Company, a Texas
corporation.
"Tesoro Coastwide" shall mean collectively, Tesoro Coastwide Services
Company, a Delaware corporation and Coastwide Marine Services, Inc., a Texas
corporation.
"Tesoro E&P" shall mean Tesoro Exploration and Production Company,
Tesoro LP and Tesoro Gas Resources Company, Inc., a Delaware corporation, as
a single consolidated group.
"Tesoro Environmental" shall mean Tesoro Environmental Resources
Company, a Delaware corporation.
"Tesoro LP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"Tesoro Northstore" shall mean Tesoro Northstore Company, an Alaska
corporation.
"Tesoro R&M" shall mean Tesoro Refining, Marketing & Supply Company, a
Delaware corporation.
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"Tesoro Terminals" shall mean the Vancouver Terminal located in the
area of Vancouver, Washington, the Sacramento Terminal located in the area
of Sacramento, California, the Stockton Terminal located in the area of
Stockton, California, the Port Hueneme Terminal located in the area of Port
Hueneme, California and such other terminals which Tesoro Alaska or any
other Inventory Borrowing Base Party owns or has possession of pursuant to a
long-term lease.
"Tesoro Vostok" shall mean Tesoro Vostok Company, a Delaware
corporation.
"Transactions" shall mean the transactions provided for in and
contemplated by this Agreement and the other Financing Documents.
"Type" of Loan shall mean a Base Rate Loan or Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas or, where applicable as to specific Mortgaged
Property, any other relevant state.
Section 1.02 Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared and all financial records
shall be maintained in accordance with GAAP applied on a basis consistent with
the financial statements referred to in Subsection 4.06(a).
Section 1.03 Other Definitional Terms. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, schedule, exhibit and like references are to
this Agreement unless otherwise specified.
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 Commitments.
(a) Loans. Subject to and upon the terms and conditions herein set
forth, each Lender severally agrees on any Business Day prior to the
Revolving Credit Maturity Date, to make Revolving Credit Loans (each a
"Revolving Credit Loan") to the Company.
(b) Types of Loans. The Revolving Credit Loans made pursuant hereto
by each Lender shall, at the option of the Company, be either Base Rate
Loans or Eurodollar Loans and may be continued or converted pursuant to
Section 2.11, provided that, except as otherwise specifically provided
herein, all Loans made pursuant to the same Borrowing shall be of the same
Type.
(c) Revolving Credit Commitments. Each Lender's Revolving Credit
Exposure shall not exceed at any one time its Revolving Credit Commitment;
provided, however, that the Aggregate Revolving Credit Exposure at any one
time outstanding shall not exceed the Maximum Available Amount in effect at
such time; and, provided, further, the aggregate principal amount of all
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Revolving Credit Loans at any one time outstanding shall not exceed the
Maximum Revolving Credit Loan Available Amount in effect at such time.
There may be more than one Borrowing with respect to Revolving Credit Loans
on any day. Within the foregoing limits and subject to the conditions set
out in Article III, the Company may obtain Borrowings of Revolving Credit
Loans, repay or prepay such Revolving Credit Loans, and reborrow such
Revolving Credit Loans.
(d) Active Facility Amount. The Company may from time to time, by
written notice to the Administrative Agent, the Issuing Bank and each
Lender, designate the Active Facility Amount as any amount (in integral
multiples of $1,000,000) not less than $100,000,000 and not in excess of the
Aggregate Revolving Credit Commitments. As of the Closing Date, the Active
Facility Amount shall be $100,000,000 until such time as a new Active
Facility Amount is designated pursuant to the terms of this Section.
(e) Amounts of Borrowings, etc. The aggregate principal amount of
each Borrowing (i) of Eurodollar Loans shall be not less than $5,000,000 and
shall be in an integral multiple of $1,000,000, and (ii) of Base Rate Loans
hereunder shall be not less than $1,000,000 and shall be in an integral
multiple of $100,000, except that any Borrowing of Revolving Credit Loans
that are Base Rate Loans may be in the aggregate amount of the unused
Maximum Revolving Credit Loan Amount in effect at such time. Borrowings of
more than one Type may be outstanding at the same time; provided, however,
that the Company shall not be entitled to request any Borrowing that, if
made, would result in an aggregate of more than four separate Borrowings of
Eurodollar Loans being outstanding at any one time. For purposes of the
foregoing, Borrowings having different Interest Periods, regardless of
whether they commence on the same date, shall be considered separate
Borrowings.
Section 2.02 Borrowing Requests.
(a) Borrowing Requests. Whenever the Company desires to make a
Borrowing hereunder, it shall give Advance Notice in the form of a Borrowing
Request, specifying, subject to the provisions hereof, (i) the aggregate
principal amount of the Loans to be made pursuant to such Borrowing, (ii)
the date of Borrowing (which shall be a Business Day), (iii) whether the
Loans being made pursuant to such Borrowing are to be Base Rate Loans or
Eurodollar Loans, and (iv) in the case of Eurodollar Loans, the Interest
Period to be applicable thereto.
(b) Notice by Administrative Agent. The Administrative Agent shall
promptly give each Lender telecopy or telephonic notice (and, in the case of
telephonic notices, confirmed by telecopy or otherwise in writing) of the
proposed Borrowing, of such Lender's proportionate share thereof and of the
other matters covered by the Advance Notice. Without in any way limiting
the Company's obligation to confirm in writing any telephonic notice, the
Administrative Agent may act without liability upon the basis of telephonic
notice believed by the Administrative Agent in good faith to be from the
Company prior to receipt of written confirmation. In each such case, the
Company hereby waives the right to dispute the Administrative Agent's record
of the terms of such telephonic notice, absent manifest error.
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Section 2.03 Letters of Credit.
(a) Issuance of Letters of Credit. Subject to the terms and
conditions hereof, the Company shall have the right, in addition to
Revolving Credit Loans provided for in Section 2.01, to utilize the
Revolving Credit Commitments from time to time prior to the Revolving Credit
Maturity Date by obtaining the issuance of either Documentary Letters of
Credit or Standby Letters of Credit for the account of any Loan Party by the
Issuing Bank if the Company shall so request in the notice referred to in
Subsection 2.03(b)(i) (such letters of credit being collectively referred to
as the "Letters of Credit"); provided, however, that the Aggregate Revolving
Credit Exposure at any one time outstanding shall not exceed the Maximum
Available Amount in effect at such time. The Letters of Credit may be
issued to support the obligations of the Company or any of its Subsidiaries.
Upon the date of the issuance of a Letter of Credit, the applicable Issuing
Bank shall be deemed, without further action by any party hereto, to have
sold to each Lender, and each Lender shall be deemed, without further action
by any party hereto, to have purchased from the Issuing Bank, a
participation, to the extent of such Lender's Percentage Share, in such
Letter of Credit and the related Letter of Credit Liabilities. No Letter of
Credit issued pursuant to this Agreement shall have an expiry date later
than one year from date of issuance (except for Letters of Credit issued to
support performance bonds on behalf of Tesoro Bolivia), provided that any
Letter of Credit having an expiry date after the Revolving Credit Maturity
Date shall have been fully Covered or shall be backed by a letter of credit
in form and substance, and issued by an issuer, acceptable to each of the
Administrative Agent and the Issuing Bank in their sole discretion,
provided, further, that, subject to the immediately preceding proviso, any
Letter of Credit may give the beneficiary thereof the right to draw such
Letter of Credit unless the expiry date thereof is extended for periods of
up to one year per extension. The Company and the Lenders agree that, as of
the Effective Date, the Outstanding Letters of Credit shall for all purposes
of this Agreement be deemed to be Letters of Credit issued under and
pursuant to the terms of this Agreement.
(b) Additional Letter of Credit Provisions. The following additional
provisions shall apply to each Letter of Credit:
(i) The Company shall give the Administrative Agent and the Issuing
Bank at least one Business Days' prior notice (effective upon receipt), or
in each case, such shorter period as may be agreed to by the Issuing Bank,
specifying the date such Letter of Credit is to be issued (which shall be a
Business Day) and the Issuing Bank and describing: (A) the face amount of
the Letter of Credit, (B) the expiration date of the Letter of Credit, (C)
the name and address of the beneficiary, (D) information concerning the
transaction proposed to be supported by such Letter of Credit as the
Administrative Agent or the Issuing Bank may reasonably request, (E) such
other information and documents relating to the Letter of Credit as the
Administrative Agent or the Issuing Bank may reasonably request, and (F) a
precise description of documents and the verbatim text of any certificate to
be presented by the beneficiary, which, if presented prior to the expiry
date of the Letter of Credit, would require the Issuing Bank to make payment
under the Letter of Credit; provided that the Issuing Bank, in its
reasonable judgment, may require changes in such documents and certificates;
and provided further that the Issuing Bank shall not be required to issue
any Letter of Credit that on its terms requires payment thereunder prior to
the next Business Day following receipt by the Issuing Bank of such
documents and certificates. Each such notice shall be accompanied by the
Issuing Bank's Application and by a certificate executed by a Responsible
Officer setting forth calculations evidencing availability for such Letter
of Credit pursuant to
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Subsection 2.03(b)(ii) and stating that all conditions precedent to such
issuance have been satisfied. Each Letter of Credit shall, to the extent
not inconsistent with the express terms hereof or the applicable
Application, be subject to the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500 (together with any subsequent revisions thereof approved by a Congress
of the International Chamber of Commerce and adhered to by the Issuing
Lender, the "UCP"), and shall, as to matters not governed by the UCP, be
governed by, and construed and interpreted in accordance with, the laws of
the State of Texas. In determining whether to pay any Letter of Credit, the
Issuing Bank shall be responsible only to use reasonable care to determine
that the documents and certificates required to be delivered under that
Letter of Credit have been delivered and that they comply on their face with
the requirements of that Letter of Credit.
(ii) No Letter of Credit may be issued if after giving effect thereto
the Aggregate Revolving Credit Exposure would exceed the Maximum Available
Amount. On each day during the period commencing with the issuance of any
Letter of Credit and until such Letter of Credit shall have expired or have
been terminated, the Revolving Credit Commitment of each Lender shall be
deemed to be utilized for all purposes hereof in an amount equal to such
Lender's Percentage Share of the amount of the Letter of Credit Liabilities
related to such Letter of Credit.
(iii) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment thereunder, the Issuing Bank shall promptly notify the
Company and the Administrative Agent of such demand (provided that the
failure of an Issuing Bank to give such notice shall not affect the
Reimbursement Obligations of the Company hereunder) and the Company shall
immediately, and in any event no later than 11:00 a.m. (Houston, Texas
time) on the date of such drawing, reimburse the Administrative Agent for
the account of the Issuing Bank for any amount paid by the Issuing Bank upon
any drawing under any Letter of Credit, without presentment, demand, protest
or other formalities of any kind in an amount, in same day funds, equal to
the amount of such drawing. Unless prior to 11:00 a.m. (Houston, Texas
time) on the date of such drawing, the Company shall have either notified
the Issuing Bank and the Administrative Agent that the Company intends to
reimburse the Administrative Agent for the account of the Issuing Bank for
the amount of such drawing with funds other than the proceeds of a Revolving
Credit Loan or delivered to the Administrative Agent a Borrowing Request for
Revolving Credit Loans in an amount equal to such drawing, the Company will
be deemed to have given a Borrowing Request to the Administrative Agent
requesting that the Lenders make Revolving Credit Loans which shall be Base
Rate Loans on the date on which such drawing is honored in an amount equal
to the amount of such drawing. Such Loans shall be subject to satisfaction
of the conditions in Article III and to existence of Maximum Revolving
Credit Loan Available Amount. Subject to the preceding sentence, if so
requested by the Administrative Agent, the Lenders shall, on the date of
such drawing, make such Revolving Credit Loans in an amount equal to such
Lender's Percentage Share of such drawing, the proceeds of which shall be
applied directly by the Administrative Agent to reimburse the Issuing Bank
for the amount of such drawing.
(iv) If the Company fails to reimburse the Issuing Bank as provided in
clause (iii) above, the Issuing Bank shall promptly notify the
Administrative Agent and the Administrative Agent shall notify each Lender
of the unreimbursed amount of such drawing and of such Lender's respective
participation therein based on such Lender's Percentage Share. Each Lender
will pay to the Administrative Agent for the account of the applicable
Issuing Bank on the date of such notice an
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amount equal to such Lender's Percentage Share of such unreimbursed drawing
(or, if such notice is made after 11:00 a.m. (Houston, Texas time) on such
date, on the next succeeding Business Day). If any Lender fails to make
available to the Issuing Bank the amount of such Lender's participation in
such Letter of Credit as provided in this clause (iv), the Issuing Bank
shall be entitled to recover such amount on demand from such Lender together
with interest at the Federal Funds Rate for one Business Day and thereafter
at the Base Rate. Nothing in this clause (iv) shall be deemed to prejudice
the right of any Lender to recover from the Issuing Bank any amounts made
available by such Lender to the Issuing Bank pursuant to this clause (iv) if
it is determined by a court of competent jurisdiction that the payment with
respect to a Letter of Credit by the Issuing Bank was wrongful and such
wrongful payment was the result of gross negligence or willful misconduct on
the part of the Issuing Bank. The Issuing Bank shall pay to the
Administrative Agent and the Administrative Agent to each Lender such
Lender's Percentage Share of all amounts received from the Company for
payment, in whole or in part, of the Reimbursement Obligation in respect of
any Letter of Credit, but only to the extent such Lender has made payment to
the Issuing Bank in respect of such Letter of Credit pursuant to this clause
(iv).
(v) The issuance by the Issuing Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Article III, 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 Issuing
Bank, and that the Company shall have executed and delivered such other
instruments and agreements relating to such Letter of Credit as the Issuing
Bank shall have reasonably requested and that are not inconsistent with the
terms of this Agreement including the Issuing Bank's Application therefor.
In the event of a conflict between the terms of this Agreement and the terms
of any Application, the terms of this Agreement shall control.
(vi) As between the Company and the Issuing Bank, the Company assumes
all risks of the acts and omissions of or misuse of the Letters of Credit
issued by the Issuing Bank by the respective beneficiaries of such Letters
of Credit. In furtherance and not in limitation of the foregoing, the
Issuing Bank shall not be responsible: (A) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted
by any Person in connection with the application for or issuance of such
Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; (C) for failure of the
beneficiary of any such Letter of Credit to comply fully with conditions
required in order to draw upon such Letter of Credit, which failure is not
the result of gross negligence or willful misconduct of the Issuing Bank as
determined by a court of competent jurisdiction; (D) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by
mail, cable, telegraph, telex or otherwise, whether or not they are in
cipher; (E) for errors in interpretation of technical terms; (F) for any
loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (G) for the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; and (H)
for any consequences arising from
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causes beyond the control of the Issuing Bank, including, without
limitation, the actions of any governmental authority. None of the above
shall affect, impair, or prevent the vesting of any of the Issuing Bank's
rights or powers hereunder. Notwithstanding anything to the contrary
contained in this clause (vi), the Company shall have no obligation to
indemnify an Issuing Bank in respect of any liability incurred by the
Issuing Bank arising solely out of the gross negligence or willful
misconduct of the Issuing Bank, as determined by a court of competent
jurisdiction.
(vii) The Issuing Bank will send to the Company and the Administrative
Agent immediately upon issuance of any Letter of Credit, or an amendment
thereto, a true and complete copy of such Letter of Credit, or such
amendment thereto. Upon issuance of any Letter of Credit or an amendment
thereto, the Administrative Agent shall promptly notify each Lender of the
terms of such Letter of Credit or amendment thereto, the Issuing Bank for
such Letter of Credit or amendment thereto, and of such Lender's Percentage
Share of the amount of such Letter of Credit or amendment thereto, and the
Administrative Agent shall provide to each Lender a copy of such Letter of
Credit or such amendment thereto. Upon cancellation or termination of any
Letter of Credit, the Issuing Bank shall promptly notify the Administrative
Agent and the Company, and the Administrative Agent will then promptly
notify each Lender, of such cancellation or termination.
(viii) The obligation of the Company to reimburse each Issuing Bank
for Reimbursement Obligations with regard to the Letters of Credit issued by
it and the obligations of Lenders under clause (iv) shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of
this Agreement and under all circumstances including, without limitation,
the following circumstances:
(A) any lack of validity or enforceability of any Letter of
Credit;
(B) the existence of any claim, set-off, defense or other right
that the Company may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), any Lender or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between the
Company or one of its Subsidiaries and the beneficiary for which the Letter
of Credit was procured) other than a defense based on the gross negligence
or willful misconduct of the Issuing Bank, as determined by a court of
competent jurisdiction;
(C) any draft, demand, certificate or any other document
presented under any Letter of Credit is proved to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein is untrue or
inaccurate in any respect;
(D) payment by the Issuing Bank under any Letter of Credit
against presentation of a demand, draft or certificate or other document
that does not comply with the terms of such Letter of Credit, provided that
such payment does not occur as a result of the gross negligence or willful
misconduct of the Issuing Bank, as determined by a court of competent
jurisdiction;
(E) any adverse change in the condition (financial or otherwise)
of the Company;
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(F) any breach of this Agreement or any other Financing Document
by the Company, Administrative Agent or any Lender (other than the Issuing
Bank);
(G) any other circumstance or happening whatsoever which is
similar to any of the foregoing; provided that such other occurrence or
happening is not the result of the gross negligence or willful misconduct of
the Issuing Bank, as determined by a court of competent jurisdiction; or
(H) the fact that a Default shall have occurred and be
continuing.
Section 2.04 Disbursement of Funds.
(a) Availability. No later than 2:00 p.m. (Houston time) on the date
of each Borrowing, each Lender will make available its pro rata portion of
the amount (if any) by which the principal amount of the Borrowing requested
to be made on such date exceeds the principal amount of Loans (if any)
maturing or Reimbursement Obligations (if any) due and owing on such date,
in Dollars and in immediately available funds at the Payment Office. The
Administrative Agent will make available to the Company at the Payment
Office the aggregate of the amounts (if any) so made available by the
Lenders by depositing the same, in immediately available funds, to an
account of the Company at the Administrative Agent designated by the Company
for such purpose. To the extent that Loans mature or Reimbursement
Obligations are due and owing on the date of a requested Borrowing of
Revolving Credit Loans, the Lenders shall apply the proceeds of the
Revolving Credit Loans then being made, to the extent thereof, to the
repayment of such maturing Loans or Reimbursement Obligations, such
Revolving Credit Loans and repayments intended to be a contemporaneous
exchange.
(b) Funds to the Administrative Agent. Unless the Administrative
Agent shall have been notified by any Lender prior to the date of a
Borrowing that such Lender does not intend to make available to the
Administrative Agent such Lender's portion of the Borrowing to be made on
such date, the Administrative Agent may assume that such Lender has made
such amount available to the Administrative Agent on such date, and the
Administrative Agent may make available to the Company a corresponding
amount. If such corresponding amount is not in fact made available to the
Administrative Agent by such Lender on the date of a Borrowing, the
Administrative Agent shall be entitled to recover such corresponding amount
on demand from such Lender together with interest at the Federal Funds Rate.
If such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Company, and the Company shall immediately pay such
corresponding amount to the Administrative Agent together with interest at
the rate specified for the Borrowing which includes such amount paid.
Nothing in this Section shall be deemed to relieve any Lender from its
obligation to fulfill its Commitment hereunder or to prejudice any rights
which the Company may have against any Lender as a result of any default by
such Lender hereunder.
(c) Lenders' Responsibilities. No Lender shall be responsible for any
default by any other Lender in its obligation to make Loans hereunder, and
each Lender shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Lender to fulfill its
Commit- ment hereunder.
Section 2.05 Notes.
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(a) Revolving Credit Notes. The Company's obligation to pay the
principal of, and interest on, the Revolving Credit Loans made by each
Lender shall be further evidenced by the Company's issuance, execution and
delivery of a Revolving Credit Note payable to the order of each such Lender
in the amount of the sum of such Lender's Revolving Credit Commitment and
shall be dated as of the date of issuance of such Revolving Credit Note.
The principal amount of each Revolving Credit Note shall be payable on or
before the Revolving Credit Maturity Date.
(b) Right to Collect on the Notes. The Company and the Guarantors are
personally obligated and fully liable for the amounts due under the Notes.
The Lenders have the right to sue on the Notes and obtain a personal
judgment against the Company and the Guarantors for satisfaction of the
amounts due under the Notes either before or after a judicial foreclosure of
the Alaska Deed of Trust under Alaska Statute 09.45.170 - 09.45.220.
Section 2.06 Interest. In all cases subject to Section 9.13:
(a) Base Rate Loans. Subject to Section 2.06(c), the Company agrees
to pay interest in respect of the unpaid principal amount of each Base Rate
Loan from the date thereof until payment in full thereof at a rate per annum
which shall be, for any day, equal to the sum of the Applicable Margin plus
the Base Rate in effect on such day, but in no event to exceed the Highest
Lawful Rate. The term "Base Rate" shall mean the higher of (i) the Prime
Rate in effect on such day or (ii) one-half of one percent (1/2%) plus the
Federal Funds Rate in effect for such day (rounded upwards, if necessary, to
the nearest 1/16th of 1%), but in no event to exceed the Highest Lawful
Rate. For purposes of this Agreement, any change in the Base Rate due to a
change in the Federal Funds Rate or the Prime Rate shall be effective on the
effective date of such change in the Federal Funds Rate or the Prime Rate,
as the case may be. If for any reason the Administrative Agent shall have
determined (which determination shall be conclusive and binding, absent
manifest error) that it is unable to ascertain the Federal Funds Rate for
any reason, including but not limited to the inability of the Administrative
Agent to obtain sufficient bids or publications in accordance with the terms
hereof, the Base Rate shall be the Prime Rate until the circumstances giving
rise to such inability no longer exist.
(b) Eurodollar Loans. Subject to Section 2.06(c), the Company agrees
to pay interest in respect of the unpaid principal amount of each Eurodollar
Loan from the date thereof until payment in full thereof at a rate per annum
which shall be the sum of the Applicable Margin plus the relevant Eurodollar
Rate, but in no event to exceed the Highest Lawful Rate.
(c) Default Interest. Overdue principal and, to the extent permitted
by law, overdue interest in respect of each Loan and all other amounts owing
hereunder shall bear interest for each day that such amounts are overdue at
a rate per annum equal to three percent (3%) in excess of the Base Rate in
effect for each such day.
(d) Miscellaneous. Interest on each Loan shall accrue from and
including the date of such Loan to but excluding the date of payment in full
thereof. Interest on each Eurodollar Loan shall be payable on the last day
of each Interest Period applicable thereto and, in the case of an Interest
Period in excess of three months, on each day which occurs every three
months after the initial date of such Interest Period, and on any prepayment
(on the amount prepaid), at maturity
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(whether by acceleration or otherwise) and, after maturity, on demand.
Interest on Base Rate Loans shall be payable on each Quarterly Date,
commencing on the first of such days to occur after such Loan is made, at
maturity (whether by acceleration or otherwise) and, after maturity, on
demand.
(e) Notice by the Administrative Agent. The Administrative Agent,
upon determining the Eurodollar Rate for any Interest Period, shall promptly
notify by telephone (confirmed in writing) or in writing the Company and the
Lenders thereof.
Section 2.07 Interest Periods. In connection with each Borrowing of
Eurodollar Loans, the Company shall elect an Interest Period to be applicable to
such Borrowing, which Interest Period shall begin on and include, as the case
may be, the date selected by the Company pursuant to Section 2.02(a), the
conversion date or the date of expiration of the then current Interest Period
applicable thereto, and end on but exclude the date which is either one, two,
three or six months thereafter, as selected by the Company; provided that:
(a) Business Days. If any Interest Period would otherwise expire on a
day which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided, further, that if any Interest Period
(other than in respect of a Borrowing of Eurodollar Loans the Interest
Period of which is expiring pursuant to Section 2.15(b) hereof) would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(b) Month End. Any Interest Period which begins on the last 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 Subsection (c) below, end on the last Business Day of a
calendar month;
(c) Payment Limitations. No Interest Period shall extend beyond any
date that any principal payment or prepayment is scheduled to be due unless
the aggregate principal amount of Borrowings which are Borrowings of Base
Rate Loans or which have Interest Periods which will expire on or before
such date, less the aggregate amount of any other principal payments or
prepayments due during such Interest Period, is equal to or in excess of the
amount of such principal payment or prepayment; and
(d) Maturity Dates. No Interest Period shall extend beyond the
Revolving Credit Maturity Date.
Section 2.08 Repayment of Loans. Subject to the provisions of Sections
2.09, 2.10 and 2.11, the Company shall pay to the Administrative Agent for the
ratable benefit of the Lenders the unpaid principal amount of (i) each
Eurodollar Loan made by such Lender hereunder on the last day of the Interest
Period in respect of such Loan and (ii) each Base Rate Loan on or before the
Revolving Credit Maturity Date.
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Section 2.09 Termination or Reduction of Revolving Credit Commitments.
The Company may, upon at least three Business Days' notice to the Administrative
Agent, terminate entirely at any time, or proportionately reduce from time to
time by an aggregate amount of $5,000,000 or any larger multiple of $1,000,000,
the unused portions of the Revolving Credit Commitments, provided that any such
reduction shall apply proportionately to the Revolving Credit Commitment of each
Lender. If the Revolving Credit Commitments are terminated in their entirety,
all accrued commitment fees with respect thereto shall be payable on the
effective date of such termination.
Section 2.10 Prepayments.
(a) Mandatory Revolving Credit Loan Prepayments. If, after giving
effect to any reduction of the Maximum Revolving Credit Loan Available
Amount as a result of a redetermination of the E&P Borrowing Base as
provided in Section 2.20 or decrease in the Active Facility Amount, the
outstanding aggregate principal amount of the Revolving Credit Loans exceeds
the amount of the Maximum Revolving Credit Loan Available Amount as so
reduced, the Company shall pay or prepay the Revolving Credit Loans in the
amount of such excess, together with interest on the principal amount paid
accrued to the date of such prepayment, pursuant to Section 2.10(d).
(b) Mandatory Borrowing Base Prepayments. If at any time the
Aggregate Revolving Credit Exposure is in excess of the Maximum Available
Amount, the Company shall make a prepayment of Revolving Credit Loans or
provide Cover for Letter of Credit Liabilities, or a combination thereof, in
an amount equal to such excess. Any such Cover shall be provided in full
within five Business Days of the earlier of (i) the date of the Borrowing
Base Report first reporting such excess or (ii) the date on which the
Administrative Agent provides notice thereof to the Company and any such
prepayment, together with interest on the principal amount paid accrued to
the date of such prepayment, shall be made pursuant to Section 2.10(d).
(c) Voluntary Prepayments. The Company may, at its option, at any
time and from time to time, prepay Loans, in whole or in part, without
premium or penalty (other than funding losses, if any, resulting from such
prepayment being made other than on the last day of an Interest Period with
respect to any Eurodollar Loan as provided in Section 2.18), upon giving, in
the case of a Eurodollar Loan, three Business Days' prior written notice to
the Administrative Agent, and, in the case of a Base Rate Loan, on the same
Business Day's with prior written notice by 11:00 a.m. of such day to the
Administrative Agent. Such notice shall specify the date and amount of
prepayment and the Loan or Loans (including the Type thereof) to which such
prepayment is to be applicable. Upon receipt of such notice, the
Administrative Agent shall promptly notify each Lender of the contents
thereof and of such Lender's ratable share of such prepayment. The payment
amount specified in the such notice shall be due and payable on the date
specified. Each prepayment of Base Rate Loans shall be in the minimum
principal amount of $1,000,000 and in integral multiples of $100,000 and
each prepayment of Eurodollar Loans shall be in the minimum principal amount
of $5,000,000 and in integral multiples of $1,000,000 or, in the case of
either Base Rate Loans or Eurodollar Loans, or the aggregate balance
outstanding on the applicable Notes. Each prepayment of Term Loans made
pursuant to this Section shall be accompanied by any funding losses
resulting from such prepayment being made other than on the last day of an
Interest Period with respect to any Eurodollar Loan as provided in Section
2.18. Each prepayment shall be applied ratably to prepay the Loans of the
several Lenders.
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(d) Payment Procedure. Any prepayment required pursuant to Sections
2.10(a) or (b) other than as a result of elections by the Company to
decrease the Active Facility Amount or the Aggregate Revolving Credit
Commitments, if not otherwise paid promptly upon determination of such
required prepayment, shall be paid in full from cash flow available during
the six month period from and after the date that the deficiency requiring
such prepayment is determined (the "Deficiency Period"). All prepayments
pursuant to this Section 2.10 shall be applied first to such Base Rate Loans
which are Revolving Credit Loans as the Company may designate and second to
such Eurodollar Loans which are Revolving Credit Loans as the Company may
designate.
(e) Notice by Administrative Agent. Upon receipt of a notice of
prepayment pursuant to this Section, the Administrative Agent shall promptly
notify each Lender of the contents thereof and of such Lender's ratable
share of such prepayment.
Section 2.11 Continuation and Conversion Options.
(a) Continuation. The Company may elect to continue all or any part
of any Borrowing of Eurodollar Loans beyond the expiration of the then
current Interest Period relating thereto by giving Advance Notice to the
Administrative Agent of such election, specifying the Eurodollar Loan or
portion thereof to be continued and the Interest Period therefor. In the
absence of such a timely and proper election with regard to Eurodollar
Loans, the Company shall be deemed to have elected to convert such
Eurodollar Loan to a Base Rate Loan pursuant to Subsection 2.11(d).
(b) Amounts of Continuations. All or part of any Eurodollar Loan may
be continued as provided herein, provided that any continuation of such Loan
shall not be (as to each Loan as continued for an applicable Interest
Period) less than $5,000,000 and shall be in an integral multiple of
$1,000,000.
(c) Continuation or Conversion Upon Default. If no Default shall have
occurred and be continuing, each Eurodollar Loan may be continued or
converted as provided in this Section. If a Default shall have occurred and
be continuing, the Company shall not have the option to elect to continue
any such Eurodollar Loan pursuant to Subsection 2.11(a) or to convert Base
Rate Loans pursuant to Subsection 2.11(e).
(d) Conversion to Base Rate. The Company may elect to convert any
Eurodollar Loan on the last day of the then current Interest Period relating
thereto to a Base Rate Loan by giving Advance Notice to the Administrative
Agent of such election.
(e) Conversion to Eurodollar Rate. The Company may elect to convert
any Base Rate Loan at any time or from time to time to a Eurodollar Loan by
giving Advance Notice to the Administrative Agent of such election,
specifying each Interest Period therefor.
(f) Amounts of Conversions. All or any part of the outstanding Loans
may be converted as provided herein, provided that any conversion of such
Loans shall not result in a Borrowing of Eurodollar Loans in an amount less
than $5,000,000 and in integral multiples of $1,000,000.
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Section 2.12 Fees.
(a) Revolving Credit Commitments. The Company shall pay to the
Administrative Agent for the account of and distribution to each Lender in
accordance with its Percentage Share a commitment fee for the period
commencing on the Closing Date to and including the Revolving Credit
Maturity Date (or such earlier date as the Revolving Credit Commitments
shall have been terminated entirely) computed at a rate equal to .375% per
annum on the average daily unused amount of the Active Facility Amount,
payable in arrears on the Quarterly Dates, commencing on the first Quarterly
Date to occur after the Closing Date.
(b) Commitments. The Company shall pay to the Administrative Agent
for the account of and distribution to each Lender in accordance with its
Percentage Share a commitment fee for the period commencing on the Closing
Date to and including the Revolving Credit Maturity Date computed at a rate
equal to .1875% per annum on the average daily amount by which the Aggregate
Revolving Credit Commitments exceed the Active Facility Amount, payable in
arrears on the Quarterly Dates, commencing on the first Quarterly Date to
occur after the Closing Date. In the event that the Company elects, at any
time, to increase the Active Facility Amount pursuant to Section 2.01(d),
the Company shall pay to the Administrative Agent for the account of and
distribution to each Lender in accordance with its Percentage Share an
additional commitment fee for the period commencing on the date six months
prior to the date such increase is designated (but in no event earlier than
the later to have occurred of the Closing Date or the date of the last
increase of the Active Facility Amount) to and including such date of
designation computed at a rate equal to .375% per annum on the amount of the
increase so designated. Payment of such additional commitment fee shall be
due and payable upon delivery of the notice of designating the increase as
provided to the Administrative Agent pursuant to Section 2.01(d).
(c) Letters of Credit. (i) As consideration for the issuance of any
Letter of Credit, the Company will pay to the Issuing Bank the greater of
(A) $300 or (B) a fee on the daily average amount available for drawings
under each Letter of Credit, in each case for the period from and including
the date of issuance of such Letter of Credit (or in the case of the
Outstanding Letters of Credit, from and including the Effective Date) to and
excluding the date of expiration or termination thereof computed at a rate
equal to one-fourth of one percent (1/4%) per annum, payable in arrears on
each Quarterly Date. The Company shall pay to the Issuing Bank in arrears
on each Quarterly Date, with respect to any amendment or transfer of any
Letter of Credit and for each drawing made thereunder, documentary and
processing charges in accordance with the Issuing Bank's standard schedule
for such charges in effect at the time of such amendment, transfer or
drawing, as the case may be. All fees payable pursuant to this clause (i)
shall be retained by the applicable Issuing Bank.
(ii) The Company will pay to the Administrative Agent for the account
of and pro rata distribution to each Lender a fee on the daily average
amount available for drawings under each Letter of Credit, in each case for
the period from and including the date of issuance of such Letter of Credit
(or in the case of the Outstanding Letters of Credit, from and including the
Effective Date) to and excluding the date of expiration or termination
thereof computed at a per annum rate for each day equal to the Applicable
Margin for Eurodollar Loans in effect from time to time less one-fourth of
one percent (1/4%) per annum, payable in arrears on each Quarterly Date.
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(d) Administrative Agent and Documentation Agent Fees. The Company
shall pay to the Administrative Agent such fees as are set forth in the
letter agreement between the Administrative Agent and the Company dated as
of March 15, 1996, as the same has been or may be hereafter amended or
supplemented, on the dates specified therein. The Company shall pay to the
Administrative Agent and Documentation Agent such fees as are set forth in
the letter agreement, dated as of March 18, 1996, among the Administrative
Agent, the Documentation Agent and the Company as the same has been or may
be hereafter amended or supplemented, on the dates specified therein.
Section 2.13 Payments, etc.
(a) Without Setoff, etc. Except as otherwise specifically provided
herein, all payments under this Agreement shall be made to the
Administrative Agent on behalf of the Lenders without defense, set-off or
counterclaim to the Administrative Agent not later than 11:00 a.m. Houston
time on the date when due and shall be made in Dollars in immediately
available funds at the Payment Office. The Administrative Agent will
promptly thereafter distribute funds in the form received relating to the
payment of principal or interest or commitment fees ratably to the Lenders
for the account of their respective Lending Offices, and funds in the form
received relating to the payment of any other amount payable to any Lender
to such Lender for the account of its Lending Office.
(b) Non-Business Days. Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding Business
Day (except as otherwise provided in Section 2.07 hereof) and, with respect
to payments of principal, interest thereon shall be payable at the
applicable rate during such extension.
(c) Computations. All computations of interest shall be made on the
basis of a year of 360 days (unless such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a
year of 365 or 366 days, as the case may be) in the case of Eurodollar
Loans, and 365 or 366 days (as the case may be) in the case of Base Rate
Loans, and all computations of fees shall be made on the basis of a year of
360 days (unless such calculation would result in a usurious rate, in which
case interest shall be calculated on the basis of a year of 365 or 366 days,
as the case may be), in each case for the actual number of days (including
the first day but excluding the last day) occurring in the period for which
such interest or fees are payable. Each determination by the Administrative
Agent of an interest rate or fee hereunder shall, except for manifest error,
be final, conclusive and binding for all purposes, provided that such
determination shall be made in good faith in a manner generally consistent
with the Administrative Agent's standard practice. If the Administrative
Agent and the Company determine that manifest error exists, said parties
shall correct such error by way of an adjustment to the payment due on the
next Quarterly Date.
Section 2.14 Interest Rate Not Ascertainable, etc. In the event that the
Administrative Agent shall have determined (which determination shall be
reasonably exercised and shall, absent manifest error, be final, conclusive and
binding upon all parties) that on any date for determining the Eurodollar Rate
for any Interest Period, by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, or any Lender's position in
such market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
Eurodollar Rate, then,
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and in any such event, the Administrative Agent shall forthwith give notice (by
telephone confirmed in writing) to the Company and to the Lenders of such
determination. Until the Administrative Agent notifies the Company that the
circumstances giving rise to the suspension described herein no longer exist,
the obligations of the Lenders to make Eurodollar Loans shall be immediately
suspended; any Eurodollar Loan that is requested (by continuation, conversion or
otherwise) shall instead be made as a Base Rate Loan, and any outstanding
Eurodollar Loan shall be converted, on the last day of the then current Interest
Period applicable thereto, to a Base Rate Loan.
Section 2.15 Illegality.
(a) Determinations of Illegality. In the event that any Lender shall
have determined (which determination shall be reasonably exercised and
shall, absent manifest error, be final, conclusive and binding upon all
parties) at any time that the making or continuance of any Eurodollar Loan
has become unlawful by compliance by such Lender in good faith with any
applicable law, governmental rule, regulation, guideline or order (whether
or not having the force of law and whether or not failure to comply
therewith would be unlawful), then, in any such event, the Lender shall give
prompt notice (by telephone confirmed in writing) to the Company and to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to the other Lenders).
(b) Eurodollar Loans Suspended. Upon the giving of the notice to the
Company referred to in Subsection (a) above, (i) the Company's right to
request (by continuation, conversion or otherwise) and such Lender's
obligation to make Eurodollar Loans shall be immediately suspended, and any
such requested Eurodollar Loan shall instead be made as a Base Rate Loan,
and (ii) if the affected Eurodollar Loan or Loans are then outstanding, the
Company shall immediately, or if permitted by applicable law, no later than
the date permitted thereby, upon at least one Business Day's written notice
to the Administrative Agent and the affected Lender, convert each such
Eurodollar Loan into a Base Rate Loan, provided that if more than one Lender
is affected at any time, then all affected Lenders must be treated the same
pursuant to this Subsection.
Section 2.16 Increased Costs.
(a) Eurodollar Regulations, etc. If, by reason of (x) after the date
hereof, the introduction of or any change (including, but not limited to,
any change by way of imposition or increase of reserve requirements) in or
in the interpretation of any law or regulation, or (y) the compliance with
any guideline or request from any central bank or other governmental
authority or quasi-governmental authority exercising control over banks or
financial institutions generally (whether or not having the force of law):
(i) any Lender (or its applicable Lending Office) shall be
subject to any tax, duty or other charge with respect to its Eurodollar
Loans or its obligation to make Eurodollar Loans, or shall change the
basis of taxation of payments to any Lender of the principal of or
interest on its Eurodollar Loans or its obligation to make Eurodollar
Loans (except for changes in the rate of tax on the overall net income
or gross receipts of such Lender or its applicable Lending Office
imposed by the jurisdiction in which such Lender's principal executive
office or applicable Lending Office is located); or
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(ii) any reserve (including, but not limited to, any imposed by
the Board of Governors of the Federal Reserve System), special deposit
or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender's applicable Lending
Office shall be imposed or deemed applicable or any other condition
affecting its Eurodollar Loans or its obligations to make Eurodollar
Loans shall be imposed on any Lender or its applicable Lending Office
or the interbank Eurodollar market or the secondary certificate of
deposit market;
and as a result thereof there shall be any increase in the cost to such
Lender of agreeing to make or making, funding or maintaining Eurodollar
Loans (except to the extent already included in the determination of the
applicable Eurodollar Rate) or there shall be a reduction in the amount
received or receivable by such Lender or its applicable Lending Office, then
the Company shall from time to time, upon written notice from and demand by
such Lender (with a copy of such notice and demand to the Administrative
Agent), pay to such Lender, within 30 days after the date specified in such
notice and demand, additional amounts determined by such Lender in a
reasonable manner to be sufficient to indemnify such Lender against such
increased cost. A certificate as to the amount of such increased cost and
the calculation thereof, submitted to the Company and the Administrative
Agent by such Lender, shall, except for manifest error, be final, conclusive
and binding for all purposes, provided that the determination of such amount
shall be made in good faith in a manner generally consistent with such
Lender's standard practice.
(b) Costs. If any Lender shall advise the Administrative Agent that
at any time, because of the circumstances described in clauses (x) or (y) in
Subsection 2.16(a) or any other circumstances arising after the Effective
Date affecting such Lender or the interbank Eurodollar market or such
Lender's position in such market, the Eurodollar Rate, as determined in good
faith by the Administrative Agent, will not adequately and fairly reflect
the cost to such Lender of funding its Eurodollar Loans, then, and in any
such event:
(i) the Administrative Agent shall forthwith give notice (by
telephone confirmed in writing) to the Company and to the Lenders of
such advice;
(ii) the Company's right to request and such Lender's obligation
to make Eurodollar Loans shall be immediately suspended, any such
Eurodollar Loan that is requested (by continuation, conversion or
otherwise) shall instead be made as a Base Rate Loan, and any such
outstanding Eurodollar Loan shall be converted, on the last day of the
then current Interest Period applicable thereto, to a Base Rate Loan.
(c) Capital Adequacy. If, by reason of (i) after the date hereof, the
introduction of or any change (including, but not limited to, any change by
way of imposition or increase of reserve requirements) in or in the
interpretation of any law or regulation, or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
or quasi-governmental authority exercising control over banks or financial
institutions generally (whether or not having the force of law) affects or
would affect the amount of capital required to be maintained by any Lender
or any corporation controlling such Lender, and the amount of such capital
is increased by or based upon the existence of such Lender's Commitment to
lend hereunder and other commitments of this Type or of the Letters of
Credit (or similar contingent obligations), then, within 30 days after
written request therefor by such Lender (with a copy of such request to the
Administrative Agent), the
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Company shall pay to such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender for the
increased cost of such additional capital in light of such circumstances, to
the extent that such Lender reasonably determines such increase in capital
to be allocable to the existence of such Lender's Commitment to lend
hereunder or to the issuance or maintenance of the Letters of Credit. A
certificate as to such amounts and the calculation thereof, submitted to the
Company and the Administrative Agent by such Lender, shall be conclusive and
binding for all purposes, absent manifest error, provided that the
determination of such amount shall be made in good faith in a manner
generally consistent with such Lender's standard practice.
(d) Issuing Bank. The rights and benefits of the Lenders under this
Section 2.16 shall also apply to the Issuing Bank in its capacity as such.
(e) Notice. The Company shall not be obligated to compensate any
Lender pursuant to this Section 2.16 for any amounts attributable to a
period more than 90 days prior to the giving of notice by such Lender to the
Company of its intention to seek compensation under this Section 2.16.
Section 2.17 Change of Lending Office. Each Lender agrees that it will
use reasonable efforts to designate an alternate Lending Office with respect to
any of its Eurodollar Loans affected by the matters or circumstances described
in Sections 2.14, 2.15 or 2.16 to reduce the liability of the Company or avoid
the results provided thereunder, so long as such designation is not
disadvantageous to such Lender as determined by such Lender in its sole
discretion; provided that such Lender shall have no obligation to so designate
an alternate Lending Office located in the United States.
Section 2.18 Funding Losses. The Company shall compensate each Lender,
upon its written request (which request shall set forth the basis for requesting
such amounts and which request shall be reasonably exercised and shall, absent
manifest error, be final, conclusive and binding upon all of the parties
hereto), for all losses, expenses and liabilities (including, but not limited
to, any interest paid by such Lender to lenders of funds borrowed by it to make
or carry its Eurodollar Loans to the extent not recovered by the Lender in
connection with the re-employment of such funds and including loss of
anticipated profits), which the Lender may sustain: (i) if for any reason
(other than a default by such Lender) a Borrowing of Eurodollar Loans does not
occur on the date specified therefor in a Borrowing Request (whether or not
withdrawn), (ii) if any repayment (or conversion pursuant to Section 2.16) of
any of its Eurodollar Loans occurs on a date which is not the last day of an
Interest Period applicable thereto, or (iii) if, for any reason, the Company
defaults in its obligation to repay its Eurodollar Loans when required by the
terms of this Agreement.
Section 2.19 Sharing of Payments, etc. If any Lender shall obtain any
payment or reduction (including, but not limited to, any amounts received as
adequate protection of a deposit treated as cash collateral under the Bankruptcy
Code) of any obligation of the Company hereunder (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) in
excess of its ratable share of payments or reductions on account of such
obligations obtained by all the Lenders, such Lender shall forthwith (i) notify
each of the other Lenders and the Administrative Agent of such receipt, and (ii)
purchase from the other Lenders such participations in the affected obligations
as shall be necessary to cause such purchasing Lender to share the excess
payment or reduction, net of costs incurred in connection therewith, ratably
with each of them, provided that if all or any portion of such excess payment or
reduction is thereafter recovered from such purchasing Lender or additional
costs are incurred, the purchase shall be
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rescinded and the purchase price restored to the extent of such recovery or such
additional costs, but without interest. The Company agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Company in the amount of such
participation.
Section 2.20 E&P Borrowing Base.
(a) Redetermination Date; Initial E&P Borrowing Base. The E&P
Borrowing Base shall be determined in accordance with Section 2.20(b) by the
Administrative Agent with the concurrence of the Majority Lenders and is
subject to redetermination in accordance with Section 2.20(d). Upon any
redetermination of the E&P Borrowing Base, such redetermination shall remain
in effect until the next successive Redetermination Date. "Redetermination
Date" shall mean the date that the redetermined E&P Borrowing Base becomes
effective subject to the notice requirements specified in Section 2.20(e)
both for scheduled redeterminations and unscheduled redeterminations.
During the period from and after the Closing Date until the next
Redetermination Date, unless redetermined pursuant to any unscheduled
redeterminations, the amount of the E&P Borrowing Base shall be $45,000,000;
provided, however, if both the Mandate Event and the Collection Event occur
prior to the next Redetermination Date, the amount of the E&P Borrowing Base
shall be increased to $70,000,000.
(b) Redetermination. Upon receipt of the Reserve Reports by the
Administrative Agent, the Administrative Agent will redetermine the E&P
Borrowing Base. Such redetermination by the Administrative Agent, in its
sole discretion, will be in accordance with its normal and customary
procedures for evaluating oil and gas reserves and other related assets as
such exist at that particular time. The Administrative Agent shall propose
to the Lenders a new E&P Borrowing Base within 15 days following receipt by
the Administrative Agent and the Lenders of the complete Reserve Reports.
After having received notice of such proposal by the Administrative Agent,
the Majority Lenders shall have 15 days to agree or disagree with such
proposal. If at the end of the 15 days, the Majority Lenders have not
communicated their approval or disapproval, such silence shall be deemed to
be an approval and the Administrative Agent's proposal shall be the new E&P
Borrowing Base. If however, the Majority Lenders notify Administrative
Agent within 15 days of their disapproval, the Majority Lenders shall,
within a reasonable period of time, agree on a new E&P Borrowing Base.
(c) Exclusion of Certain Property. The Administrative Agent in its
reasonable discretion, may exclude any Oil and Gas Property or portion of
production therefrom or any income from any other Property from the E&P
Borrowing Base, at any time and for any reason, including, but not limited
to, the following: the title information for such Property is not
satisfactory, such Property is not Mortgaged Property, such Property is
located outside of the United States of America, or such Property is not
assignable.
(d) Time of Redetermination, etc. So long as any of the Commitments
are in effect and so long as there remains any Revolving Credit Exposure as
to any Lender, on or around the first Business Day of each October 1 and
April 1, commencing October 1, 1996 (each being a "Scheduled Redetermi-
nation Date"), the Administrative Agent, the Documentation Agent and the
Lenders shall redetermine the amount of the E&P Borrowing Base in accordance
with Section 2.20(b). In
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addition, the Simple Majority Lenders may elect to initiate, at any other
time as they so elect, one unscheduled redetermi- nation of the E&P
Borrowing Base during any consecutive twelve (12) month period by specifying
in writing to the Company the date on which the Company is to furnish a
Reserve Report and the date on which such redetermination is to occur. The
Company may initiate up to two additional redeterminations of the E&P
Borrowing Base in any calendar year. Each such request shall be accompanied
by a Reserve Report and a $10,000 redetermination fee for the account of the
Administrative Agent. In the event of any such unscheduled redetermination,
the Administrative Agent, the Documentation Agent and the Lenders shall
redetermine the amount of the E&P Borrowing Base in accordance with Section
2.20(b).
(e) Notice by Administrative Agent. The Administrative Agent shall
promptly notify in writing the Company and the Lenders of the new E&P
Borrowing Base. Any redetermination of the E&P Borrowing Base shall not be
in effect until written notice is received by the Company.
Section 2.21 Taxes.
(a) Payments Free and Clear. Any and all payments by the Company
under this Agreement or any other Financing Document shall be made, in
accordance with Section 2.13, free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the
case of each Lender, the Administrative Agent and each Issuing Bank, taxes
imposed on its income, and franchise or similar taxes imposed on it, by (i)
any jurisdiction (or political subdivision thereof) of which the
Administrative Agent, the Issuing Bank or such Lender, as the case may be,
is a citizen or resident or in which such Lender has a permanent
establishment (or is otherwise engaged in the active conduct of its banking
business through an office or a branch) which is such Lender's applicable
Lending Office, (ii) the jurisdiction (or any political subdivision thereof)
in which the Administrative Agent, the Issuing Bank or such Lender is
organized, or (iii) any jurisdiction (or political subdivision thereof) in
which such Lender, the Issuing Bank or the Administrative Agent is presently
doing business which taxes are imposed solely as a result of doing business
in such jurisdiction (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities so arising out of payments
by the Company being hereinafter referred to as "Taxes"). If the Company
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders, the Issuing Banks or the Administrative
Agent (i) the sum payable shall be increased by the amount necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.21) such Lender, the Issuing
Bank or the Administrative Agent (as the case may be) shall receive an
amount equal to the sum it would have received had no such deductions been
made, (ii) the Company shall make such deductions and (iii) the Company
shall pay the full amount deducted to the relevant taxing authority or other
Governmental Authority in accordance with applicable law.
(b) Other Taxes. In addition, the Company agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to,
this Agreement, any Assignment and Acceptance or any other Financing
Document (hereinafter referred to as "Other Taxes").
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(c) Indemnification. The Company will indemnify each Lender, each
Issuing Bank and the Administrative Agent for the full amount of Taxes and
Other Taxes (including, but not limited to, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.21) paid by such
Lender or the Issuing Bank or the Administrative Agent (on their behalf or
on behalf of any Lender), as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Any payment pursuant to such indemnification shall be made within 30 days
after the date any Lender, the Issuing Bank or the Administrative Agent, as
the case may be, makes written demand therefor. If any Lender, the Issuing
Bank or the Administrative Agent receives a refund or credit in respect of
any Taxes or Other Taxes for which such Lender, the Issuing Bank or the
Administrative Agent has received payment from the Company hereunder it
shall promptly notify the Company of such refund or credit and shall, within
30 days after receipt of a request by the Company (or promptly upon receipt,
if the Company has requested application for such refund or credit pursuant
hereto), pay an amount equal to such refund or credit to the Company without
interest (but with any interest so refunded or credited), provided that the
Company, upon the request of such Lender, the Issuing Bank or the
Administrative Agent, agrees to return such refund or credit (plus
penalties, interest or other charges) to such Lender, the Issuing Bank or
the Administrative Agent in the event such Lender, the Issuing Bank or the
Administrative Agent is required to repay such refund or credit.
(d) Receipts. Within 30 days after the date of any payment of Taxes
or Other Taxes withheld by the Company in respect of any payment to any
Lender, the Issuing Bank or the Administrative Agent, the Company will
furnish to the Administrative Agent the original or a certified copy of a
receipt evidencing payment thereof.
(e) Survival. Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section 2.21 shall survive the payment in full of principal and interest
hereunder.
(f) Lender Representations. Each Lender represents that it is either
(i) a corporation organized under the laws of the United States of America
or any state thereof or (ii) it is entitled to complete exemption from
United States withholding tax imposed on or with respect to any payments,
including fees, to be made to it pursuant to this Agreement (A) under an
applicable provision of a tax convention to which the United States of
America is a party or (B) because it is acting through a branch, agency or
office in the United States of America and any payment to be received by it
hereunder is effectively connected with a trade or business in the United
States of America. Each Lender that is not a corporation organized under
the laws of the United States of America or any state thereof agrees to
provide to the Company and the Administrative Agent on the Effective Date,
or on the date of its delivery of the Assignment and Acceptance pursuant to
which it becomes a Lender, and at such other times as required by United
States law or as the Company or the Administrative Agent shall reasonably
request, two accurate and complete original signed copies of either (A)
Internal Revenue Service Form 4224 (or successor form) certifying that all
payments to be made to it hereunder will be effectively connected to a
United States trade or
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business (the "Form 4224 Certification") or (B) Internal Revenue Service
Form 1001 (or successor form) certifying that it is entitled to the benefit
of a provision of a tax convention to which the United States of America is
a party which completely exempts from United States withholding tax all
payments to be made to it hereunder (the "Form 1001 Certification"). In
addition, each Lender agrees that if it previously filed a Form 4224
Certification it will deliver to the Company and the Administrative Agent a
new Form 4224 Certification prior to the first payment date occurring in
each of its subsequent taxable years; and if it previously filed a Form 1001
Certification, it will deliver to the Company and the Administrative Agent a
new certification prior to the first payment date falling in the third year
following the previous filing of such certification. Each Lender also
agrees to deliver to the Company and the Administrative Agent such other or
supplemental forms as may at any time be required as a result of changes in
applicable law or regulation in order to confirm or maintain in effect its
entitlement to exemption from United States withholding tax on any payments
hereunder, provided that the circumstances of the Lender at the relevant
time and applicable laws permit it to do so. If a Lender determines, as a
result of any change in either (i) applicable law, regulation or treaty, or
in any official application thereof or (ii) its circumstances, that it is
unable to submit any form or certificate that it is obligated to submit
pursuant to this Section, or that it is required to withdraw or cancel any
such form or certificate previously submitted, it shall promptly notify the
Company and the Administrative Agent of such fact. If a Lender is organized
under the laws of a jurisdiction outside the United States of America,
unless the Company and the Administrative Agent have received a Form 1001
Certification or Form 4224 Certification satisfactory to them indicating
that all payments to be made to such Lender hereunder are not subject to
United States withholding tax, the Company shall withhold taxes from such
payments at the applicable statutory rate, provided that such withholding
shall not increase the amount of payments for the account of such Lender to
be made by the Company pursuant to Subsection 2.21(a). Each Lender agrees
to indemnify and hold harmless from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or payable by (i) the
Administrative Agent as a result of such Lender's failure to submit any form
or certificate that it is required to provide pursuant to this Section or
(ii) the Company or the Administrative Agent as a result of their reliance
on any such form or certificate which it has provided to them pursuant to
this Section.
(g) Efforts to Avoid or Reduce. Any Lender claiming any additional
amounts payable pursuant to this Section 2.21 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate
or document requested by the Company or the Administrative Agent or to
change the jurisdiction of its applicable Lending Office or to contest any
tax imposed if the making of such a filing or change or contesting such tax
would avoid the need for or reduce the amount of any such additional amounts
that may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.
Section 2.22 Pro Rata Treatment. Except as required under Section 2.15 or
2.16, each Borrowing, each payment or prepayment of principal of any Borrowing,
each payment of interest on the Loans, each payment of the fees, each reduction
of the Commitments, and each refinancing of any Borrowing with, conversion of
any Borrowing to or continuation of any Borrowing as a Borrowing of any Type
shall be allocated ratably and pro rata among the Lenders in accordance with
their respective Percentage Share. Each Lender agrees that in com- puting such
Lender's portion of any Borrowing to be made hereunder, the Administrative Agent
may, in its discretion, round each Lender's portion of such Borrowing to the
next higher or lower whole dollar amount.
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Section 2.23 Disposition of Proceeds. The E&P Mortgage contains an
assignment by Tesoro E&P to the Administrative Agent of all production and all
proceeds attributable thereto which may be produced from or allocated to the Oil
and Gas Properties described therein, and the E&P Mortgage further provides in
general for the application of such proceeds to the satisfaction of the
indebtedness, liabilities and obligations described therein and secured thereby.
Notwithstanding such assignment in such E&P Mortgage, the Administrative Agent,
the Issuing Banks and the Lenders hereby grant to Tesoro E&P a license to
receive, collect and use the proceeds attributable to such production and agree
not to notify the purchaser or purchasers of such production and not to take any
other action to cause such proceeds to be remitted to the Administrative Agent,
the Issuing Banks or the Lenders, in each case unless and until an Event of
Default has occurred and is continuing; provided that so long as no Default has
occurred and is continuing, the Administrative Agent shall execute and deliver a
letter in the form of Exhibit F to such Persons as the Company may direct;
provided, further, if the Administrative Agent, the Issuing Bank or any Lender
shall receive any such proceeds directly from any such purchaser prior to the
occurrence and continuation of a Default, then such Person so receiving such
proceeds shall notify the Company thereof and upon request of the Company and
pursuant to its written instructions shall promptly remit such proceeds to the
Company for the account of Tesoro E&P.
Section 2.24 Senior Debt. The Lender Indebtedness is Senior Debt as such
term is defined in that certain Subordination Agreement dated December 15, 1993,
among the Company, Tesoro Alaska, and the State of Alaska, attached as Exhibit 7
to the Settlement Agreement dated December 15, 1992, among the Company, Tesoro
Alaska, and the State of Alaska.
ARTICLE III
CONDITIONS TO BORROWINGS AND TO
PURCHASE, RENEWAL AND REARRANGEMENT
The obligation of each Lender to make a Loan or an Issuing Bank to issue a
Letter of Credit hereunder is subject to the satisfaction of the following
conditions:
Section 3.01 Closing. The Company shall have delivered to the
Administrative Agent on or before the Closing Date all instruments, certificates
and opinions referred to in Section 3.02 not theretofore delivered.
Section 3.02 Conditions Precedent to Initial Loan. At the time of the
making by such Lender of its initial Loan hereunder or the issuance by the
Issuing Bank of the initial Letter of Credit (including, but not limited to, the
assumption by the Lenders of the Outstanding Letters of Credit), all obligations
of the Company hereunder to the Administrative Agent or any Lender incurred
prior to such initial Loan or Letter of Credit (including, but not limited to,
the Company's obligation to reimburse the reasonable fees and disbursements of
counsel to the Administrative Agent for which the Company has been provided an
invoice and any fees payable to the Lenders or the Administrative Agent on or
before the Effective Date), shall have been paid in full, and the Administrative
Agent shall have received the following, each dated as of the Closing Date, in
form and substance satisfactory to the Administrative Agent, with an original
thereof for the Administrative Agent and with sufficient copies thereof for each
Lender (except that in the case of the Notes, the originals thereof will be
delivered to the respective Lenders):
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(a) Notes - A duly completed and executed Revolving Credit Note for
each Lender and in each case payable to the order of the Administrative
Agent for the benefit of such Lender.
(b) Resolutions and Incumbency Certificates -
(i) certified copies of the resolutions of the Board of
Directors of the Company and its Subsidiaries that are parties to any
Financing Document approving, as appropriate, the Loans, the Notes,
this Agreement and the other Financing Documents, and all other
documents, if any, to which the Company or such Subsidiary is a party
evidencing corporate authorization with respect to such documents;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company certifying (A) the name, title and true signature of each
officer of such Person authorized to execute the Notes, this Agreement,
Applications and the other Financing Documents to which it is a party,
(B) the name, title and true signature of each officer of such Person
authorized to provide the certifications required pursuant to this
Agreement including, but not limited to, certifications required
pursuant to Section 5.15, Borrowing Requests, and Borrowing Base
Reports, and (C) that attached thereto is a true and complete copy of
the articles of incorporation and bylaws of the Company, as amended to
date, and a recent good standing certificate; and
(iii) a certificate of the Secretary or an Assistant Secretary of
each Subsidiary that is a party to any Financing Document certifying
(x) the name, title and true signature of each officer of each
Subsidiary authorized to execute each such Financing Document to which
it is a party, and (y) that attached thereto is a true and complete
copy of the articles of incorporation and bylaws of such Subsidiary, as
amended to date, and a recent good standing certificate.
(c) Opinions of Counsel - Favorable written opinions of Fulbright &
Jaworski L.L.P., counsel to the Company and its Subsidiaries, James C. Reed,
Jr., special counsel to the Company, and Groh, Eggers & Price, local Alaska
counsel to the Company, in each case addressed to the Administrative Agent,
the Issuing Bank and each of the Lenders, in form and substance satisfactory
to the Administrative Agent, as to such matters incident to the Transactions
as any Lender through the Administrative Agent, the Issuing Bank or the
Administrative Agent may reasonably request.
(d) The Security Instruments -
(i) Guaranty Agreement;
(ii) Security Agreements or Amended and Restated Security
Agreements, as applicable, dated as of the Closing Date executed by
each of the Company, Tesoro Alaska, Tesoro R&M, KPL, Tesoro Coastwide
and Tesoro Vostok, granting to the Administrative Agent a first
priority security interest in all personal Property described therein
of each such Person, as security for the indebtedness respectively
defined therein as the "Obligations;"
(iii) Pledge Agreements dated as of the Closing Date executed by
the Company granting to the Administrative Agent a first priority
security interest in 100% of the capital
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stock of Tesoro Alaska, Tesoro R&M, Tesoro Exploration and Production
Company, Tesoro Gas Resources Company, Inc., Tesoro Natural Gas Company
and TAPL, as security for the Lender Indebtedness;
(iv) Amendment of the Alaska Deed of Trust;
(v) the E&P Mortgage and any amendments thereto;
(vi) Financing Statements, as appropriate, to perfect the
security interests created by the instruments delivered under clauses
(ii) through (v) above;
(vii) Stock certificates and corresponding stock powers to
perfect the Administrative Agent's security in the stock pledged by the
instrument delivered under clause (iv) above;
(viii) all Property in which the Administrative Agent shall, at
such time, be entitled to have a Lien pursuant to this Agreement or any
other Financing Document shall have been physically delivered to the
possession of the Administrative Agent or any bailee accepted by the
Administrative Agent to the extent that such possession is necessary
for the purpose of perfecting the Administrative Agent's Lien in such
collateral security;
(ix) the Cash Collateral Account Agreement described in the
definition of "Cover";
(x) Assignment and Acceptance Agreement from each of the
lenders in the Existing Credit Agreement to the Lenders;
(xi) Assignment of Liens;
(xii) Confirmation letter acknowledged by State of Alaska
regarding subordinate states; and
(xiii) Notice to National Bank of Alaska in connection with
intercreditor agreement.
(e) Insurance. A certificate of insurance coverage of the Company and
its Subsidiaries evidencing that the Company is carrying insurance in
accordance with Section 5.05 hereof. In addition, the Administrative Agent
shall have received evidence satisfactory to the Administrative Agent that
the Kenai Refinery and Tesoro Terminals are not situated in an area that has
been identified by the Director of the Federal Emergency Management Agency
or any other Governmental Authority as an area having special flood hazards.
Should it be determined, however, that the Kenai Refinery is situated in an
area identified as having special flood hazards, the Administrative Agent
shall have received a copy of the applicable flood insurance policy (or
policy applications), in form and substance satisfactory to the
Administrative Agent, indicating that the maximum limits of coverage have
been obtained and that the full premium therefor has been paid in full.
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(f) Title Opinions. Title opinions as the Administrative Agent may
require from attorneys satisfactory to the Administrative Agent setting
forth the status of title to the Oil and Gas Properties that constitute a
part of the Mortgaged Property.
(g) Title Insurance; Survey. An endorsement to the existing
Mortgagee's Policy of Title Insurance, in form and substance satisfactory to
the Administrative Agent, insuring the lien granted pursuant to the Alaska
Deed of Trust and the most recent survey covering the Refinery Premises.
(h) Miscellaneous. Such other documents or conditions precedent which
the Administrative Agent may reasonably have requested or require in its
sole discretion.
Section 3.03 Conditions Precedent to Each Loan. At the time of the making
by such Lender of each Loan, including the initial Loan but not including
continuations or conversions pursuant to Section 2.11 (before as well as after
giving effect to such Loan and to the proposed use of the proceeds thereof):
(a) Notes. The Company shall have issued, executed and delivered the
Notes;
(b) No Default. There shall exist no Default or Event of Default;
(c) Representations and Warranties. Except for facts timely disclosed
to the Administrative Agent from time to time in writing, not materially
more adverse to the Company and its Subsidiaries than those existing on the
Effective Date, all representations and warranties contained herein and in
the other Financing Documents executed and delivered on or after the date
hereof shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and as
of the date of such Loan; and
(d) Documentation. The Administrative Agent shall have received such
other documents as the Administrative Agent or any Lender or special counsel
to the Administrative Agent may reasonably request, all in form and
substance satisfactory to the Administrative Agent.
Each Borrowing Request submitted by the Company, and the acceptance by the
Company of the proceeds of such Borrowing (but not including continuations or
conversions pursuant to Section 2.11), shall constitute a representation and
warranty by the Company, as of the date of the Loans comprising such Borrowing,
that the conditions specified in Subsections 3.03(b) and (c) have been
satisfied.
Section 3.04 Recordings. The Security Instruments and accompanying
financing statements covering the Mortgaged Property, or other notices related
thereto if necessary or appropriate, shall have been duly delivered by the
Administrative Agent to the appropriate offices for filing or recording.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement, the Company
represents and warrants to the Lenders (which representations and warranties
will survive the delivery of the Notes) that:
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Section 4.01 Corporate Existence. The Company and each of its
Subsidiaries are corporations duly organized, legally existing and in good
standing under the laws of the jurisdictions in which they are incorporated and
are duly qualified as foreign corporations in all jurisdictions wherein the
Property owned or the business transacted by them makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect.
Section 4.02 Corporate Power and Authorization. The Company is authorized
and empowered to create and issue the Notes; the Company and each of its
Subsidiaries are duly authorized and empowered to execute, deliver and perform
the Financing Documents, including this Agreement, to which they respectively
are parties; and all corporate action on the Company's part requisite for the
due creation and issuance of the Notes on the Company's and each of its
Subsidiaries' respective part requisite for the due execution, delivery and
performance of the Financing Documents, including this Agreement, to which the
Company and each of its Subsidiaries respectively are parties has been duly and
effectively taken.
Section 4.03 Binding Obligations. This Agreement does, and the Notes and
other Financing Documents to which the Company and each of its Subsidiaries
respectively are parties upon their creation, issuance, execution and delivery
will, when issued and delivered under this Agreement, constitute valid and
binding obligations of the Company and each such Subsidiary that is a party
thereto, respectively, and will be enforceable in accordance with their
respective terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights and subject to the availability of equitable remedies).
Section 4.04 No Legal Bar or Resultant Lien. The Notes and the other
Financing Documents, including this Agreement, to which the Company or any of
its Subsidiaries is a party do not and will not violate or create a default
under any provisions of the articles or certificate of incorporation or bylaws
of the Company or any of its Subsidiaries, or any contract, agreement,
instrument or Governmental Requirement to which the Company or any of its
Subsidiaries is subject, or result in the creation or imposition of any Lien
upon any Properties of the Company or any of its Subsidiaries, other than those
violations and defaults that would not affect the Company's or such
Subsidiaries' use of such Properties or those permitted by this Agreement.
Section 4.05 No Consent. Except as set forth on Schedule 4.05, the
Company's and each of its Subsidiaries' respective execution, delivery and
performance of the Notes and the other Financing Documents, including this
Agreement, to which the Company and each such Subsidiary respectively are
parties do not require notice to or filing or registration with, or the
authorization, consent or approval of or other action by any other Person,
including, but not limited to, any Governmental Authority.
Section 4.06 Financial Information.
(a) Annual Financial Statements. The consolidated balance sheet of
the Company and its Subsidiaries as of December 31, 1995, and the related
consolidated statements of income, retained earnings and cash flows for the
12-month period then ended, including in each case the related schedules and
notes, reported on by Deloitte & Touche, true copies of which have been
previously delivered to each of the Lenders, fairly present the consolidated
financial condition of the Company and its Subsidiaries as at the date
thereof and the consolidated results of operations and the cash flows for
such period, in accordance with generally accepted accounting principles
applied on a consistent basis. The unaudited consolidating balance sheet of
the Consolidating
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Statement Entities as of December 31, 1995, and the related unaudited
consolidating statements of income and cash flows, form the basis of the
Company's consolidated financial statements and are fairly stated in all
material respects when considered in relation thereto.
(b) No Material Adverse Effect. Since December 31, 1995, there has
been no event or occurrence that could reasonably be expected to have a
Material Adverse Effect.
Section 4.07 Investments and Guaranties. At the date of this Agreement,
neither the Company nor any of its Subsidiaries has made investments in or
advances to any Person or guaranties of the obligations of any Person that is
not a Subsidiary of the Company, except those permitted by Subsections 6.09(b)
through (f), those reflected in the Financial Statements or described in
Schedule 4.07.
Section 4.08 Litigation. Except as set forth in Schedule 4.08, there is
no action, suit or proceeding, or any governmental investigation or any
arbitration, in each case pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or any material
Property of any thereof before any court or arbitrator or any Governmental
Authority which (i) challenges the validity of this Agreement, any Note, any
Application, the Guaranty Agreement, or any of the other Financing Documents or
(ii) if adversely determined would have a Material Adverse Effect.
Section 4.09 Use of Proceeds. The proceeds of the Revolving Credit Loans
will be used only to refinance the Existing Indebtedness, provide working
capital and for general corporate purposes of the Loan Parties, and to the
extent specifically permitted hereunder, Non-Guarantors and after the occurrence
of both the Mandate Event and the Collection Event pay-off up to $15,000,000 of
principal outstanding under the Subordinated Debentures and the Exchange Notes
in the aggregate. The Letters of Credit shall be used only for the purposes
provided in Section 2.03. Neither the Company nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying Margin Stock (within the meaning of Regulation U or X) and no
part of the proceeds of any Loan hereunder will be used to buy or carry any
Margin Stock. Neither the Company nor any Person acting on behalf of the
Company has taken or will take any action which might cause the Notes or any of
the Financing Documents, including this Agreement, to violate Regulation U or X
or any other regulation of the Board of Governors of the Federal Reserve System
or to violate Section 7 of the Securities and Exchange Commission (or any
successor thereto) or any rule or regulation thereunder, in each case as now in
effect or as the same may hereinafter be in effect.
Section 4.10 Compliance with ERISA. Neither the Company, any of its
Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or
has at any time in the six-year period preceding the date of this Agreement
sponsored, maintained or contributed to, any Plan, including, but not limited
to, any Plan which is a "multi-employer plan" as such term is defined in Section
3(37) or 4001(a)(3) of ERISA. Except as set forth in Schedule 4.10, each Plan
described in such schedule has been terminated with no resulting liability to
the PBGC. No act, omission or transaction has occurred which could result in
imposition on the Company, any of its Subsidiaries or any ERISA Affiliate
(whether directly or directly) of (i) either a civil penalty assessed pursuant
to Sections 502(c) or 502(i) of ERISA or a tax imposed pursuant to Section 4975
of the Code, or (ii) breach of fiduciary duty liability damages under Section
409 of ERISA, which in each case would have a Material Adverse Effect.
Section 4.11 Taxes; Governmental Charges. The Company and its
Subsidiaries have filed all tax returns and reports required to be filed and
have paid all taxes, assessments, fees and other governmental
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charges levied upon any of them or upon any of their respective Properties or
income which are due and payable, including interest and penalties, or have
provided adequate reserves for the payment thereof if required in accordance
with generally accepted accounting principles for the payment thereof, except
such interest and penalties as are being contested in good faith by appropriate
actions or proceedings and for which adequate reserves for the payment thereof
as required by general accepted accounting principles have been provided.
Section 4.12 Titles, etc. The Company and its Subsidiaries have
indefeasible title to their respective material (individually or in the
aggregate) Properties, free and clear of all Liens except (i) Liens referred to
in the Financial Statements, (ii) Liens disclosed to the Lenders in Schedule
4.12, (iii) Liens and minor irregularities in title which do not materially
interfere with the occupation, use and enjoyment by the Company or any
Subsidiary of the Company of any of their respective Properties in the normal
course of business as presently conducted or materially impair the value thereof
for such business, or (iv) Liens otherwise permitted or contemplated by this
Agreement or the other Financing Documents.
Section 4.13 Defaults. Neither the Company nor any of its Subsidiaries is
in default nor has any event or circumstance occurred which, but for the passage
of time or the giving of notice, or both, would constitute a default (in any
respect that would have a Material Adverse Effect) under any loan or credit
agreement, indenture, mortgage, deed of trust, security agreement or other
instrument or agreement evidencing or pertaining to any Indebtedness of the
Company or any of its Subsidiaries, or under any material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, except as disclosed to
the Lenders in Schedule 4.13. No Default hereunder has occurred and is
continuing.
Section 4.14 Casualties; Taking of Properties. Since the date of the
Financial Statements, neither the business nor the Properties of the Company or
any of its Subsidiaries have been affected in a manner that has had or would
have a Material Adverse Effect as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
Section 4.15 Compliance with the Law. Neither the Company nor any of its
Subsidiaries:
(a) is in violation of any Governmental Requirement; or
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of their
respective Properties or the conduct of their respective business;
which violation or failure would have (in the event that such a violation or
failure were asserted by any Person through appropriate action) a Material
Adverse Effect.
Section 4.16 No Material Misstatements. No information, exhibit or report
furnished to the Administrative Agent or the Lenders by or at the direction of
the Company or any of its Subsidiaries in connection with the negotiation of
this Agreement contained any material misstatement of fact or, when such
statement is considered with all other written statements furnished to the
Lenders in that connection, omitted to state a material fact or any fact
necessary to make the statement contained therein not misleading.
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Section 4.17 Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company" that is
incorporated in or organized under the laws of the United States or any "State,"
as those terms are defined in the Investment Company Act of 1940, as amended.
The execution and delivery by the Company and its Subsidiaries of this Agreement
and the other Financing Documents to which they respectively are parties and
their respective performance of the obligations provided for therein, will not
result in a violation of the Investment Company Act of 1940, as amended.
Section 4.18 Public Utility Holding Company Act. The Company is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 4.19 Subsidiaries. The Company has no Subsidiaries except those
shown in Exhibit C hereto, which exhibit is complete and accurate. The Company
owns 100% of all stock of the Subsidiaries listed in such Exhibit, except as set
forth therein.
Section 4.20 Insurance. Schedule 4.20 attached hereto contains an
accurate and complete description of all material policies of fire, liability,
workmen's compensation, casualty, flood, business interruption and other forms
of insurance owned or held by the Company and each of its Subsidiaries. All
such policies are in full force and effect, all premiums with respect thereto
have been paid in accordance with their respective terms, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are sufficient for compliance with all requirements of law and of
all agreements to which the Company or any of its Subsidiaries is a party; are
valid, outstanding and enforceable policies; provide adequate insurance coverage
in at least such amounts and against at least such risks (but including in any
event public liability) as are usually insured against in the same general area
by companies engaged in the same or a similar business for the assets and
operations of the Company and each of its Subsidiaries; and will not in any way
be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Schedule 4.20 identifies all material risks, if
any, which the Company and its Subsidiaries and their respective Board of
Directors or officers have designated as being self insured. Neither the
Company nor any of its Subsidiaries has been unable to obtain any insurance with
respect to its assets or operations, nor has its coverage been limited below
usual and customary policy limits during the last three years.
Section 4.21 Mortgaged Property. Substantially all of the Mortgaged
Property is described in and covered by the engineering or other written reports
which have previously been delivered to and relied upon by the Lenders in
connection with this Agreement.
Section 4.22 Gas Imbalances. Except as disclosed to the Administrative
Agent in Schedule 4.22, there are no gas imbalances, take or pay or other
prepayments owed by the Company in excess of $5,000,000 in the aggregate with
respect to the Mortgaged Property (or in the case of any of the Mortgaged
Property operated by a Person other than the Company or its Subsidiaries, to the
best of the Company's knowledge) which would require the Company or its
Subsidiaries to deliver Hydrocarbons produced from any of the Mortgaged Property
at some future time without then or thereafter receiving full payment therefor.
Section 4.23 Environmental Matters.
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(a) Environmental Laws, etc. Neither any Property of the Company or
its Subsidiaries nor the operations conducted thereon violate any applicable
order of any court or Governmental Authority or Environmental Laws, which
violation could reasonably be expected to have a Material Adverse Effect or
which could reasonably be expected to result in remedial obligations having
a Material Adverse Effect assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant Property.
(b) No Litigation. Without limitation of Subsection (a) above, except
as set forth on Schedule 4.23, no Property of the Company or its
Subsidiaries nor the operations currently conducted thereon or by any prior
owner or operator of such Property or operation, are in violation of or
subject to any existing, pending or threatened action, suit, investigation,
inquiry or proceeding by or before any court or Governmental Authority or to
any remedial obligations under Environmental Laws, which violation, action,
suit, investigation, inquiry or proceeding could reasonably be expected to
have a Material Adverse Effect or which could reasonably be expected to
result in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to the relevant Property.
(c) Notices, Permits, etc. All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by the Company or
its Subsidiaries in connection with the operation or use of any and all
Property of the Company or its Subsidiaries, including but not limited to
past or present treatment, storage, disposal or release of a hazardous
substance or solid waste into the environment, have been duly obtained or
filed except to the extent the failure to obtain or file such notices,
permits, licenses or similar authorizations could not reasonably be expected
to have a Material Adverse Effect or which could reasonably be expected to
result in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to the relevant Property.
(d) Hazardous Substances Carriers. All hazardous substances or solid
waste generated at any and all Property of the Company or its Subsidiaries
have in the past been transported, treated and disposed of only by carriers
maintaining valid permits under RCRA and any other Environmental Law, except
to the extent the failure to have such substances or waste transported,
treated or disposed by such carriers could not reasonably be expected to
have a Material Adverse Effect, and only at treatment, storage and disposal
facilities maintaining valid permits under RCRA and any other Environmental
Law, which carriers and facilities have been and are operating in compliance
with such permits, except to the extent the failure to have such substances
or waste treated, stored or disposed at such facilities, or the failure of
such carriers or facilities to so operate, could not reasonably be expected
to have a Material Adverse Effect or which could reasonably be expected to
result in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to the relevant Property.
(e) Hazardous Substances Disposal. The Company and its Subsidiaries
have taken all reasonable steps necessary to determine and have determined
that no hazardous substances or solid waste have been disposed of or
otherwise released and there has been no threatened release of any hazardous
substances on or to any Property of the Company or its Subsidiaries except
in compliance with Environmental Laws, except to the extent the failure to
do so could not reasonably be expected
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to have a Material Adverse Effect or which could reasonably be expected to
result in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to the relevant Property.
(f) OPA Requirements. Except to the extent the failure to so comply
would not have a Material Adverse Effect, to the extent applicable, the
Company and its Subsidiaries have complied with all design, operation and
equipment requirements imposed by OPA or scheduled to be imposed by OPA
during the term of this Agreement, and the Company does not have reason to
believe that either it or its Subsidiaries will not be able to maintain such
compliance with OPA requirements during the term of this Agreement.
(g) No Contingent Liability. The Company and its Subsidiaries have no
material contingent liability in connection with any release or threatened
release of any hazardous substance or solid waste into the environment other
than such contingent liabilities at any one time and from time to time which
could reasonably be expected to exceed $1,500,000 in excess of applicable
insurance coverage and for which adequate reserves for the payment thereof
as required by GAAP have not been provided, or which could reasonably be
expected to result in remedial obligations having a Material Adverse Effect
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such release or
threatened release.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Lender has any Commitment hereunder or any Loan remains
unpaid or any Revolving Credit Exposure remains outstanding, the Company will at
all times comply with the following covenants:
Section 5.01 Maintenance and Compliance, etc. The Company will and will
cause each of its Subsidiaries to observe and comply in all material respects
with all Governmental Requirements, except where failure to do so could not
reasonably be expected to have a Material Adverse Effect. The Company will and
will cause each Guarantor to, except as permitted by Section 6.07(c), preserve
and maintain its corporate existence, rights and franchises.
Section 5.02 Payment of Taxes and Claims, etc. The Company will pay, and
cause each of its Subsidiaries to pay, (i) all taxes, assessments and
governmental charges imposed upon it or upon its Property, and (ii) all claims
(including, but not limited to, claims for labor, materials, supplies or
services) which might, if unpaid, become a Lien upon its Property, unless, in
each case, the validity or amount thereof is being contested in good faith by
appropriate action or proceedings and the Company has established adequate
reserves in accordance with GAAP with respect thereto.
Section 5.03 Further Assurances. The Company will and will cause each
Guarantor to cure promptly any defects in the creation and issuance of the
Notes, and the execution and delivery of the Financing Documents, including this
Agreement, to which it is a party. The Company at its expense will, as promptly
as practical, execute and deliver to the Administrative Agent or the applicable
Issuing Bank
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upon request all such other and further documents, agreements and instruments
(or cause any of its Subsidiaries to take such action) in compliance with or
performance of the covenants and agreements of the Company or any of its
Subsidiaries in the Financing Documents, including this Agreement, or to further
evidence and more fully describe the collateral intended as security for the
Notes or other Lender Indebtedness, or to correct any omissions in the Financing
Documents, or more fully to state the security obligations set out herein or in
any of the Financing Documents, or to perfect, protect or preserve any Liens
created pursuant to any of the Financing Documents, or to make any recordings,
to file any notices, or obtain any consents, all as may be necessary or
appropriate in connection therewith.
Section 5.04 Performance of Obligations. The Company will pay the Notes
according to the reading, tenor and effect thereof; and the Company will do and
perform every act and discharge all of the obligations provided to be performed
and discharged by the Company under the Financing Documents, including this
Agreement, at the time or times and in the manner specified, and cause each of
the Guarantors to take such action with respect to their obligations to be
performed and discharged under the Financing Documents to which they
respectively are parties.
Section 5.05 Insurance. The Company and its Subsidiaries will maintain or
cause to be maintained, with financially sound and reputable insurers, insurance
with respect to their respective Properties and business against such
liabilities, casualties, risks and contingencies and in such types (including
business interruption insurance and flood insurance) and amounts as is customary
in the case of Persons engaged in the same or similar businesses and similarly
situated or in accordance with any Governmental Requirement. Upon request of
the Administrative Agent, the Company will furnish or cause to be furnished to
the Administrative Agent from time to time a summary of the insurance coverage
of the Company and its Subsidiaries in form and substance reasonably
satisfactory to the Administrative Agent and if requested will furnish the
Administrative Agent copies of the applicable policies. In the case of any
fire, accident or other casualty causing loss or damage to any Properties of the
Company or its Subsidiaries (other than Tesoro Coastwide), the proceeds of such
policies shall be used, in the Company's sole discretion, (i) to reasonably
promptly repair or replace the damaged Property, or (ii) to prepay the Lender
Indebtedness. The Company will obtain endorsements to the policies pertaining
to all physical Properties in which the Administrative Agent or the Lenders
shall have a Lien under the Financing Documents, naming the Administrative Agent
as a loss payee and containing provisions that such policies will not be
canceled without 30 days prior written notice having been given by the insurance
company to the Administrative Agent.
Section 5.06 Accounts and Records. 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 will be made of all financial or business
dealings or transactions in relation to their respective business and
activities.
Section 5.07 Right of Inspection. The Company will permit and will cause
each of its Subsidiaries to permit any officer, employee or agent of the
Administrative Agent or any of the Lenders to visit and inspect any of the
Properties of the Company or any of its Subsidiaries, examine the Company's or
any such Subsidiary's books of record and accounts, take copies and extracts
therefrom, and discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the Company's or such Subsidiary's officers,
accountants and auditors, as often and all at such reasonable times during
normal business hours as may be reasonably requested by the Administrative Agent
or any of the Lenders.
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Section 5.08 Operation and Maintenance of Mortgaged Property and
Compliance with Leases. Subject to Section 5.10, the Company will, and will
cause each of its Subsidiaries to, operate its Properties or cause its
Properties to be operated in accordance with prudent industry practice and in
compliance with all material terms and provisions of all applicable leases,
contracts and agreements and in compliance with all applicable proration and
conservation laws of the jurisdiction in which such Properties may be situated,
and all applicable laws, rules and regulations of every other agency and
authority from time to time constituted to regulate the development and
operation of such Properties, and as to any Oil and Gas Properties, the
production and sale of Hydrocarbons and other minerals therefrom.
Section 5.09 Stock of Subsidiaries. The Company will at all times own,
directly or indirectly, 100% of all stock of all Guarantors, except as otherwise
permitted pursuant to Section 6.07.
Section 5.10 Certain Additional Assurances Regarding Maintenance and
Operation of Properties. With respect to those Properties of the Company or a
Subsidiary of the Company which are being operated by operators other than the
Company or such Subsidiary, the Company or such Subsidiary shall not be
obligated, itself, to perform any undertakings contemplated by the covenants and
agreements contained in Sections 5.02, 5.05, and 5.08 which are performable only
by such operators and are beyond the control of the Company or such Subsidiary;
however, the Company agrees to promptly take and to cause such Subsidiary to
promptly take all reasonable actions available under any operating agreements or
otherwise to bring about the performance of any such undertakings required to be
performed under such Subsections.
Section 5.11 Designation of Subsidiaries as Additional Guarantors. If at
any time the Majority Lenders, in their sole discretion, or the Company, with
the approval of the Administrative Agent, designate any one or more Subsidiaries
of the Company (other than a Non-Guarantor Subsidiary) to be additional
Guarantors, the Company shall cause any such newly designated Guarantor to
execute, within 30 days of such designation, a guaranty agreement in
substantially the same form as the Guaranty Agreement executed by the Guarantors
in connection with this Agreement.
Section 5.12 Minimum Capital Expenditures. The Company and each of its
Subsidiaries shall make capital expenditures in accordance with prudent industry
practice for the development of their Proved Undeveloped Hydrocarbon Reserves.
Section 5.13 Payment of Charters and Tariffs. The Company will pay, and
will cause each of its Subsidiaries to pay before or when due (i) the amount
owed for the time charter of any tanker or barge used to transport feedstocks,
blendstocks or refined products and (ii) the tariff owed by any Inventory
Borrowing Base party for the transport or storage of any inventory, including
but not limited to, the tariff owed by Tesoro Alaska to the Trans-Alaska
Pipeline System, unless in each case, the validity or amount thereof is being
contested in good faith by appropriate action or proceedings and the Company has
established appropriate reserves in accordance with GAAP.
Section 5.14 Title Opinions. Within 90 days after the Closing Date, the
attorneys who furnished the title opinions required pursuant to Section 3.02(f)
will provide to the Administrative Agent a supplemental opinion stating that
there has been no change in the status of title from that reflected in such
opinions through the filing and recordation of the E&P Mortgage and that,
subject only to the liens referenced in such earlier title opinions, the Liens
granted by the E&P Mortgage are first priority.
Section 5.15 Reporting Covenants. The Company will furnish to each
Lender:
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(a) Annual Financial Statements. As soon as available and in any
event within 105 days after the end of each calendar year of the Company, a
consolidated balance sheet of the Company and its Subsidiaries as at the end
of such year and the related consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for such
calendar year, setting forth in each case in comparative form the figures
for the previous calendar year, all in reasonable detail and accompanied by
a report thereon of Deloitte & Touche or other independent public
accountants of comparable recognized national standing, which such report
shall state that such consolidated financial statements present fairly the
consolidated financial condition as at the end of such calendar year, and
the consolidated results of operations and cash flow for such calendar year,
of the Company and its Subsidiaries in accordance with GAAP, applied on a
consistent basis. At the same time, a consolidating balance sheet of the
Consolidating Statement Entities as at the end of such year and related
consolidating statements of income and a schedule of consolidating EBITDA
for such calendar year, accompanied by a certification thereon of a
Responsible Officer, stating that such consolidating financial statements
and EBITDA schedule form the basis of the Company's consolidated financial
statements and EBITDA calculations, and are fairly stated in all material
respects when considered in relation thereto.
(b) Quarterly Financial Statements. As soon as available and in any
event within 60 days after the end of each of the first three calendar
quarters of the Company, a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter and the related consolidated
statements of income, retained earnings and cash flows of the Company and
its Subsidiaries for such calendar quarter and for the portion of the
Company's calendar year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter and
the corresponding portion of the Company's previous calendar year and, in
the case of the balance sheet only, the last day of the immediately
preceding fiscal year, all in reasonable detail and certified by a
Responsible Officer that such financial statements are complete and correct
and fairly present the consolidated financial condition as at the end of
such calendar quarter, and the consolidated results of operations and cash
flows for such calendar quarter and such portion of the Company's calendar
year, of the Company and its Subsidiaries in accordance with GAAP (subject
to normal, year-end adjustments). At the same time, a consolidating balance
sheet of the Consolidating Statement Entities at the end of such calendar
quarter and related consolidating statements of income and a schedule of
consolidating EBITDA, for the portion of the Company's calendar year ended
at such quarter accompanied by a certification from a Responsible Officer
that such consolidating financial statements and EBITDA schedule form the
basis of the Company's consolidated financial statements and EBITDA
calculations, and are fairly stated in all material respects when considered
in relation thereto.
(c) No Default/Compliance Certificate. Together with the financial
statements required pursuant to subsections (a) and (b) above, a certificate
of a Responsible Officer (i) stating that a review of such financial
statements during the period covered thereby and of the activities of the
Company and its Subsidiaries has been made under such Responsible Officer's
supervision with a view to determining whether the Company and its
Subsidiaries have fulfilled all of their obligations under this Agreement,
the other Financing Documents, and the Notes; (ii) stating that the Company
and its Subsidiaries have fulfilled their obligations under such instruments
and that all representations made in this Agreement continue to be true and
correct (or specifying the nature of any change), or if there shall be a
Default or Event of Default, specifying the nature and status thereof and
the Company's proposed response thereto; (iii) demonstrating in reasonable
detail
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compliance (including, but not limited to, showing all material
calculations) as at the end of such calendar year or such calendar quarter
with Sections 6.01, 6.02, 6.03 and 6.04; and (iv) containing or accompanied
by such financial or other details, information and material as the
Administrative Agent may reasonably request to evidence such compliance.
(d) Auditors' No Default Certificate; Management Letters. Together
with the financial statements required pursuant to subsection (a) above, a
certificate of the independent public accountants who audited the annual
report referred to therein to the effect that their audit has not disclosed
the existence of an Event of Default or a Default under this Agreement, or
if there exists an Event of Default or a Default hereunder, specifying the
nature thereof; and if there exists an Event of Default or Default
hereunder, copies of each management letter issued to the Company by such
accountants promptly following consideration or review by the Board of
Directors of the Company, or any committee thereof (together with any
response thereto prepared by the Company).
(e) Engineering Reports. Promptly after December 31st and June 30th
of each year, but in no event later than 60 days after such date, a report
(the "Reserve Report") in form and substance satisfactory to the Majority
Lenders and in the case of the December 31 Reserve Report prepared by
Netherland, Sewell & Associates or other independent petroleum consultant(s)
acceptable to the Majority Lenders (the previous acceptability of an
independent petroleum consultant satisfactory to the Majority Lenders shall
have no bearing on such consultant's present or future acceptability), which
Reserve Report shall evaluate the Hydrocarbon reserves included in the
Mortgaged Property as of each such date and which shall, together with any
other information reasonably requested by any Lender, set forth the total
Proved Hydrocarbon reserves by accepted and customary reserve category
attributable to such Mortgaged Property, together with a projection of the
rate of production and future net income with respect thereto as of each
such date. The June 30 Reserve Report shall be prepared by the engineering
staff of the Company and shall update the most recent Reserve Report.
(f) Title Information. Within a reasonable time after a request by
the Administrative Agent, additional title information in form and substance
acceptable to the Majority Lenders as is reasonably necessary covering the
Mortgaged Property so that the Lenders shall have received, together with
the title information previously received by the Lenders, satisfactory title
information covering all of the Mortgaged Property.
(g) Events or Circumstances with respect to Mortgaged Property.
Promptly after the occurrence of any event or circumstance (other than as
known to affect oil and gas prices generally) concerning or changing any of
the Mortgaged Property that would have a Material Adverse Effect, notice of
such event or circumstance in reasonable detail.
(h) Bi-Weekly Borrowing Base Reports.
(i) As soon as available and in any event by the Thursday
following the close of each two calendar week period, a Borrowing Base
Report dated and reflecting amounts as of the close of business on
Thursday of the preceding calendar week.
(ii) As soon as available and in any event by the 105th day after
the end of the fourth calendar quarter of each year and the 60th day
after the end of each of the first three
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calendar quarters of each year of the Company, a quarterly Borrowing
Base Report dated and reflecting amounts as of the last day of such
calendar year or quarter, as the case may be, which have been
reconciled to the financial statements delivered pursuant to Subsection
5.15(a) or (b), as the case may be.
(i) Notice of Certain Events. Promptly after the Company learns of
the receipt or occurrence of any of the following, a certificate of a
Responsible Officer specifying (i) any official notice of any violation,
possible violation, non-compliance or possible non-compliance, or claim made
by any Governmental Authority pertaining to all or any part of the
Properties of the Company or any of its Subsidiaries which, if adversely
determined, would have a Material Adverse Effect; (ii) any event which
constitutes a Default or Event of Default, together with a detailed
statement specifying the nature thereof and the steps being taken to cure
such Default or Event of Default; (iii) the receipt of any notice from, or
the taking of any other action by, the holder of any promissory note,
debenture or other evidence of indebtedness in excess of $1,000,000 of the
Company or any of its Subsidiaries with respect to a claimed default,
together with a detailed statement specifying the notice given or other
action taken by such holder and the nature of the claimed default and what
action the Company or its Subsidiary is taking or proposes to take with
respect thereto; (iv) any default or noncompliance of any party to any of
the Financing Documents with any of the terms and conditions thereof or any
notice of termination or other proceedings or actions which could reasonably
be expected to adversely affect any of the Financing Documents; (v) the
creation, dissolution, merger or acquisition of any Subsidiary of the
Company with material operations; (vi) any event or condition which violates
any Environmental Law and which could potentially have a Material Adverse
Effect or which could potentially result in remedial obligations having a
Material Adverse Effect, assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to such event or condition; or (vii) any event or condition which
may reasonably be expected to have a Material Adverse Effect.
(j) Shareholder Communications, Filings, etc. Promptly upon the
mailing or filing thereof, copies of all financial statements, reports and
proxy statements mailed to the Company's shareholders, and copies of all
registration statements, periodic reports and other documents (excluding the
related exhibits except to the extent expressly requested by the
Administrative Agent) filed with or received by the Company in connection
therewith from the Securities and Exchange Commission (or any successor
thereto) or any national securities exchange.
(k) Litigation. Promptly after (i) the occurrence thereof, notice of
the institution of or any material adverse development in any action, suit
or proceeding or any governmental investigation or any arbitration, before
any court or arbitrator or any governmental or administrative body, agency
or official, against the Company, any Guarantor or any material Property of
any thereof; or (ii) actual knowledge thereof, notice of the threat of any
such action, suit, proceeding, investigation or arbitration, in either case
in which the amount involved is material and is not covered by insurance or
which, if adversely determined, would have a Material Adverse Effect.
(l) ERISA. Promptly after (i) the Company's obtaining knowledge of
the occurrence thereof, notice that an ERISA Termination Event or a
"prohibited transaction," as such term is defined in Section 406 of ERISA or
Section 4975 of the Code, with respect to any Plan has occurred, which such
notice shall specify the nature thereof, the Company's proposed response
thereto and, where known, any action taken or proposed by the Internal
Revenue Service, the Department of
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Labor or the PBGC with respect thereto, and (ii) the Company's obtaining
knowledge thereof, copies of any notice of the PBGC's intention to terminate
or to have a trustee appointed to administer any Plan.
(m) Borrowing Base Audit. Each calendar year, as of a date to be
designated by the Agent, at the cost of the Company, a report of an
independent collateral field examiner approved by the Administrative Agent
in writing and reasonably acceptable to the Company (which may be the
Administrative Agent or an affiliate thereof) with respect to the Eligible
Accounts and Eligible Inventory components included in the Borrowing Base,
and the Administrative Agent shall have the option to receive such
additional reports as the Administrative Agent or the Majority Lenders shall
reasonably request; provided, however, that so long as no Default has
occurred and is continuing, neither the Administrative Agent nor the
Majority Lenders shall request more than one such additional report (for a
total of two such reports) per calendar year.
(n) Other Information. With reasonable promptness, such other
information about the business and affairs and financial condition of the
Company or its Subsidiaries as any Lender may reasonably request from time
to time.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Lender has any Commitment hereunder or any Loan remains unpaid or
any Revolving Credit Exposure remains outstanding, the Company will not:
Section 6.01 Consolidated Tangible Net Worth. Permit Consolidated
Tangible Net Worth as of the end of any calendar quarter to be less than
$125,000,000 plus 75% of the Company's consolidated net income aggregated for
each of the calendar quarters from and after April 1, 1996 in which consolidated
net income is positive; provided if at any time the Company issues equity
securities of any kind, such minimum amount of Consolidated Tangible Net Worth
shall be permanently increased by an amount equal to 75% of the net cash
proceeds from the issuance of such equity securities, except that to the extent
such proceeds are used as permitted in clause (iii) of Section 6.08, such amount
shall not so increase the minimum Consolidated Tangible Net Worth; and provided
further, that such amount of minimum Consolidated Tangible Net Worth shall be
adjusted so as to remove the effect of any accounting adjustments that would
otherwise result from the retirement of the Subordinated Debentures and Exchange
Notes due to write-offs of original issue discount or deferred financing costs.
Section 6.02 Consolidated Current Ratio. Permit the ratio of (i)
consolidated current assets to (ii) consolidated current liabilities (excluding
current maturities of the Notes) to be less than 1.3 to 1.0 at any time. As
used in this Section 6.02 "consolidated current assets" shall mean assets which
would, in accordance with GAAP, be included as current assets on a consolidated
balance sheet of the Company and its Subsidiaries and "consolidated current
liabilities" shall mean liabilities which would, in accordance with GAAP, be
included as current liabilities on a consolidated balance sheet of the Company
and its Subsidiaries.
Section 6.03 Consolidated Cash Flow Coverage Ratio. Permit a cash flow
coverage ratio for itself and its Subsidiaries on a consolidated basis as of any
Quarterly Date to be less than 1.10 to 1.00 for
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the Rolling Period ending on the applicable Quarterly Date. As used in this
Section 6.03, "cash flow coverage ratio" shall mean, as to the Company, and for
the Rolling Period ending on such Quarterly Date, the ratio of (i) the sum of
(A) Cash Flow of the Company and its Subsidiaries on a consolidated basis, plus
(B) the difference between the Maximum Revolving Credit Loan Available Amount on
the last day of the applicable Rolling Period and the outstanding principal
amount of the Revolving Credit Loans on the first day of the last calendar
quarter of such Rolling Period, plus (C) interest expense of the Company and its
Subsidiaries on a consolidated basis to (ii) the sum of (A) regularly scheduled
principal payments of Funded Indebtedness paid in cash, plus (B) cash interest
expense of the Company and its Subsidiaries on a consolidated basis, plus (C)
capital expenditures by the Company and its Subsidiaries on a consolidated
basis, excluding capital expenditures made by way of exchanges of equity, plus
(D) cash dividends actually paid by the Company and its Subsidiaries on a
consolidated basis.
Section 6.04 Consolidated Interest Coverage Ratio. Permit its
consolidated interest coverage ratio as of the end of any Rolling Period to be
less than 2.5 to 1.0. As used in this Section 6.04, "consolidated interest
coverage ratio" shall mean the ratio of (i) EBITDA for the Rolling Period to
(ii) cash payments made by the Company and its Subsidiaries for interest for
such Rolling Period.
Section 6.05 Indebtedness. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Indebtedness, other than:
(a) the Lender Indebtedness;
(b) Indebtedness outstanding on the date hereof which is set out in
the Company's financial statements referred to in Section 4.06(a) or on
Schedule 6.05 and any renewal, extension, refinancing or refunding of such
Indebtedness; provided that (A) the principal amount of such Indebtedness
that renews, extends, refinances or refunds any such Indebtedness shall not
exceed the principal amount of such renewed, extended, refunded or
refinanced Indebtedness, plus up to 5% to cover the costs associated with
such renewal, extension, refinancing or refunding of such Indebtedness and
(B) the Indebtedness that renews, extends, refinances or refunds such
Indebtedness is scheduled to mature no earlier and shall be upon
substantially the same or no less favorable terms than the Indebtedness
being renewed, extended, refinanced or refunded; provided further, that for
purposes of this Section 6.05(b) only, if the Subordinated Debentures and/or
the Exchange Notes are prepaid in full, the Borrower may issue subordinated
notes upon substantially the same or no less favorable terms than the
Subordinated Debentures or Exchange Notes and in an aggregate amount not to
exceed $100,000,000 less the amount, if any, on either the Subordinated
Debentures or Exchange Notes, if both are not prepaid;
(c) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of business and
which are not in excess of 90 days past the invoice or billing date, or if
in excess of 90 days past the invoice or billing date are being currently
contested in good faith by appropriate actions or proceedings diligently
conducted;
(d) guaranties issued by the Company or any Subsidiary in the ordinary
course of its business of obligations of others (other than for borrowed
money) incurred in oil and gas drilling, oil and gas production, oil and gas
transportation, crude oil and refined products purchasing, oil and gas
exploration or other similar programs or operations;
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(e) obligations whether current or long term incurred in the normal
course of business under or pursuant to customary oil, gas and mineral
leases, royalties and oil and gas operating agreements, farm-out and farm-in
agreements, development agreements and other agreements which are customary
in the oil and gas industry;
(f) Indebtedness created, incurred, assumed or guaranteed after the
date hereof not otherwise permitted pursuant to this Section 6.05, provided
that the aggregate outstanding principal amount of such Indebtedness shall
not exceed $10,000,000 at any one time outstanding;
(g) Indebtedness owing by (A) the Company to Non-Guarantor
Subsidiaries not to exceed $5,000,000 in the aggregate, (B) any Subsidiary
of the Company to the Company, (C) the Company to any Guarantor, and (D) any
Guarantor to any other Guarantor;
(h) obligations for current taxes, assessments and other governmental
charges and taxes, assessments or other governmental charges which are not
yet due or are being contested in good faith by appropriate action or
proceeding promptly initiated and diligently conducted, if such reserve as
shall be required by GAAP shall have been made therefor;
(i) Capital Lease Obligations not to exceed $7,500,000 at any one
time;
(j) Indebtedness relating to personal injury or property claims
against the Company or any of its Subsidiaries in an amount not to exceed
$5,000,000 in the aggregate unless and to the extent such claims are covered
by insurance;
(k) Indebtedness, not to exceed (i) $15,000,000 in the aggregate
outstanding at any one time, in respect of letters of credit (other than the
Letters of Credit) or bank guaranties provided by the Company or any of its
Subsidiaries in the ordinary course of business and used in lieu or in
support of performance guarantees, performance, surety or other similar
bonds, or bankers acceptances, and (ii) $5,000,000 in the aggregate
outstanding at any one time, in respect of letters of credit (other than
Letters of Credit) or bank guaranties provided by the Company or any of its
Subsidiaries used in lieu or in support of stay or appeal bonds; provided,
however, to the extent Letters of Credit are used in lieu or in support of
stay or appeal bonds, such $5,000,000 maximum amount shall be reduced by an
amount equal to the aggregate amount of any such Letters of Credit used in
lieu or support of stay or appeal bonds;
(l) Indebtedness existing in connection with Hedge Agreements,
provided that such Hedge Agreements are entered into by the Company or its
Subsidiaries in the ordinary course of business and for the purpose of
hedging against fluctuations in price or interest rates.
(m) Non-Recourse Indebtedness of Tesoro Bolivia; and
(n) Indebtedness, not to exceed $15,000,000, incurred by Tesoro
Northstore, to be used for the purchase (in fee or leasehold), construction,
and/or upgrading of retail outlet stores, subject, however, to the execution
of an intercreditor agreement satisfactory in form and substance to the
Administrative Agent and Documentation Agent.
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Section 6.06 Liens. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on
any of its Property now owned or hereafter acquired to secure any Indebtedness
of any Person, other than:
(a) Liens existing on the date hereof and set out on Schedule 6.06;
(b) Liens securing the Lender Indebtedness;
(c) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by appropriate
action or proceedings and with respect to which adequate reserves are being
maintained;
(d) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen, repairmen, workmen, and other Liens imposed by law
created in the ordinary course of business for amounts which are not past
due for more than 30 days or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves in
accordance with GAAP are being maintained;
(e) Liens (other than any inchoate Lien imposed by ERISA) incurred or
deposits or pledges made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security, old age or other similar obligations, or to secure the performance
of tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(f) easements, rights-of-way, restrictions, servitudes, permits,
reservations, exceptions, conditions, covenants and other similar charges or
encumbrances not interfering with the ordinary conduct of the business of
the Company or any of its Subsidiaries;
(g) any Lien securing Indebtedness, neither assumed nor guaranteed by
the Company or any of its Subsidiaries nor on which it customarily pays
interest, existing upon real estate or rights in or relating to real estate
acquired by the Company for substation, metering station, pump station,
storage, gathering line, transmission line, transportation line,
distribution line or for right-of-way purposes, and any Liens reserved in
leases for rent and for compliance with the terms of the leases in the case
of leasehold estates, to the extent that any such Lien referred to in this
clause (vii) does not materially impair the use of the Property covered by
such Lien for the purposes of which such Property is held by the Company or
any of its Subsidiaries;
(h) inchoate Liens arising under ERISA;
(i) any Lien on any Property securing Indebtedness incurred, assumed
or guaranteed as permitted by Section 6.05(f);
(j) Liens reserved in customary oil, gas and/or mineral leases for
bonus or rental payments and for compliance with the terms of such leases
and Liens reserved in customary operating agreements, farm-out and farm-in
agreements, exploration agreements, development agreements and other similar
agreements for compliance with the terms of such agreements;
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(k) any obligations or duties affecting any of the Property of the
Company or its Subsidiaries to any municipality or public authority with
respect to any franchise, grant, license or permit which do not materially
impair the use of such Property for the purposes for which it is held;
(l) defects, irregularities and deficiencies in title of any rights of
way or other Property of the Company or any Subsidiary which in the
aggregate do not materially impair the use of such rights of way or other
Property for the purposes for which such rights of way and other Property
are held by the Company or any Subsidiary, and defects, irregularities and
deficiencies in title to any Property of the Company or its Subsidiaries,
which defects, irregularities or deficiencies have been cured by possession
under applicable statutes of limitation;
(m) royalties, overriding royalties, revenue interests, net revenue
interests, production payments (other than production payments granted or
created by the Company in connection with the borrowing of money), advance
payment obligations (other than obligations in respect of advance payment
received by the Company in connection with the borrowing of money) and other
similar burdens now existing on Oil and Gas Properties now owned or, as to
Properties hereafter acquired, at the time of acquisition by the Company or
any of its Subsidiaries;
(n) Liens arising out of all presently existing and future division
and transfer orders, advance payment agreements, processing contracts, gas
processing plant agreements, operating agreements, gas balancing or deferred
production agreements, pooling, unitization or communitization agreements,
pipeline, gathering or transportation agreements, platform agreements,
drilling contracts, injection or repressuring agreements, cycling
agreements, construction agreements, salt water or other disposal
agreements, leases or rental agreements (but only as otherwise permitted by
this Agreement), farm-out and farm-in agreements, exploration and
development agreements, and any and all other contracts or agreements
covering, arising out of, used or useful in connection with or pertaining to
the exploration, development, operation, production, sale, use, purchase,
exchange, storage, separation, dehydration, treatment, compression,
gathering, transportation, processing, improvement, marketing, disposal or
handling of any Property of the Company or its Subsidiaries, provided such
agreements are entered into in the ordinary course of business and contain
terms customary for such agreements in the industry;
(o) Liens securing up to $15,000,000 of the Indebtedness permitted by
Section 6.05(k) to the extent such Indebtedness is issued in support of the
Company's (or its Subsidiaries') Bolivian operations;
(p) Liens securing up to $15,000,000 of Indebtedness permitted by
Section 6.05(n);
(q) Liens securing the Indebtedness permitted by Section 6.05(i) and
Liens of equipment lessors, but only covering the Property under lease; and
(r) extensions, renewals or replacements of any Lien referred to in
Subsections 6.06(a) through (q), provided that the principal amount of the
Indebtedness or obligation secured thereby is not increased and that any
such extension, renewal or replacement is limited to the Property originally
encumbered thereby.
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Section 6.07 Mergers, Sales, etc. Merge into or with or consolidate with,
or permit any of its Subsidiaries to merge into or with or consolidate with, any
other Person, or sell, lease or otherwise dispose of, or permit any of its
Subsidiaries to sell, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or any part of its Property to any other
Person, other than (i) (A) a merger of any Guarantor into the Company or into
another Guarantor other than Tesoro Bolivia, Tesoro Environmental, or any
Subsidiary thereof, (B) a merger of any Guarantor with any Person other than the
Company or another Guarantor if immediately thereafter and giving effect thereto
the Company or a Guarantor, other than Tesoro Bolivia, Tesoro Environmental, or
any Subsidiary thereof, shall own 100% of the stock of the surviving corporation
and (C) a merger of the Company with any other Person if the Company is the
surviving corporation, provided, however, that in each such case, immediately
thereafter and giving effect thereto, no event shall have occurred and be
continuing which constitutes a Default, (ii) a sale, lease or other disposition
of all or any part of its Property by any Guarantor to the Company or another
Guarantor other than Tesoro Bolivia, Tesoro Environmental, or any Subsidiary
thereof, (iii) sales, leases or other dispositions of all or any part of its
Property by the Company or any of its Subsidiaries to any other Person not in
excess of $2,000,000 in any 12-month period and not to exceed $5,000,000
cumulatively from the Closing Date and provided further, that the Company or any
such Subsidiary of the Company receives fair market consideration for any such
sale, lease or disposition of such Properties, or (iv) a sale, lease or other
disposition of Tesoro R&M's interest in the Tesoro Terminals, the proceeds of
which will not be included in the limitation amounts set forth in clause (iii)
above. Notwithstanding the foregoing limitations, the Company and its
Subsidiaries may (A) sell inventory, Hydrocarbon production and other similar
assets in the ordinary course of business, (B) sell, transfer or otherwise
dispose of personal property (including, but not limited to, pipe, equipment,
machinery and vehicles) in the ordinary course of business or when, in the
reasonable judgment of the Company, such property is no longer used or useful in
the conduct of its business or the business of its Subsidiaries, (C) farm-out in
the ordinary course of business any Oil and Gas Properties owned by the Company
or its Subsidiaries which do not constitute a portion of the Mortgaged Property,
(D) sell Properties of the Non-Guarantor Subsidiaries, and (E) sell the Property
of or stock issued by Tesoro Bolivia, Tesoro Environmental, or any of their
respective Subsidiaries, provided, that, in connection with any sale of property
or stock pursuant to this clause (E), any Letter of Credit issued for the
account of, or to support the assets or operations of the Guarantor whose
Properties or stock is being sold, shall be terminated or backed by a letter of
credit in form and substance, and issued by an issuer, acceptable to each of the
Administrative Agent and the applicable Issuing Bank in their sole discretion.
Section 6.08 Restricted Payments. Declare or pay any dividend on its
capital stock, make any payment to purchase, redeem, retire or acquire any of
its capital stock or any option, warrant, or other right to acquire such capital
stock, return any capital to its stockholders, make any distribution of its
assets to its stockholders as such, or permit any of its Subsidiaries to
purchase or otherwise acquire for value any stock of the Company, or pay,
prepay, repurchase or redeem the Subordinated Debentures or Exchange Notes,
except that the Company may
(i) declare and deliver stock dividends,
(ii) declare and pay cash dividends on common stock or preferred
stock issued by the Company or repurchase its common stock, in amounts not
to exceed the Cumulative Amount Available for Restricted Payments; provided,
however, after the occurrence of the Mandate Event, any payments made
pursuant to this clause (ii) shall not, on an annual basis, exceed an amount
equal to $5,000,000 less the amount used pursuant to clause (vi) to purchase
outstanding stock of the Company,
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(iii) redeem the Subordinated Debentures and/or Exchange Notes with
the proceeds from (A) equity offerings, (B) Indebtedness permitted by
Sections 6.05(b) and (f) and (C) cash proceeds received in connection with
Lenape Resources Corp. v. Tennessee Gas Pipeline Company, 39 Tex Sup. Ct.
J. 496 (April 18, 1996), (D) the Cumulative Amount Available for Restricted
Payments, (E) after the occurrence of the Collection Event, cash on hand and
(F) after the occurrence of [both the Mandate Event and] the Collection
Event, Loans not to exceed $15,000,000 in the aggregate,
(iv) purchase stock as permitted by Section 6.09(i),
(v) after the occurrence of the Mandate Event and in an aggregate
amount not to exceed $5,000,000, repurchase the common stock issued by the
Company from (A) shareholders owning 100 shares or less pursuant to an
oddlot buyback program and (B) the open market for employee benefit plans,
and
(vi) after the occurrence of the Mandate Event, repurchase common
stock (other than as permitted in Section 6.08(v)) issued by the Company in
an annual amount not to exceed $5,000,000 less the amount of any dividends
paid pursuant to clause (ii);
provided that both before and after giving effect to any such restricted payment
permitted by clauses (i) through (vi) above, a Default shall not have occurred
and be continuing and the Aggregate Revolving Credit Exposure shall not exceed
the Maximum Available Amount.
Section 6.09 Investments, Loans, etc. Make or permit any loans to or
investments in any Person, or permit any of its Subsidiaries to make or permit
any loans to or investments in any Person, other than:
(a) investments, loans or advances, the material details of which have
been set forth in the Financial Statements or are disclosed to the
Administrative Agent in Schedule 4.07 hereto;
(b) investments in direct obligations of the United States of America
or any agency thereof;
(c) investments in certificates of deposit of maturities less than one
year, issued by commercial banks in the United States having capital and
surplus in excess of $500,000,000; provided, however, the Company may, with
the written approval of the Administrative Agent, invest in such
certificates of deposit issued by commercial banks in the United States
having capital and surplus in excess of $200,000,000 and a Thomson's Bank
Watch rating of B or better;
(d) investments in commercial paper of maturities less than one year
rated A1 or P1 by Standard & Poors Corporation or Moody's Investors
Services, Inc., respectively, or any equivalent rating from any other rating
agency satisfactory to the Administrative Agent;
(e) routine loans or advances to employees made in the ordinary course
of business not to exceed (A) $250,000 at any one time outstanding to any
one employee and (B) $1,500,000 in the aggregate;
(f) investments in securities purchased by the Company or any
Subsidiary of the Company under repurchase obligations pursuant to which
arrangements are made with selling
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financial institutions (being (A) a financial institution having unimpaired
capital and surplus of not less than $500,000,000 and with a rating of A1 or
P1 by Standard & Poors Corporation or Moody's Investors Services, Inc.,
respectively; or (B) with the written approval of the Administrative Agent,
a financial institution having unimpaired capital and surplus of not less
than $200,000,000 and a Thomson's Bank Watch rating of B or better) for such
financial institutions to repurchase such securities within 30 days from the
date of purchase by the Company or such Subsidiary, and other similar
short-term investments made in connection with the Company's or any of its
Subsidiary's cash management practices;
(g) the purchase, redemption or acquisition of capital stock of the
Company as permitted by Section 6.08;
(h) entering into a joint venture or partnership in connection with
the sale to such joint venture or partnership of the assets of Tesoro
Bolivia or Tesoro Environmental;
(i) the purchase of stock issued by the Company from participants in
the incentive stock plans of the Company made for the purpose of satisfying
federal withholding tax obligations of such participants as provided for
under the terms of such incentive stock plans or stock incentive grants
thereunder;
(j) investments in eurodollar obligations with maturities not
exceeding three (3) months, issued by (and supported by the full faith and
credit and representing direct obligations of) any Lender or any office
located in the United States of any other bank or trust company which is
organized under the laws of the United States or any state thereof, has
capital, surplus and undivided profits aggregating at least $500,000,000.00
(as of the date of such Lender's or bank or trust company's most recent
financial reports) and has a short term deposit rating of no lower than A1
or P1, as such rating is set forth from time to time, by Standard & Poors
Corporation or Moody's Investors Service, Inc., respectively; provided,
however, the Company may, with the written approval of the Administrative
Agent, invest in such eurodollar obligations issued by (and supported by the
full faith and credit and representing direct obligations of) any bank or
trust company with an office located in the United States having capital,
surplus and undivided profits aggregating at least $200,000,000 and a
Thomson's Bank Watch rating of B or better;
(k) purchases, in the aggregate not to exceed $10,000,000, of all or
substantially all of the stock of corporations principally in the business
of exploration and production of oil and gas as a means of acquiring any
such corporation, but in no event in contravention of Section 4.09; and
(l) purchases, in the aggregate not to exceed $10,000,000, of all or
substantially all of the stock of corporations principally in the business
of marine services as a means of acquiring any such corporation, but in no
event in contravention of Section 4.09.
(m) investments, loans or advances to Guarantors and to Tesoro
Environmental Resources Company; provided, however, the aggregate amount of
all investments, loans or advances after the Closing Date directly or
indirectly by the Company in Tesoro Environmental Resources Company shall
not exceed $1,500,000; provided further, however, that the Company may
settle claims against Non-Guarantor Subsidiaries in an amount not to exceed
$3,000,000, in the aggregate.
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Section 6.10 Lease Payments. Except for (i) oil and gas lease obligations
permitted under Section 6.05, (ii) lease obligations (excluding Capital Lease
Obligations) existing under leases for oil field equipment and tools rented in
the ordinary course of business for a duration of less than one year and (iii)
time charter payments with regard to barges or tankers used to transport
feedstocks, blendstocks or refined products in the ordinary course of business;
create, incur, assume or suffer to exist, nor permit any of its Subsidiaries to
create, incur, assume or suffer to exist, any obligation for the payment of rent
or hire of Property of any kind whatsoever (real or personal), whether directly
or as a guarantor, if, after giving effect thereto, the aggregate amount of all
payments required to be made by the Company and its Subsidiaries on a
consolidated basis pursuant to such leases or lease agreements (excluding
Capital Lease Obligations) would exceed $8,000,000 in any calendar year.
Section 6.11 Sales and Leasebacks. Enter into, or permit any of its
Subsidiaries to enter into, any arrangement, directly or indirectly, with any
Person whereby the Company or any such Subsidiary shall sell or transfer any
Property, whether now owned or hereafter acquired, and whereby the Company or
any such Subsidiary shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which the Company or any such
Subsidiary intends to use for substantially the same purpose or purposes as the
Property sold or transferred.
Section 6.12 Nature of Business. Permit any material change to be made in
the character of its business or the business of any Guarantor as carried on at
the date hereof, except as may be permitted pursuant to this Agreement.
Section 6.13 ERISA Compliance.
(a) Engage in, or permit any ERISA Affiliate to engage in, any
transaction in connection with which the Company, a Subsidiary of the
Company or any ERISA Affiliate could be subjected to either a civil penalty
assessed pursuant to Sections 502(c) or 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, except where such assessment or imposition would
not have Material Adverse Effect;
(b) Terminate, or permit any ERISA Affiliate to terminate, any Plan in
a manner, or take any other action with respect to any Plan, which could
result in any liability of the Company, a Subsidiary of the Company or any
ERISA Affiliate to the PBGC, except where such termination would not have a
Material Adverse Effect;
(c) Fail to make, or permit any ERISA Affiliate to fail to make, full
payment when due of all amounts which, under the provisions of any Plan,
agreement relating thereto or applicable law, the Company, a Subsidiary of
the Company or any ERISA Affiliate is required to pay as contributions
thereto, except where the failure to make such payments would not have
Material Adverse Effect;
(d) Permit to exist, or allow any ERISA Affiliate to permit to exist,
any accumulated funding deficiency within the meaning of Section 302 of
ERISA or Section 412 of the Code, whether or not waived, with respect to any
Plan, except where the existence of such a deficiency would not have a
Material Adverse Effect;
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(e) Contribute to or assume an obligation to contribute to, or permit
any ERISA Affiliate to contribute to or assume an obligation to contribute
to, any "multiemployer plan" as such term is defined in Section 3(37) or
4001(a)(3) of ERISA;
(f) Acquire, or permit any ERISA Affiliate to acquire, an interest in
any Person that causes such Person to become an ERISA Affiliate with respect
to the Company or a Subsidiary of the Company or with respect to any ERISA
Affiliate of the Company or a Subsidiary of the Company if such Person
sponsors, maintains or contributes to, or at any time in the six-year period
preceding such acquisition has sponsored, maintained, or contributed to, (1)
any "multiemployer plan" as such term is defined in Section 3(37) or
4001(a)(3) of ERISA, or (2) any other Plan that is subject to Title IV of
ERISA under which the actuarial present value of the benefit liabilities
under such Plan exceeds the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan
allocable to such benefit liabilities;
(g) Fail to pay, or cause to be paid, to the PBGC in a timely manner,
and without incurring any late payment or underpayment charge or penalty,
all premiums required pursuant to Sections 4006 and 4007 of ERISA, except
where such failure would not have a Material Adverse Effect; or
(h) Amend, or permit any ERISA Affiliate to amend, a Plan resulting in
an increase in current liability such that the Company, a Subsidiary of the
Company or any ERISA Affiliate is required to provide security to such Plan
under Section 401(a)(29) of the Code.
Section 6.14 Sale or Discount of Receivables. Discount or sell (with or
without recourse), or permit any of its Subsidiaries to discount or sell (with
or without recourse), any of its or its Subsidiaries' notes receivable or
accounts receivable; provided that the Company may discount or sell (with or
without recourse) up to $3,000,000 in the aggregate of its accounts receivables
that are more than 60 days past due.
Section 6.15 Negative Pledge Agreements. Create, incur, assume or suffer
to exist, or permit any of its Subsidiaries to create, incur, assume or suffer
to exist, any contract, agreement or understanding (other than this Agreement,
the other Financing Documents or as set forth on Schedule 6.15 hereof) which in
any way prohibits or restricts the granting, conveying, creation or imposition
of any Lien on any Property of the Company or its Subsidiaries, or which
requires the consent of or notice to other Persons in connection therewith.
Section 6.16 Transactions with Affiliates. Enter into any transaction or
series of transactions, or permit any of its Subsidiaries to enter into any
transaction or series of transactions, with Affiliates of the Company or its
Subsidiaries which involve an outflow of money or other Property from the
Company or its Subsidiaries to an Affiliate of the Company or its Subsidiaries,
including but not limited to repayment of Indebtedness, management fees,
compensation, salaries, asset purchase payments or any other type of fees or
payments similar in nature, other than on terms and conditions substantially as
favorable to the Company and its Subsidiaries as would be obtainable by the
Company and its Subsidiaries in a reasonably comparable arm's-length transaction
with a Person other than such an Affiliate of the Company or its Subsidiaries.
Notwithstanding the foregoing, the restrictions set forth in this Section 6.16
shall not apply to: (i) the payment of reasonable and customary fees to
directors of the Company who are not employees of the Company, (ii) routine
loans or advances to employees made in the ordinary course of business not to
exceed $250,000 at any one time outstanding to any one employee, or (iii) any
other transaction with any employee,
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officer or director of the Company or any of its Subsidiaries pursuant to
employee benefit plans and compensation arrangements in amounts customary for
corporations similarly situated to the Company or any such Subsidiary and
entered into the ordinary course of business and approved by the Board of
Directors of the Company or any committee thereof or the Board of Directors of
such Subsidiary.
Section 6.17 Unconditional Purchase Obligations. Enter into or be a party
to, or permit any of its Subsidiaries to enter into or be a party to, any
contract for the purchase of materials, supplies or other property or services,
if such contract requires that payment be made by it regardless of whether or
not delivery is ever made of such materials, supplies or other property or
services.
Section 6.18 Stock. Authorize or issue any preferred stock (except for
the issuance of non-redeemable preferred stock to replace one or more of the
Company's outstanding issues of preferred stock, provided, that the issuance of
such preferred stock does not otherwise result in a Default under this
Agreement) or permit any of its Subsidiaries to authorize or issue any preferred
or common stock to be held by any Person other than the Company or any of its
wholly-owned Subsidiaries.
Section 6.19 Non-Recourse Indebtedness. The Company shall not permit any
Subsidiary to incur any Non-Recourse Indebtedness otherwise permitted hereunder
except upon terms and conditions and pursuant to documentation, in form and
substance, reasonably satisfactory to the Administrative Agent and Documentation
Agent.
ARTICLE VII
EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
Section 7.01 Payments. (a) The Company shall fail to pay when due
(including, but not limited to, by mandatory prepayment) any principal of any
Loan or any Note, or any Reimbursement Obligation; or (b) the Company shall fail
to pay when due any interest on any Loan or Note, any fee or any other amount
payable hereunder, and such failure to pay shall continue unremedied for a
period of three Business Days;
Section 7.02 Covenants Without Notice. The Company shall fail to observe
or perform any covenant or agreement contained in Sections 5.05, 5.09 and
Article VI (excluding Subsections 6.05(c) and (h), and Section 6.16 hereof);
Section 7.03 Other Covenants. The Company shall fail to observe or
perform any covenant or agreement contained in (a) Section 5.11, Section
5.15(a), (b), (c), (d), (g), (h), (i), or (k), Subsections 6.05(c) or (h) or
Section 6.16 and, if capable of being remedied, such failure shall remain
unremedied for 10 days after the earlier of (i) the Company's obtaining
knowledge thereof, or (ii) written notice thereof shall have been given to the
Company by any Lender, the Issuing Bank or the Administrative Agent; and (b)
this Agreement, other than those referred to in Sections 7.01, 7.02, or clause
(a) of this Section 7.03, and, if capable of being remedied, such failure shall
remain unremedied for 30 days after the earlier of (i) the Company's obtaining
knowledge thereof, or (ii) written notice thereof shall have been given to the
Company by any Lender, the Issuing Bank or the Administrative Agent;
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Section 7.04 Other Financing Document Obligations. Default is made in the
due observance or performance by the Company or any Subsidiary of the Company of
any of the covenants or agreements contained in any Financing Document other
than this Agreement, and such default continues unremedied beyond the expiration
of any applicable grace period which may be expressly allowed under such
Financing Document;
Section 7.05 Representations. Any representation, warranty or statement
made or deemed to be made by the Company or any Subsidiary of the Company or any
of such Company's, or Subsidiary's officers herein or in any other Financing
Document, or in any certificate, request or other document furnished pursuant to
or under this Agreement or any other Financing Document, shall have been
incorrect in any material respect as of the date when made or deemed to be made;
Section 7.06 Non-Payments of Other Indebtedness. The Company or any of
its Subsidiaries shall fail to make any payment or payments of principal of or
interest on any Indebtedness of the Company or such Subsidiary in excess of
$3,000,000 in the aggregate (other than (i) the Lender Indebtedness and (ii) any
trade account subject to a bona fide dispute and the trade creditor has neither
filed a lawsuit nor caused a Lien to be placed upon any Property of the Company
or such Subsidiary) when due (whether at stated maturity, by acceleration, on
demand or otherwise) after giving effect to any applicable grace period;
Section 7.07 Defaults Under Other Agreements. The Company or any of its
Subsidiaries shall fail to observe or perform any covenant or agreement
contained in any agreement(s) or instrument(s) relating to Indebtedness of
$3,000,000 or more in the aggregate within any applicable grace period, or any
other event shall occur, if the effect of such failure or other event is to
accelerate, or to permit the holder of such Indebtedness or any other Person to
accelerate, the maturity of $3,000,000 or more in the aggregate of such
Indebtedness; or $3,000,000 or more in the aggregate of any such Indebtedness
shall be, or if as a result of such failure or other event may be, required to
be prepaid (other than by a regularly scheduled required prepayment) in whole or
in part prior to its stated maturity;
Section 7.08 Bankruptcy. The Company or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy" as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Company or any of its Subsidiaries and the petition is not controverted within
10 days, or is not stayed or dismissed within 60 days, after commencement of the
case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or any substantial part of the property of the Company or
any of its Subsidiaries; or the Company or any of its Subsidiaries commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or such
Subsidiary or there is commenced against the Company or any of its Subsidiaries
any such proceeding which remains unstayed or undismissed for a period of 60
days; or the Company or any of its Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any of its Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
Property to continue undischarged or unstayed for a period of 60 days; or the
Company or any of its Subsidiaries makes a general assignment for the benefit of
creditors; or the Company or any of its Subsidiaries shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts generally
as they become due; or the Company or any of its Subsidiaries shall by any act
or failure to act indicate its consent to, approval of or acquiescence in any of
the foregoing; or any corporate action is taken by the Company or any of its
Subsidiaries for the purpose of effecting any of the foregoing;
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Section 7.09 ERISA. A Plan shall fail to maintain the minimum funding
standard required by Section 412 of the Code for any plan year or a waiver of
such standard is sought or granted under Section 412(d), or a Plan is, shall
have been or is likely to be, terminated or the subject of termination
proceedings under ERISA, or the Company or an ERISA Affiliate has incurred or is
likely to incur a liability to or on account of a Plan under Section 515, 4062,
4063, 4064, 4201 or 4204 of ERISA, and there shall result from any such event or
events either a liability or a material risk of incurring a liability to the
PBGC or a Plan, which will have a Material Adverse Effect;
Section 7.10 Money Judgment. A judgment or order for the payment of money
in excess of $3,000,000 or that would otherwise have a Material Adverse Effect
shall be rendered against the Company or any of it Subsidiaries and such
judgment or order shall continue unsatisfied in accordance with the terms of
such judgment or order (in the case of a money judgment) and in effect for a
period of 30 days during which execution shall not be effectively stayed or
deferred (whether by action of a court, by agreement or otherwise);
Section 7.11 Discontinuance of Business. The Company or any Guarantor
shall cease to carry on its business as currently conducted or as contemplated
to be conducted, except for the discontinuance of Tesoro R&M;
Section 7.12 Security Instruments. The material terms of the Security
Instruments after delivery thereof shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and valid,
binding and enforceable (except as enforceability may be limited as stated in
Section 4.03) in accordance with their terms, or cease to create a valid and
perfected Lien of the priority contemplated thereby on any of the collateral
purported to be covered thereby, or the Company or any of its Subsidiaries (or
any other Person who may have granted or purported to grant such Lien) shall so
state in writing;
Section 7.13 Change of Control. The occurrence of a Change of Control;
Section 7.14 Mandatory Prepayments. The Company shall fail to make any
mandatory prepayment required by Section 2.10; or
Section 7.15 Material Adverse Event. The occurrence of any event or
condition that the Majority Lenders believe in good faith to have resulted in a
Material Adverse Effect;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written or telex
request of the Majority Lenders, shall, by written notice to the Company, take
any or all of the following actions, without prejudice to the rights of the
Administrative Agent, any Lender or the holder of any Note, to enforce its
claims against the Company: (i) declare the Revolving Credit Commitment, and
other lending obligations, if any, terminated, whereupon the Revolving Credit
Commitment and other lending obligations, if any, of each Lender shall terminate
immediately; or (ii) declare the entire principal amount of and all accrued
interest on all Lender Indebtedness then outstanding to be, whereupon the same
shall become, forthwith due and payable without presentment, demand, protest,
notice of protest or dishonor, notice of acceleration, notice of intent to
accelerate or other notice of any kind, all of which are hereby expressly waived
by the Company, and thereupon take such action as it may deem desirable under
and pursuant to the Financing Documents; provided, that, if an Event of Default
specified in Section 7.08 shall occur, the result which would occur upon the
giving of written notice
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by the Administrative Agent to the Company, as specified in clauses (i) and (ii)
above, shall occur automatically without the giving of any such notice.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.01 Appointment of Administrative Agent. Each Lender and the
Issuing Bank hereby designate Banque Paribas, as Administrative Agent to act as
herein specified. Each Lender and the Issuing Bank hereby irrevocably
authorizes the Administrative Agent to take such action on its behalf under the
provisions of this Agreement, the Notes, and the other Financing Documents and
to exercise such powers and to perform such duties hereunder and thereunder as
are specifically delegated to or required of the Administrative Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. The Administrative Agent may perform any of its duties hereunder by or
through its Administrative Agents or employees.
Section 8.02 Nature of Duties of Administrative Agent and Documentation
Agent. The Administrative Agent and the Documentation Agent shall have no
duties or responsibilities except those expressly set forth with respect to each
of the Administrative Agent or the Documentation Agent in this Agreement.
Neither the Administrative Agent, the Documentation Agent nor any of their
respective officers, directors, employees or Administrative Agents shall be
liable for any action taken or omitted by it as such hereunder or in connection
herewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Administrative Agent and the Documentation Agent shall be
mechanical and administrative in nature; the Administrative Agent and the
Documentation Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender; and nothing in this Agreement, expressed
or implied, is intended to or shall be so construed as to impose upon the
Administrative Agent or the Documentation Agent any obligations in respect of
this Agreement except as expressly set forth herein.
Section 8.03 Lack of Reliance on the Administrative Agent and the
Documentation Agent.
(a) Independent Investigation. Independently and without reliance
upon the Administrative Agent or the Documentation Agent, each Lender, to
the extent it deems appropriate, has made and shall continue to make (i) its
own independent investigation of the financial condition and affairs of the
Company in connection with the taking or not taking of any action in
connection herewith, and (ii) its own appraisal of the creditworthiness of
the Company, and, except as expressly provided in this Agreement, the
Administrative Agent and the Documentation Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether
coming into its possession before the consummation of the transactions
contemplated herein or at any time or times thereafter.
(b) Agent Not Responsible. The Administrative Agent and the
Documentation Agent shall not be responsible to any Lender or the Issuing
Bank for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered
in connection herewith or for the execution, effectiveness, genuineness,
validity, enforceability, collectibility, priority or sufficiency of this
Agreement, the Notes, the Letters of Credit or the other Financing Documents
or the financial condition of the Company or be required to make any inquiry
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concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Notes or the other Financing
Documents, or the financial condition of the Company, or the existence or
possible existence of any Default or Event of Default.
Section 8.04 Certain Rights of the Administrative Agent. If the
Administrative Agent shall request instructions from the Majority Lenders with
respect to any act or action (including the failure to act) in connection with
this Agreement, the Notes and the other Financing Documents, the Administrative
Agent shall be entitled to refrain from such act or taking such action unless
and until the Administrative Agent shall have received instructions from the
Majority Lenders; and the Administrative Agent shall not incur liability to any
Person by reason of so refraining. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent acting or refraining from acting under this
Agreement, the Notes and the other Financing Documents in accordance with the
instructions of the Majority Lenders.
Section 8.05 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other documentary,
teletransmission or telephone message believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person. The Administrative
Agent may consult with legal counsel (including counsel for the Company),
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 8.06 Indemnification of Administrative Agent and the Documentation
Agent. To the extent the Administrative Agent or the Documentation Agent is not
reimbursed and indemnified by the Company, each Lender will reimburse and
indemnify the Administrative Agent or the Documentation Agent, as applicable, in
proportion to its Percentage Share, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including counsel fees and disbursements) or disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
the Administrative Agent or the Documentation Agent in performing its duties
hereunder, in any way relating to or arising out of this Agreement; provided
that no Lender shall be liable to the Administrative Agent or the Documentation
Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from, as to the Administrative Agent, the Administrative Agent's gross
negligence or willful misconduct or, as to the Documentation Agent, the
Documentation Agent's gross negligence or willful misconduct.
Section 8.07 The Administrative Agent and Documentation Agent in their
Individual Capacity. With respect to their obligations under this Agreement,
the Loans made by it and the Note issued to it, the Administrative Agent and
Documentation Agent shall have the same rights and powers hereunder as any other
Lender or holder of a Note and may exercise the same as though it were not
performing the duties, if any, specified herein; and the terms "Lenders,"
"Majority Lenders," "holders of Notes" or any similar terms shall, unless the
context clearly otherwise indicates, include the Administrative Agent and
Documentation Agent in their individual capacity. The Administrative Agent and
Documentation Agent may accept deposits from, lend money to, and generally
engage in any kind of banking, trust, financial advisory or other business
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with the Company or any affiliate of the Company as if it were not performing
the duties, if any, specified herein, and may accept fees and other
consideration from the Company for services in connection with this Agreement
and otherwise without having to account for the same to the Lenders.
Section 8.08 Lender as Owner. The Administrative Agent and the
Documentation Agent may deem and treat each Lender as the owner of such Lender's
Note for all purposes hereof unless and until a written notice of the assignment
or transfer thereof shall have been filed with the Administrative Agent. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the owner of a Note shall be
conclusive and binding on any subsequent owner, transferee or assignee of such
Note or any promissory note or notes issued in exchange therefor.
Section 8.09 Successor Administrative Agent.
(a) Agent Resignation. The Administrative Agent may resign at any
time by giving written notice thereof to the Lenders, the Issuing Bank and
the Company and may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation or removal, the Majority
Lenders shall have the right, upon five days' notice to the Company, to
appoint a successor Administrative Agent. If no successor Administrative
Agent shall have been so appointed by the Majority Lenders, and shall have
accepted such appointment, within 30 days after the retiring Administrative
Agent's giving of notice of resignation or the Majority Lenders' removal of
the retiring Administrative Agent, then, upon five days' notice to the
Company, the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, which shall be a bank which
maintains an office in the United States, or a commercial bank organized
under the laws of the United States of America or of any State thereof, or
any Affiliate of such bank, having a combined capital and surplus of at
least $250,000,000.
(b) Rights, Powers, etc. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VIII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including, telecopy or similar
teletransmission or writing) and shall be given to such party at its address or
telecopy number set forth on the signature pages hereof or such other address or
telecopy number as such party may hereafter specify by notice to the
Administrative Agent and the Company; provided that a copy of all notices to the
Administrative Agent (a) which are Advance Notices shall also be sent to Banque
Paribas, 1200 Smith Street, Suite 3100, Houston, Texas 77002, Telecopier No.
(713) 659-5305, Attention: Leah Evans-Hughes, and (b) which are requests for
the issuance of a Letter of Credit by
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Banque Paribas shall also be sent to Banque Paribas, 1200 Smith Street, Suite
3100, Houston, Texas 77002, Telecopier No. (713) 659-3832, Attention: Cheryl
Johnson. Each such notice, request or other communication shall be effective
(i) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid, or (ii) if given
by any other means (including, but not limited to, by air courier), when
delivered at the address specified in this Section; provided that notices to the
Administrative Agent shall not be effective until received.
Section 9.02 Amendments, etc. Any provision of this Agreement or any
other Financing Document may be amended, modified or waived with the Company's
and the Majority Lenders' prior written consent; provided that (a) no amendment,
modification or waiver which extends the due date or maturity of the Loans, the
Revolving Credit Maturity Date, releases all or substantially all of the
Collateral, reduces the interest rate applicable to the Loans or the fees
payable to the Lenders generally, releases the Company or any material Guarantor
from its respective obligation to pay principal or interest on the Loans,
affects this Section 9.02 or Section 9.04 or modifies the definition of
"Majority Lenders", shall be effective without consent of all Lenders; (b) no
amendment, modification or waiver which increases the Commitment of any Lender
shall be effective without the consent of such Lender; (c) no amendment,
modification or waiver which modifies the rights, duties or obligations of the
Administrative Agent shall be effective without the consent of the
Administrative Agent; (d) no amendment, modification or waiver which modifies
the rights, duties or obligations of the Documentation Agent shall be effective
without the consent of the Documentation Agent; and (e) no amendment,
modification or waiver which modifies the rights, duties or obligations of
either Issuing Bank shall be effective without the consent of the applicable
Issuing Bank. Notwithstanding anything in this Section to the contrary, unless
instructed to the contrary by the Majority Lenders, the applicable Issuing Bank
shall extend each Letter of Credit prior to any expiration date thereof pursuant
to the terms of such Letter of Credit or its related Application if a failure to
so extend such Letter of Credit would result in entitling the beneficiary
thereof to draw thereon.
Section 9.03 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Company or the Administrative Agent or any Lender or any holder of
any Note in exercising any right or remedy under this Agreement or any other
Financing Document and no course of dealing between the Company and the
Administrative Agent or any Lender or any holder of any Note shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
under the Notes, this Agreement or any other Financing Document preclude any
other or further exercise thereof or the exercise of any other right or remedy
under the Notes, this Agreement or any other Financing Document. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Company, the Administrative Agent or any Lender
would otherwise have. No notice to or demand on the Company not required under
the Notes, this Agreement or any other Financing Document in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Administrative Agent
or the Lenders to any other or further action in any circumstances without
notice or demand.
Section 9.04 Payment of Expenses, Indemnities, etc. The Company agrees to
(and shall be liable for):
(a) Expenses. Whether or not the transactions hereby contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent and each Issuing Bank in the administration (both
before and after the execution hereof and including advice of counsel as to
the rights and duties of the Administrative Agent and the Lenders with
respect thereto)
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of, and in connection with the preparation, execution and delivery of,
recording or filing of, preservation of rights under, enforcement of, and,
after a Default, refinancing, renegotiation or restructuring of, this
Agreement, the Notes, and the other Financing Documents and any amendment,
waiver or consent relating thereto (including, but not limited to, the
reasonable fees and disbursements of counsel for the Administrative Agent
and in the case of enforcement for any of the Lenders) and promptly
reimburse the Administrative Agent for all amounts expended, advanced, or
incurred by the Administrative Agent or the Lenders to satisfy any
obligation of the Company or the Guarantors under this Agreement or any
other Financing Document;
(b) Indemnification. Indemnify the Administrative Agent, the
Documentation Agent, the Issuing Banks and each Lender, each of their
respective officers, directors, employees, representatives, agents and
Affiliates from, hold each of them harmless against, and promptly upon
demand pay or reimburse each of them for, any and all actions, suits,
proceedings (including any investigations, litigation or inquiries), claims,
costs, losses, liabilities, damages or expenses of any kind or nature
whatsoever which may be incurred by or asserted against or involve any of
them (whether or not any of them is designated a party thereto) as a result
of, arising out of or in any way related to (i) any actual or proposed use
by the Company or any Subsidiary of the Company of the proceeds of any of
the Loans; or (ii) any other aspect of this Agreement, the Notes, and the
Financing Documents, including but not limited to the reasonable fees and
disbursements of counsel (including allocated costs of internal counsel) and
all other expenses incurred in connection with investigating, defending or
preparing to defend any such action, suit, proceeding (including any
investigations, litigation or inquiries) or claim, and including all
actions, suits, proceedings (including any investigations, litigation or
inquiries), claims, costs, losses, liabilities, damages or expenses arising
by reason of ordinary negligence of any of the Administrative Agent, the
Documentation Agent, the Issuing Banks and each Lender, each of their
respective officers, directors, employees, representatives, agents and
Affiliates; provided, however, the provisions of this Section 9.04(b) shall
not apply to any action, suits, proceedings, claims, costs, losses,
liabilities, damages, or expenses to the extent, but only to the extent,
caused by the gross negligence or willful misconduct of the party seeking
indemnification;
(c) Environmental Indemnification. Indemnify and hold harmless from
time to time the Administrative Agent, the Documentation Agent, the Issuing
Banks and the Lenders, each Person claiming by, through, under or on account
of any of the foregoing and the respective directors, officers, counsel,
employees, agents, successors and assigns of each of the foregoing from and
against any and all losses, claims, cost recovery actions, administrative
orders or proceedings, damages and liabilities (which relate to or arise as
a result of the Loans, the Letters of Credit or any Financing Document) to
which any such Person may become subject and including any and all losses,
claims, cost recovery actions, administrative orders or proceedings, damages
and liabilities (which relate to or arise as a result of the Loans, the
Letters of Credit or any Financing Document) arising by reason of the
ordinary negligence of the Administrative Agent, the Documentation Agent and
the Lenders, each Person claiming by, through, under or on account of any of
the
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foregoing and the respective directors, officers, counsel, employees,
agents, successors and assigns of each of the foregoing (1) under any
Environmental Law applicable to the Company or any of its Subsidiaries or
any of their respective Properties, including without limitation, the
treatment or disposal of Hazardous Substances on any of their respective
Properties, (2) as a result of the breach or non-compliance by the Company
or any of its Subsidiaries with any Environmental Law applicable to the
Company or any of its Subsidiaries, (3) due to past ownership by the Company
or any of its Subsidiaries of any of their respective Properties or past
activity on any of their respective Properties or past activity on any of
their respective Properties which, though lawful and fully permissible at
the time, could result in present liability, (4) the presence, use, release,
storage, treatment or disposal of Hazardous Substances on or at any of the
Properties owned or operated by the Company or any of its Subsidiaries, or
(5) any other environmental, health or safety condition in connection with
this Agreement, the Notes or any other Financing Document; provided,
however, no indemnity shall be afforded under this Section 9.04(c) in
respect of any Property for any occurrence arising solely and directly from
the acts or omissions of the Administrative Agent or any Lender during the
period after which such Person, its successors or assigns shall have
obtained possession of such Property (whether by foreclosure or deed in lieu
of foreclosure, as mortgagee-in-possession or otherwise); and
(d) Environmental Waiver. Without limiting the foregoing provisions,
and hereby does waive, release and covenant not to bring against any of the
Persons identified in this Section 9.04 any demand, claim, cost recovery
action or lawsuit they may now or hereafter have or accrue (which relate to
or arise as a result of the Loans, the Letters of Credit or any Financing
Document) arising from (1) any Environmental Law now or hereafter enacted
(including those applicable to the Company or any of its Subsidiaries)
unless the acts or omissions of any such person or their respective
successors and assigns are the sole and direct cause of the circumstances
giving rise to such demand, cost recovery action or lawsuit, (2) the
presence, use, release, storage, treatment or disposal of Hazardous
Substances on or at any of the Properties owned or operated by the Company
or any of its Subsidiaries, or (3) the breach or non-compliance by the
Company with any Environmental Law or environmental covenant applicable to
the Company or any of its Subsidiaries, unless the acts or omissions of such
Person, its successors and assigns are the sole and direct cause of the
circumstances giving rise to such demand, claim, cost recovery action or
lawsuit.
If and to the extent that the obligations of the Company under this Section are
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law. The Company's obligations under this Section
shall survive any termination of this Agreement and the payment of the Notes.
Section 9.05 Right of Setoff. In addition to and not in limitation of all
rights of offset that any Lender or either Issuing Bank may have under
applicable law, each Lender or other holder of a Note, or any other Lender
Indebtedness shall, upon the occurrence of any Event of Default and at any time
during the continuance thereof and whether or not such Lender, the Issuing Bank
or such holder has made any demand
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or the Company's obligations are matured, have the right at any time and from
time to time, without notice to the Company (any such notice being expressly
waived by the Company) to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by any Lender or the Issuing Bank to or for the
credit or the account of the Company against any and all of the Lender
Indebtedness then outstanding.
Section 9.06 Benefit of Agreement.
(a) Benefit of Parties. The Notes, this Agreement and the other
Financing Documents shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
provided that the Company may not assign or transfer any of its interest
hereunder or thereunder without the prior written consent of the Lenders.
In the event that any Lender sells participations in the Notes or other
Lender Indebtedness of the Company incurred or to be incurred pursuant to
this Agreement, to other banks or entities, each of such other banks or
entities shall have the rights of set-off against such Lender Indebtedness
and similar rights or Liens to the same extent as may be available to the
Administrative Agent or the Lenders.
(b) Branch Offices, Affiliates. Any Lender may make, carry or
transfer Loans at, to or for the account of, any of its branch offices or
the office of an Affiliate of such Lender.
Section 9.07 Assignments and Participations.
(a) No Company Assignments. The Company may not assign its rights and
obligations hereunder or under the Notes.
(b) Assignment by Lenders. Each Lender may, upon the written consent
of the Administrative Agent and, so long as no Default exists, the Company
(which consent shall not be unreasonably withheld), assign to one or more
Eligible Transferees all or a portion of its rights and obligations under
this Agreement pursuant to an Assignment and Acceptance Agreement
substantially in the form of Exhibit D (an "Assignment and Acceptance")
provided, however, that (i) any such assignment shall be in the aggregate
amount of at least $5,000,000 or such lesser amount to which the Company has
consented (or if the aggregate amount of any Lender's Loans and Commitments
is less than $5,000,000, then the entire amount of such Lender's Loans and
Commitments), and (ii) the assignee shall pay to the Administrative Agent a
processing and recordation fee of $2,500; and, further provided, however,
any Lender may assign its rights and obligations hereunder to an Affiliate
pursuant to the foregoing terms and conditions, except that (i) no consent
from the Administrative Agent and the Company shall be required and (ii) no
processing and recordation fee shall be required. Any such assignment will
become effective upon the recording by the Administrative Agent of such
assignment in the Register of the resultant effects thereof on the
Commitment of the assignor and assignee, and the principal amount
outstanding of the Loans owed to the assignor and assignee, the
Administrative Agent hereby agreeing to effect such recordation no later
than five Business Days after its receipt of an Assignment and Acceptance
executed by all parties thereto. Promptly after receipt of an Assignment
and Acceptance executed by all parties thereto, the Administrative Agent
shall send to the Company a copy of such executed Assignment and Acceptance.
Upon receipt of such executed Assignment and Acceptance, the Company, will,
at its own expense, execute and deliver new Notes to the assignor and/or
assignee, as appropriate, in accordance with their respective interests as
they appear on the Register. Upon
-75-
the effectiveness of any assignment pursuant to this subsection, the
assignee shall be deemed automatically to have become a party hereto, if not
already a party hereto, and shall become a "Lender," if not already a
"Lender," for all purposes of this Agreement and the other Financing
Documents. The assignor shall be relieved of its obligations hereunder to
the extent of such assignment (and if the assigning Lender no longer holds
any rights or obligations under this Agreement, such assigning Lender shall
cease to be a "Lender" hereunder). The Administrative Agent will prepare on
the last Business Day of each month during which an assignment has become
effective pursuant to this subsection a new schedule giving effect to all
such assignments effected during such month, and will promptly provide the
same to the Company, the Issuing Banks and each of the Lenders.
(c) Participations. Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests hereunder
pursuant to this subsection to any Person, provided that: (i) such Lender
shall remain a "Lender" for all purposes of this Agreement and the
transferee of such participation shall not constitute a "Lender" hereunder;
and (ii) no participant under any such participation shall have rights to
approve any amendment to or waiver of this Agreement, the Notes or any
Financing Document except to the extent such amendment or waiver would (x)
extend the Revolving Credit Maturity Date of any of the Commitments or Loans
in which such participant is participating, (y) reduce the interest rate
(other than as a result of waiving the applicability of any post-default
increases in interest rates) or fees applicable to any of the Commitments or
Loans in which such participant is participating, or postpone the payment of
any thereof, or (z) release all or substantially all of the collateral or
guaranties (except as expressly provided in the Financing Documents)
supporting any of the Commitments or Loans in which such participant is
participating. In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the Financing Documents
(the participant's rights against the granting Lender in respect of such
participation to be those set forth in the agreement with such Lender
creating such participation), and all amounts payable by the Company
hereunder shall be determined as if such Lender had not sold such
participation, provided that such participant shall be entitled to receive
additional amounts under Sections 2.16 and 2.18 on the same basis as if it
were a Lender. In addition, each agreement creating any participation must
include an agreement by the participant to be bound by the provisions of
Section 9.15. Notwithstanding anything in this Section 9.07(c) to the
contrary, the purchase by each Lender of a participation in the Letters of
Credit on the Effective Date and any subsequent assignment of all or any
part of any such Lender's Percentage Share in any Letter of Credit and its
related Letter of Credit Liabilities pursuant to Section 9.07(b) shall not
be considered a participation pursuant to this Section 9.07(c).
(d) Registration Statements; Blue Sky Laws. Notwithstanding any other
provisions of this Section 9.07, no transfer or assignment of the interests
or obligations of any Lender hereunder or any grant of participations
therein shall be permitted if such transfer, assignment or grant would
require the Company or any Guarantor to file a registration statement with
the Securities and Exchange Commission or to qualify the Loans under the
"Blue Sky" laws of any state.
(e) Certain Representations. Each Lender initially party to this
Agreement hereby represents, and each Person that becomes a Lender pursuant
to an assignment permitted by subsection (b) above will, upon its becoming
party to this Agreement, represent that it is an Eligible Transferee, and
that it will make or acquire Loans only for its own account in the ordinary
course of its business; provided, however, that subject to the preceding
Subsections (b) through (d), the
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disposition of any promissory notes or other evidences of or interests in
Lender Indebtedness held by such Lender shall at all times be within its
exclusive control.
(f) Assignees Treated as Lenders. The entries in the Register shall
be conclusive in the absence of manifest error and the Company, the
Administrative Agent, the Issuing Bank and the Lenders may treat each person
whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement and the other Financing
Documents. The Register shall be available for inspection by the Company
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) The Lenders may furnish any information concerning the Company and
the Subsidiaries in the possession of the Lenders from time to time to
assignees and participants (including prospective assignees and
participants); provided that, such Persons agree to be bound by the
provisions of Section 9.15 hereof.
(e) Notwithstanding anything in this Section 9.07 to the contrary, any
Lender may assign and pledge its Note to any Federal Reserve Bank or the
United States Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System and/or such Federal Reserve
Bank. No such assignment and/or pledge shall release the assigning and/or
pledging Lender from its obligations hereunder.
Section 9.08 Governing Law; Submission to Jurisdiction; Etc.
(a) Governing Law. This Agreement and the rights and obligations of
the parties hereunder and under the Notes shall be construed in accordance
with and be governed by the laws of the State of Texas and to the extent
controlling, laws of the United States of America. Tex. Rev. Civ. Stat.
Ann. Art. 5069, Ch. 15 (which regulates certain revolving credit loan
accounts and revolving tri-party accounts) shall not apply to this Agreement
or the other Financing Documents.
(b) Submission to Jurisdiction. Any legal action or proceeding with
respect to this Agreement, the Notes or the other Financing Documents may be
brought in the courts of the State of Texas or of the United States of
America for the Southern District of Texas, and, by execution and delivery
of this Agreement, the Company hereby accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. The company hereby irrevocably waives any objection,
including, but not limited to, any objection to the laying of venue or based
on the grounds of forum non conveniens, which it may now or hereafter have
to the bringing of any such action or proceeding in such respective
jurisdictions.
(c) Waiver of Jury Trial, etc. The Company and each Lender hereby (i)
irrevocably and unconditionally waive, to the fullest extent permitted by
law, trial by jury in any legal action or proceeding relating to this
Agreement or any Financing Document and for any counterclaim therein; (ii)
certify that no party
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hereto nor any representative or agent of counsel for any party hereto has
represented, expressly or otherwise, or implied that such party would not,
in the event of litigation, seek to enforce the foregoing waivers, and (iii)
acknowledge that it has been induced to enter into this Agreement, the
Financing Documents and the transactions contemplated hereby and thereby by,
among other things, the mutual waivers and certifications contained in this
section 9.08.
(d) Designation of Administrative Agent. The Company hereby
irrevocably designates its General Counsel, currently designated as James C.
Reed, Jr., as the designee, appointee and agent of the Company to receive,
for and on behalf of the Company, service of process in such respective
jurisdictions in any legal action or proceeding with respect to this
Agreement, the Notes, or the other Financing Documents. It is understood
that a copy of such process served on such agent will be promptly forwarded
by mail to the Company at its address set forth opposite its signature
below, but the failure of the Company to receive such copy shall not affect
in any way the service of such process. The Company further irrevocably
consents to the service of process of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to the Company at its said address, such
service to become effective 30 days after such mailing.
(e) Service of Process. Nothing herein shall affect the right of the
Administrative Agent or any Lender or any holder of a Note to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Company in any other jurisdiction.
Section 9.09 Independent Nature of Lenders' Rights. The amounts payable
at any time hereunder to each Lender shall be a separate and independent debt,
and each Lender shall be entitled to protect and enforce its rights arising out
of this Agreement, and it shall not be necessary for any other Lender to be
joined as an additional party in any proceeding for such purpose.
Section 9.10 Invalidity. In the event that any one or more of the
provisions contained in the Notes, this Agreement or in any other Financing
Document shall, for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of the Notes, this Agreement or any other Financing Document.
Section 9.11 Survival of Agreements. All representations and warranties
of the Company or its Subsidiaries or any other Person herein or in the other
Financing Documents, and all covenants and agreements herein not fully performed
before the Effective Date, shall survive such date or dates.
Section 9.12 Renewal, Extension or Rearrangement. All provisions of this
Agreement and of any other Financing Documents relating to the Notes or other
Lender Indebtedness shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension for any period, increase or rearrangement of any part of the
Lender Indebtedness originally represented by the Notes, or of any part of such
other Lender Indebtedness.
Section 9.13 Interest. It is the intention of the parties hereto to
conform strictly to usury laws applicable to the Administrative Agent, the
Documentation Agent, the Issuing Banks and the Lenders (collectively, the
"Financing Parties") and the Transactions. Accordingly, if the Transactions
would be usurious as to any Financing Party under laws applicable to it, then,
notwithstanding anything to the contrary
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in the Notes, this Agreement or in any other Financing Document or agreement
entered into in connection with the Transactions or as security for the Notes,
it is agreed as follows: (i) the aggregate of all consideration which
constitutes interest under law applicable to any Financing Party that is
contracted for, taken, reserved, charged or received by such Financing Party
under the Notes, this Agreement or under any of such other Financing Documents
or agreements or otherwise in connection with the Transactions shall under no
circumstances exceed the maximum amount allowed by such applicable law, (ii) in
the event that the maturity of the Notes is accelerated for any reason, or in
the event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to any Financing Party may never
include more than the maximum amount allowed by such applicable law, and (iii)
excess interest, if any, provided for in this Agreement or otherwise in
connection with the Transactions shall be canceled automatically by such
Financing Party and, if theretofore paid, shall be credited by such Financing
Party on the principal amount of such Financing Party's Indebtedness (or, to the
extent that the principal amount of such Financing Party's Indebtedness shall
have been or would thereby be paid in full, refunded by such Financing Party to
the Company). The right to accelerate the maturity of the Notes does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and the Financing Parties do not intend to
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to the Financing Parties for the use, forbearance or detention
of sums included in the Lender Indebtedness shall, to the extent permitted by
law applicable to such Financing Party, be amortized, prorated, allocated and
spread throughout the full term of the Notes until payment in full so that the
rate or amount of interest on account of the Lender Indebtedness does not exceed
the applicable usury ceiling, if any. As used in this Section, the terms
"applicable law" or "laws applicable to any Financing Party" shall mean the law
of any jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement, or law of the United States of America
applicable to any Financing Party and the Transactions which would permit such
Financing Party to contract for, charge, take, reserve or receive a greater
amount of interest than under such jurisdiction's law. To the extent that
Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to any
Financing Party for the purpose of determining the Highest Lawful Rate, such
Financing Party hereby elects to determine the applicable rate ceiling under
such Article by the indicated (weekly) rate ceiling from time to time in effect,
subject to such Financing Party's right subsequently to change such method in
accordance with applicable law.
Section 9.14 Taxes, etc. Any taxes (excluding income taxes) payable or
ruled payable by federal or state authority in respect of the Notes, this
Agreement or the other Financing Documents shall be paid by the Company,
together with interest and penalties, if any.
Section 9.15 Confidential Information. The Administrative Agent and each
Lender agree that all documentation and other information made available by the
Company to the Administrative Agent or such Lender under the terms of this
Agreement shall (except to the extent such documentation or other information is
publicly available or hereafter becomes publicly available other than by action
of the Administrative Agent or such Lender, or was theretofore known or
hereinafter becomes known to the Administrative Agent or such Lender independent
of any disclosure thereto by the Company) be held in the strictest confidence by
the Administrative Agent or such Lender and used solely in the administration
and enforcement of the Loans from time to time outstanding from such Lender to
the Company and in the prosecution of defense of legal proceedings arising in
connection herewith; provided that (i) the Administrative Agent or such Lender
may disclose documentation and information to the Administrative Agent and/or to
any other Lender which is a party to this Agreement or any Affiliates thereof
and (ii) the Administrative Agent or such Lender may disclose such documentation
or other information to any other bank or other Person to which such Lender
sells or proposes to make an assignment or sell a participation
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in its Loans hereunder if such other bank or Person, prior to such disclosure,
agrees in writing to be bound by the terms of the confidentiality statement
customarily employed by the Administrative Agent in connection with such
potential transfers. Notwithstanding the foregoing, nothing contained herein
shall be construed to prevent the Administrative Agent or a Lender from (a)
making disclosure of any information (i) if required to do so by applicable law
or regulation or accepted banking practice, (ii) to any governmental agency or
regulatory body having or claiming to have authority to regulate or oversee any
aspect of such Lender's business or that of such Lender's corporate parent or
affiliates in connection with the exercise of such authority or claimed
authority, (iii) pursuant to any subpoena or if otherwise compelled in
connection with any litigation or administrative proceeding, (iv) to correct any
false or misleading information which may become public concerning such Person's
relationship to the Company, or (v) to the extent the Administrative Agent or
such Lender or its counsel deems necessary or appropriate to effect or preserve
its security for any Lender Indebtedness or to enforce any remedy provided in
the Financing Documents, the Notes or this Agreement or otherwise available by
law; or (b) making, on a confidential basis, such disclosures as such Lender
reasonably deems necessary or appropriate to its legal counsel or accountants
(including outside auditors). If the Administrative Agent or such Lender is
compelled to disclose such confidential information in a proceeding requesting
such disclosure, the Administrative Agent or such Lender shall seek to obtain
assurance that such confidential treatment will be accorded such information;
provided, however, that the Lender shall have no liability for the failure to
obtain such treatment.
Section 9.16 Entire Agreement. The Notes, this Agreement and the other
Financing Documents embody the entire agreement and understanding between the
Administrative Agent, the Documentation Agent, the Issuing Bank or the Lenders
and the other respective parties hereto and thereto and supersede all prior
agreements and understandings between such parties relating to the subject
matter hereof and thereof and may not be contradicted by evidence of prior,
contemporaneous or subsequent agreements of the parties. There are no unwritten
oral agreements between the parties.
Section 9.17 Attachments. The exhibits, schedules and annexes attached to
this Agreement are incorporated herein and shall be considered a part of this
Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits and the provisions of
this Agreement, the provisions of this Agreement shall prevail.
Section 9.18 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original but all of
which shall together constitute one and the same instrument.
Section 9.19 Survival of Indemnities. The Company's obligations under
Sections 2.16, 2.18, 2.21 and 9.04 shall survive the payment in full of the
Loans and the Letter of Credit Liabilities.
Section 9.20 Headings Descriptive. The headings of the several sections
and subsections of this Agreement, and the Table of Contents, are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement.
Section 9.21 Satisfaction Requirement. If any agreement, certificate,
instrument or other writing, or any action taken or to be taken, is by the terms
of this Agreement required to be satisfactory to any party, the determination of
such satisfaction shall be made by such party in its sole and exclusive judgment
exercised reasonably and in good faith.
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Section 9.22 Effectiveness. This Agreement shall not be effective until
executed by all signatories hereto and delivered to the Administrative Agent in
the State of Texas and accepted by the Administrative Agent in such state.
Section 9.23 Conflict with E&P Mortgage. In the event of a conflict
between the terms of the E&P Mortgage and the terms of this Agreement, the terms
of this Agreement shall control.
Section 9.24 Exculpation Provisions. Each of the parties hereto
specifically agrees that it has a duty to read this Agreement and the other
Financing Documents and agrees that it is charged with notice and knowledge of
the terms of this Agreement and the other Financing Documents; that it has in
fact read this Agreement and is fully informed and has full notice and knowledge
of the terms, conditions and effects of this Agreement; that it has been
represented by legal counsel of its choice throughout the negotiations preceding
its execution of this Agreement and the other Financing Documents; and has
received the advice of its attorneys in entering into this Agreement and the
other Financing Documents; and that it recognizes that certain of the terms of
this Agreement and the other Financing Documents result in one party assuming
the liability inherent in some aspects of the transaction and relieving the
other party of its responsibility for such liability. Each party hereto agrees
and covenants that it will not contest the validity or enforceability of any
exculpatory provision of this Agreement and the other Financing Documents on the
basis that the party had no notice or knowledge of such provision or that the
provision is not "conspicuous."
[SIGNATURES BEGIN ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
COMPANY: TESORO PETROLEUM CORPORATION
By: /s/ G. A. Wright
Name: G. A. Wright
Address: Title: Vice President, Corporate
Communications and Treasurer
8700 Tesoro Drive
San Antonio, Texas 78217
Telecopier No. (210) 283-2003
ADMINISTRATIVE AGENT,
DOCUMENTATION AGENT,
ISSUING BANKS
AND THE LENDERS: BANQUE PARIBAS
Individually, as an Issuing Bank and as
Administrative Agent
By: /s/ Brian Malone
Address: Name: Brian Malone
Title: Vice President
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Mr. Brian Malone By: /s/ Barton D. Schouest
Telecopier No. (713) 659-6915 Name: Barton D. Schouest
Title: Group Vice President
S-1
THE BANK OF NOVA SCOTIA
Individually and as Documentation Agent
By: /s/ A.S. Norsworthy
Address: Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308 A.S. Norsworthy
Attention: Mr. Claude Ashby Sr. Team Leader-Loan Operations
Telecopier No. (404) 888-8998
With Copy To:
1100 Louisiana Street, Suite 3000
Houston, Texas 77002
Attention: Mr. Michael W. Nepveux
Telecopier No. (713) 752-2425
Address: BANK OF SCOTLAND
565 5th Avenue
New York, New York 10017
Attention: Ms. Catherine Oniffrey By: /s/ Catherine Oniffrey
Telecopier No. (212) 557-9460 Name:
Title:
With Copy To:
1200 Smith Street
1750 Two Allen Center
Houston, Texas 77002
Attention: Ms. Janna Blanter
Telecopier No. (713) 651-9714
S-2
CHRISTIANIA BANK OG KREDITKASSE
By: /s/ Peter M. Dodge
Address: Name: Peter M. Dodge
Title: Vice President
11 West 42nd Street, 7th Floor
New York, New York 10036
Attention: Mr. Steve Phillips By: /s/ Carl-Petter Svendsen
Telecopier No. (212) 827-4888 Name: Carl-Petter Svendsen
Title: First Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as an Issuing Bank
By: /s/ George R. Schanz
Address: Name: George R. Schanz
Title: Vice President
One First National Plaza
Chicago, Illinois 60670
Attention: Mr. George R. Schanz
Telecopier No. (312) 732-3055
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Michael J. Kolosowsky
Address: Name: Michael J. Kolosowsky
Title: Vice President
1001 Fannin Street, Suite 2255
Houston, Texas 77002
Attention: Mr. Paul N. Riddle
Telecopier No. (713) 650-6354
S-3
NATIONAL BANK OF CANADA
By: /s/ Larry L. Sears
Address: Name: Larry L. Sears
Title: Group Vice President
125 West 55th Street
New York, New York 10019-5366
Attention: Mr. Wayne Rosen By: /s/ Doug Clark
Telecopier No. (212) 632-8736 Name: Doug Clark
Title: Vice President
With Copy To:
2121 San Jacinto, Suite 1850
Dallas, Texas 75201
Attention: Mr. Doug Clark
Telecopier No. (214) 871-2015
S-4
THE FROST NATIONAL BANK
By: /s/ James B. Crosby
Address: Name: James B. Crosby
Title: Senior Vice President
100 W. Houston Street
P. O. Box 1600
San Antonio, Texas 78296
Attention: Ms. Jenny Crabtree
Telecopier No. (210) 220-4626
DEN NORSKE BANK ASA
By: /s/ Haakon Sandborg
Address: Name: Haakon Sandborg
Title: Senior Vice President
Three Allen Center
333 Clay Street, Suite 4890
Houston, Texas 77002 By: /s/ Byron L. Cooley
Attention: Mr. Byron Cooley Name: Byron L. Cooley
Telecopier No. (713) 757-1167 Title: First Vice President
S-5
ANNEX I
Commitments
Revolving
Credit
Banks Commitment
----- ----------
($'s)
Banque Paribas 24,000,000
The Bank of Nova Scotia 24,000,000
Bank of Scotland 20,000,000
Christiania Bank OG Kreditkasse 20,000,000
The First National Bank of Chicago 20,000,000
National Bank of Canada 12,000,000
First Union National Bank of
North Carolina 10,000,000
The Frost National Bank 10,000,000
Den norske Bank ASA 10,000,000
-----------
Total 150,000,000
Annex I-1
EXHIBIT A
FORM OF REVOLVING CREDIT NOTE
$__________ June 7, 1996
TESORO PETROLEUM CORPORATION, a Delaware corporation (the "Company"), for
value received, promises and agrees to pay to the order of (the "Lender") at the
Payment Office of BANQUE PARIBAS (the "Administrative Agent"), at
_________________________, the principal sum of
___________________________________ DOLLARS ($___________________), or such
lesser amount as shall equal the aggregate unpaid principal amount of the
Revolving Credit Loans made by Lender hereunder to the Company under the Credit
Agreement, as hereafter defined, in lawful money of the United States of America
and in immediately available funds, on the dates and in the principal amounts
provided in the Credit Agreement referred to below, and to pay interest on the
unpaid principal amount as provided in the Credit Agreement for such Revolving
Credit Loans made by the Lender to the Company under the Credit Agreement, at
such office, in like money and funds, for the period commencing on the date of
each such Revolving Credit Loan until such Revolving Credit Loan shall be paid
in full, at the rates per annum and on the dates provided in the Credit
Agreement.
In addition to and cumulative of any payments required to be made against
this note pursuant to the Credit Agreement, this note, including all principal
and accrued interest then unpaid, shall be due and payable on April ________,
1999, its final maturity. All payments shall be applied first to accrued
interest and the balance to principal, except as otherwise expressly provided in
the Credit Agreement. Prepayments on this note shall be applied in the manner
set forth in the Credit Agreement.
This note is one of the Revolving Credit Notes referred to in the Credit
Agreement dated as of the 7th day of June, 1996, by and among the Company and
Banque Paribas, individually, as Issuing Bank and as Administrative Agent, The
Bank of Nova Scotia, individually and as Documentation Agent and financial
institutions parties thereto (including the Lender) (such Credit Agreement,
together with all amendments or supplements thereto, being the "Credit
Agreement"). This note evidences the Revolving Credit Loans made by the Lender
thereunder and shall be governed by the Credit Agreement. Capitalized terms
used in this note and not defined in this note, but which are defined in the
Credit Agreement, have the respective meanings herein as are assigned to them in
the Credit Agreement.
The Lender is hereby authorized by the Company to endorse on Schedule A (or
a continuation thereof) attached to this note, the Type of each Revolving Credit
Loan, the amount and date of each payment or prepayment of principal of each
such Revolving Credit Loan received by the Lender and the Interest Periods and
interest rates applicable to each Revolving Credit Loan, provided that any
failure by the Lender to make any such endorsement shall not affect the
obligations of the Company under the Credit Agreement or under this note in
respect of such Revolving Credit Loans.
Except only for any notices which are specifically required by the Credit
Agreement or the other Financing Documents, the Company and any and all
co-makers, endorsers, guarantors and sureties severally waive notice (including
but not limited to notice of intent to accelerate and notice of acceleration,
notice of protest and notice of dishonor), demand, presentment for payment,
protest, diligence in collecting and the filing of suit for the purpose of
fixing liability, and consent that the time of payment hereof may be extended
and re-extended from time to time without notice to any of them. Each such
person agrees that his, her or its liability on or with respect to this note
shall not be affected by any release of or change in any guaranty
A-1
or security at any time existing or by any failure to perfect or maintain
perfection of any lien against or security interest in any such security or the
partial or complete enforceability of any guaranty or other surety obligation,
in each case in whole or in part, with or without notice and before or after
maturity.
The Credit Agreement provides for the acceleration of the maturity of this
note upon the occurrence of certain events and for prepayment of Revolving
Credit Loans upon the terms and conditions specified therein. Reference is made
to the Credit Agreement for all other pertinent purposes.
This note is issued pursuant to and is entitled to the benefits of the
Credit Agreement and is secured by the Security Instruments.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW
OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
TESORO PETROLEUM CORPORATION
By:______________________________
Name:
Title:
A-2
EXHIBIT B
FORM OF BORROWING REQUEST
__________________, 199__
TESORO PETROLEUM CORPORATION, a Delaware corporation (the "Company"), hereby
requests a Borrowing on the date and in the amount as follows:
$___________________ under the Revolving Credit Notes
Requested funding date: ________________, 199__
Type of Borrowing: ______ Base Rate Loans
______ Eurodollar Loans
If Eurodollar Loans, length of Interest Period:
______ one month
______ two months
______ three months
______ six months
pursuant to the Credit Agreement dated as of June 7, 1996 (as the same may be
amended or supplemented, the "Credit Agreement") among the Company, Banque
Paribas, individually, as Issuing Bank, and as Administrative Agent, The Bank of
Nova Scotia, individually, and as Documentation Agent and the financial
institutions now or hereafter parties thereto. Capitalized terms used herein
and not defined herein shall have the meaning given such term in the Credit
Agreement. The undersigned certifies that he is the __________________ of the
Company, and that as such he is authorized to execute this certificate on behalf
of the Company. The undersigned further certifies, represents and warrants on
behalf of the Company that (i) the Company is entitled to receive the requested
Revolving Credit Loan under the terms and conditions of the Credit Agreement and
(ii) after giving effect to any requested Revolving Credit Loan, the aggregate
principal amount of outstanding Revolving Credit Loans will not exceed the
Maximum Revolving Credit Loan Available Amount.
TESORO PETROLEUM CORPORATION
By:___________________________________
Name:
Title:
B-1
EXHIBIT C
SUBSIDIARIES GUARANTORS
------------ ----------
Tesoro Petroleum Companies, Inc. X
Digicomp, Inc. X
Tesoro Technology Partners Company X
Tesoro Alaska Petroleum Company X
Interior Fuels Company X
Tesoro Alaska Pipeline Company X
Tesoro Northstore Company X
Tesoro Refining, Marketing & Supply Company X
Tesoro Exploration and Production Company X
Tesoro E&P Company, L.P. X
Tesoro Gas Resources Company, Inc. X
Tesoro Natural Gas Company X
Tesoro Bolivia Petroleum Company X
Kenai Pipe Line Company X
Tesoro Vostok Company X
Coastwide Marine Services, Inc. X
Tesoro Coastwide Services Company X
Tesoro Environmental Resources Company
Tesoro Environmental Products Company
Tesoro Indonesia Petroleum Company
Tesoro Tarakan Petroleum Company
Tesoro Equipment Company
Tesoro Crude Oil Company
Tesoro Gasoline Marketing Company
Tesoro Pump & Valve Company
Tesoro Petroleum (Singapore) Pte. Ltd.
C-1
EXHIBIT D
FORM OF
ASSIGNMENT AND ACCEPTANCE
Dated: __________, 199__
Reference is made to the Credit Agreement dated as of April ______, 1996 (as
restated, amended, modified, supplemented and in effect from time to time, the
"Credit Agreement"), among TESORO PETROLEUM CORPORATION, a Delaware corporation,
BANQUE PARIBAS, individually, as Issuing Bank and as Administrative Agent, THE
BANK OF NOVA SCOTIA, individually and as Documentation Agent, and the financial
institutions parties thereto (the "Lenders"). Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement. This Assignment and Acceptance, between the Assignor (as
defined and set forth on Schedule I hereto and made a part hereof) and the
Assignee (as defined and set forth on Schedule I hereto and made a part hereof)
is dated as of the Effective Date (as set forth on Schedule I hereto and made a
part hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided interest (the "Assigned Interest") in and to all
the Assignor's rights and obligations under the Credit Agreement respecting the
credit facilities contained in the Credit Agreement as set forth on Schedule I
(herein referred to as the "Assigned Loans"), in a principal amount for each
Assigned Loan as set forth on Schedule I.
2. The Assignor (i) represents and warrants that it owns the Assigned
Interest free and clear from any lien or adverse claim; (ii) other than the
representation and warranty set forth in clause (i) above, makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other instrument, document or agreement delivered in
connection therewith, or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, or any other
instrument or document furnished pursuant thereto, other than that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Company or its Subsidiaries or the performance or
observance by the Company or its Subsidiaries of any of its respective
obligations under the Credit Agreement, or any other instrument or document
furnished pursuant thereto; and (iv) attaches the Notes held by it evidencing
the Assigned Loans and requests that the Administrative Agent exchange such
Note(s) for a new Note or Notes payable to the Assignor (if the Assignor has
retained any interest in the Assigned Loans) and new Notes payable to the
Assignee in the respective amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance and that it is an Eligible
Transferee under of the Credit Agreement; (ii) confirms that it has received a
copy of the Credit Agreement, together with copies of the financial statements
referred to in Section 4.06, or if later, the most recent financial statements
delivered pursuant to Section 5.15 thereof, and such other documents and
information as it has deemed appropriate to make its own credit analysis; (iii)
agrees that it will, independently and without reliance upon the Administrative
Agent, the Assignor or any other Lender 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 action under the Credit Agreement;
D-1
(iv) appoints and authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will be bound by the provisions of the Credit Agreement and will perform in
accordance with its terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender and hereby makes the
Lender representations set forth in Section 2.21(f) of the Credit Agreement; and
(vi) if the Assignee is organized under the laws of a jurisdiction outside the
United States, attaches the forms prescribed by the Internal Revenue Service of
the United States and required pursuant to Section 2.21 of the Credit Agreement
certifying as to the Assignee's exemption from United States withholding taxes
with respect to all payments to be made to the Assignee under the Credit
Agreement or such other documents as are necessary to indicate that all such
payments are subject to such tax at a rate reduced by an applicable tax treaty.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent and the Company for acceptance by each of
them and recording by the Administrative Agent pursuant to Section 9.07(b) of
the Credit Agreement, effective as of the Effective Date (which Effective Date
shall, unless otherwise agreed to by the Administrative Agent, be at least five
Business Days after the execution of this Assignment and Acceptance).
5. Upon acceptance and recording by the Administrative Agent, all payments
under the Credit Agreement in respect of the Assigned Interest (including
without limitation, all payments of principal, interest and fees with respect
thereto) for the period up to, but not including, the Effective Date, shall be
made to the Assignor, and for the period from and after the Effective Date shall
be made to the Assignee. Assignor and Assignee hereby agree that if Assignor
receives any of the payments referred to in the preceding sentence which should
have been made to Assignee, or if Assignee receives any of the payments referred
to in the previous sentence which should have been made to Assignor, such
payments shall promptly be paid by Assignor to Assignee, or by Assignee to
Assignor, as the case may be, in full.
6. From and after the Effective Date, (i) the Assignee shall be a party to
the Credit Agreement and, to the extent provided in this Assignment and
Acceptance and Section 9.07 of the Credit Agreement, have the rights and
obligations of a Lender thereunder, and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance and Section 9.07 of the Credit
Agreement, relinquish its rights and be released from its obligations under the
Credit Agreement.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule I hereto.
as Assignor
By: _____________________________________________
Name:
Title:
D-2
as Assignee
By: _____________________________________________
Name:
Title:
ACCEPTED:
TESORO PETROLEUM CORPORATION
By: _____________________________________________
Name:
Title:
BANQUE PARIBAS, as Administrative Agent
By: _____________________________________________
Name:
Title:
By: _____________________________________________
Name:
Title:
D-3
SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE
RESPECTING THE CREDIT AGREEMENT,
DATED AS OF JUNE 7, 1996 AMONG
TESORO PETROLEUM CORPORATION AND
BANQUE PARIBAS,
INDIVIDUALLY, AS Administrative Agent AND AS ISSUING BANK,
AND THE BANK OF NOVA SCOTIA INDIVIDUALLY AND AS Documentation Agent
AND THE LENDERS PARTIES THERETO
Assignor: _________________________________________________
Assignee: _________________________________________________
Effective Date of Assignment: _________________, 199__
Percentage Assigned (to at
Principal Amount (sum least 8 decimals) shown as a
Assigned Loans of Commitment and percentage of aggregate
and outstanding amounts) original principal amount
Commitments Assigned of all Lenders
- ----------- -------- --------------
Revolving Credit Loans
and Commitments $____________________ _______%
Assignee's Base Rate Address for Notice:
Lending Office
__________________________ ___________________________
__________________________ ___________________________
__________________________ ___________________________
Assignee's Eurodollar Telex No.:_______________________
Lending Office
___________________________ Telecopy No.:____________________
___________________________
___________________________
D-4
EXHIBIT E
FORM OF BORROWING BASE REPORT
Pursuant to subsection 5.15(h) of the Credit Agreement dated as of June 7, 1996,
among Tesoro Petroleum Corporation, Banque Paribas, individually, as Issuing
Bank and as Administrative Agent, The Bank of Nova Scotia, individually, and as
Documentation Agent, and the other financial institutions parties thereto (as
amended, restated, modified or supplemented and in effect from time to time the
"Credit Agreement", defined terms from which being used herein with the meanings
assigned to such terms in the Credit Agreement), the undersigned hereby
certifies to the Administrative Agent and the Lenders that the inventory and
accounts have been valued in accordance with the terms of the Credit Agreement.
I. The Borrowing Base as of __________________________ was $___________________
computed as follows:
A. Eligible Accounts
1. Eligible Accounts
(see Schedule I) $______________
2. 80% of Line I.A.1 $______________
B. Eligible Inventory
1. Loan Value of Eligible Inventory
(see Schedule II) $______________
2. 60% of Line I.B.1. $______________
C. E&P Borrowing Base $______________
BORROWING BASE (Sum of Lines 1.A.2, I.B.2 and
I.C.1) $______________
Certified as of the ______ day of _________________________.
TESORO PETROLEUM CORPORATION
By:_____________________________________
Printed Name:___________________________
Title:___________________________________
E-1
SCHEDULE I
SUMMARY OF ELIGIBLE ACCOUNTS
[DATE]
Loan Party Eligible Accounts
---------- -----------------
Tesoro Alaska Petroleum Company $______________
Tesoro Refining, Marketing &
Supply Company _______________
Kenai Pipe Line Company _______________
Tesoro Vostok Company _______________
TOTAL OF ELIGIBLE ACCOUNTS $_______________
E-2
SCHEDULE II
LOAN VALUE OF ELIGIBLE INVENTORY
[DATE]
A. TESORO ALASKA PETROLEUM COMPANY
State Volume Market Market
Product Location Bls. Price/Bbl. Value
--------------------------------------------------
________ _________ ______ $__________ $________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
TOTAL LOAN VALUE OF TESORO ALASKA PETROLEUM COMPANY'S
ELIGIBLE INVENTORY $________ (1)
B. KENAI PIPE LINE COMPANY
State Volume Market Market
Product Location Bls. Price/Bbl. Value
--------------------------------------------------
________ _________ ______ $__________ $________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
TOTAL LOAN VALUE OF KENAI PIPELINE COMPANY'S
ELIGIBLE INVENTORY $________ (2)
E-3
C. TESORO REFINING, MARKETING & SUPPLY COMPANY
State Volume Market Market
Product Location Bls. Price/Bbl. Value
--------------------------------------------------
________ _________ ______ $__________ $________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
________ _________ ______ ___________ _________
TOTAL LOAN VALUE OF TESORO REFINING, MARKETING
& SUPPLY COMPANY'S ELIGIBLE INVENTORY $________ (3)
D. TOTAL LOAN VALUE OF ELIGIBLE INVENTORY
(Sum of Lines (1), (2) and (3)) $________ (4)
E-4
EXHIBIT F
FORM OF LETTER TO HYDROCARBON PURCHASERS
[Letterhead of Mortgagor]
________________, 19___
[Purchaser of Hydrocarbons]
Re: [Descriptions of Field and Division Order Identification Number]
Gentlemen:
You are currently paying for purchases of hydrocarbons from
________________________ ("_______________") with respect to the above property.
By instrument entitled ______________________ (the "Mortgage"), ______________
has mortgaged its interest in this property to ____________________________ (the
"Bank "). The Mortgage provides for an assignment to the Bank of the proceeds
arising from the purchases of hydrocarbons from the properties mortgaged
thereby, which properties include the above property. Notwithstanding the
foregoing, you are directed to continue to make checks, wire transfers and other
remittances and payments (collectively, the "Payments") payable and to mail,
wire transfer or otherwise direct all Payments to Tesoro E&P Company, L.P., or
its designee, unless and until you should receive from the Bank contrary written
instructions.
____________________________________
By: ________________________________
Name:
Title:
____________________________________
[Name of Bank]
By: ________________________________
Name:
Title:
F-1
AMENDED AND RESTATED GUARANTY AGREEMENT
(Subsidiaries)
AMENDED AND RESTATED GUARANTY AGREEMENT, dated as of June 7, 1996 (this
"Guaranty Agreement"), among TESORO ALASKA PETROLEUM COMPANY, a Delaware
corporation, TESORO EXPLORATION AND PRODUCTION COMPANY, a Delaware corporation,
and TESORO PETROLEUM COMPANIES, INC., a Delaware corporation, DIGICOMP, INC., a
Delaware corporation, TESORO TECHNOLOGY PARTNERS COMPANY, a Delaware
corporation, INTERIOR FUELS COMPANY, an Alaskan corporation, TESORO ALASKA
PIPELINE COMPANY, a Delaware corporation, TESORO NORTHSTORE COMPANY, an Alaskan
corporation, TESORO REFINING, MARKETING & SUPPLY COMPANY, a Delaware
corporation, TESORO NATURAL GAS COMPANY, a Delaware corporation, TESORO BOLIVIA
PETROLEUM COMPANY, a Texas corporation, TESORO GAS RESOURCES COMPANY, INC., a
Delaware corporation, TESORO E&P COMPANY, L.P., a Delaware limited partnership,
TESORO VOSTOK COMPANY, a Delaware corporation, TESORO COASTWIDE SERVICES
COMPANY, a Delaware corporation, COASTWIDE MARINE SERVICES, INC., a Texas
corporation, and KENAI PIPE LINE COMPANY, a Delaware corporation (the
"Guarantors"), in favor of BANQUE PARIBAS, individually, as Administrative Agent
and as an Issuing Bank, and the other financial institutions now or hereafter
parties to the Credit Agreement (as such term is hereinafter defined).
RECITALS
A. On April 20, 1994, Tesoro Petroleum Corporation, a Delaware corporation
(the "Company"), Texas Commerce Bank National Association, individually and as
agent and the other financial institutions now or hereafter parties thereto
entered into a Credit Agreement (as amended from time to time, the "Prior Credit
Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
included the execution and delivery of that certain Guaranty Agreement dated of
even date therewith by each Subsidiary of the Company (the "Prior Guaranty
Agreement").
C. Of even date herewith, the Company, Banque Paribas, as Administrative
Agent, The Bank of Nova Scotia, as Documentation Agent and various lenders (the
"Lenders") are entering into an Amended and Restated Credit Agreement (the
"Credit Agreement") amending and restating the Prior Credit Agreement.
D. Therefore, in consideration of the premises contained herein, the
Guarantors and the Administrative Agent agree to amend and restate the Prior
Guaranty Agreement as follows:
AGREEMENT
1. Defined Terms. As used in this Guaranty Agreement, capitalized terms
defined in the Credit Agreement are used herein as defined therein unless
otherwise noted herein, and the following additional capitalized terms shall
have the following meanings:
"Collateral" shall mean any Property in which the Agent is granted a
Lien from time to time as security for the Lender Indebtedness.
"Contribution Obligation" shall mean an amount equal, at any time and
from time to time and for each respective Guarantor, to the product of (i)
its Contribution Percentage times (ii) the sum of all payments made previous
to or at the time of calculation by all Guarantors in respect of the
Obligations, as a Guarantor or debtor under any Loan Document (less the
amount of any such payments previously returned to any Guarantor by
operation of law or otherwise, but not including payments received by any
Guarantor by way of its rights of subrogation and contribution under this
Guaranty Agreement), provided, however, such Contribution Obligation for any
Guarantor shall in no event exceed such Guarantor's Maximum Guaranteed
Amount.
"Contribution Percentage" shall mean for any Guarantor for any
applicable date as of which such percentage is being determined, an amount
equal to the quotient of (i) the Net Worth of such Guarantor as of such
date, divided by (ii) the sum of the Net Worth of all the Guarantors as of
such date.
"Maximum Guaranteed Amount" shall mean, for each Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by such Guarantor in exchange for the
obligation incurred hereunder by such Guarantor, within the meaning of any
state or federal fraudulent conveyance or transfer laws applicable to such
Guarantor; or (ii) the lesser of (A) the maximum amount that will not render
such Guarantor insolvent, or (B) the maximum amount that will not leave such
Guarantor (after giving effect to this Guaranty Agreement) with Property
deemed an unreasonably small capital. Clauses (A) and (B) are and shall be
determined pursuant to and as of the appropriate date mandated by such
applicable state or federal fraudulent conveyance or transfer laws and to
the extent allowed by law take into account the rights to contribution and
subrogation under this Guaranty Agreement so as to provide for the largest
MaximumGuaranteed Amount possible.
"Net Payments" shall mean an amount equal, at any time and from time to
time and for each respective Guarantor, to the difference of (i) the sum of
all payments made
-2-
previous to or at the time of calculation by such Guarantor in respect to
the Obligations, as a Guarantor, and in respect of its obligations contained
in this Guaranty Agreement or any other Financing Document, less (ii) the
sum of all such payments previously returned to such Guarantor by operation
of law or otherwise and including payments received by such Guarantor by way
of its rights of subrogation and contribution under this Guaranty
Agreements.
"Net Worth" shall mean for any Guarantor, calculated on and as of any
applicable date on which such amount is being determined, the greater of (i)
zero or (ii) the difference between (A) the sum of all such Guarantor's
property, at a fair valuation and as of such date, minus (B) the sum of all
such Guarantor's debts, at a fair valuation and as of such date, excluding
the Obligations.
"Obligations" shall mean (i) all Lender Indebtedness now or hereafter
owing, including, but not limited to, (A) the unpaid principal of and
accrued interest on (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Company, whether or not a
claim for post-filing or post-petition interest is allowed in such
proceeding) the Notes, and (B) the obligation of the Company to otherwise
reimburse the Lender, whether on account of fees, indemnities, costs, taxes,
expenses (including all fees and disbursements set forth in Sections 2.21 or
9.04 of the Credit Agreement) or otherwise, (ii) payment of and performance
of any and all present or future obligations of the Company according to the
terms of any present or future interest or currency rate swap, rate cap,
rate floor, rate collar, exchange transaction, forward rate agreement or
other exchange or rate protection agreements or any option with respect to
any such transaction now existing or hereafter entered into between the
Company and the Administrative Agent or any of the Lenders (or any of their
Affiliates) and authorized pursuant to the terms of the Credit Agreement;
(iii) payment of and performance of any and all present or future
obligations of the Company according to the terms of any present or future
swap agreements, cap, floor, collar, exchange transaction, forward agreement
or other exchange or protection agreements relating to crude oil, natural
gas or other hydrocarbons or any option with respect to any such transaction
now existing or hereafter entered into between the Company and the
Administrative Agent or any of the Lenders (or any of their Affiliates) and
authorized pursuant to the terms of the Credit Agreement; and (iv) any and
all other sums payable by the Company or any of its Subsidiaries under or in
respect of any Financing Document.
-3-
"Subrogation and Contribution Agreement" shall mean that certain
Subrogation and Contribution Agreement dated as of April 20, 1994 among
certain of the Guarantors and the Company which is hereby declared
terminated.
2. Guarantee. (a) Each of the Guarantors hereby unconditionally and
irrevocably and jointly and severally guarantees to the Agent, the Issuing Banks
and each Lender the prompt and complete payment when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, and each of the
Guarantors further agrees, jointly and severally, to pay any and all expenses
which may be paid or incurred by the Agent, either Issuing Bank or any Lender in
enforcing any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against,
any Guarantor under this Guaranty Agreement; provided, however, that,
notwithstanding anything herein or in any other Financing Document to the
contrary, the maximum liability of each Guarantor hereunder and under the other
Financing Documents shall in no event exceed the Maximum Guaranteed Amount for
such Guarantor.
(b) Each Guarantor agrees that the Obligations may at any time and from
time to time exceed the Maximum Guaranteed Amount for such Guarantor without
impairing this Guaranty Agreement or affecting the rights and remedies of the
Agent, either Issuing Bank or any Lender.
(c) No payment or payments made by the Company, any Guarantor, any other
guarantor or any other Person or received or collected by the Agent, either
Issuing Bank or any Lender from the Company, any Guarantor, any other guarantor
or any other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of each Guarantor hereunder, which shall,
notwithstanding any such payment or payments, other than payments made by such
Guarantor in respect of the Obligations or payments received or collected from
such Guarantor in respect of the Obligations, remain liable for the Obligations
up to the Maximum Guaranteed Amount for such Guarantor until the Obligations are
paid in full.
(d) It is the intention of the parties hereto that all intercompany
indebtedness either owed to or by any Guarantor not be included as either an
asset or a liability, respectively, in determining the solvency or capital of
any Guarantor. Accordingly, each Guarantor agrees that in connection with any
determination of the Maximum Guaranteed Amount, such intercompany indebtedness
may be treated in the manner that would achieve the result intended by the first
sentence of this subsection (d).
-4-
(e) Right to Collect on the Notes. The Company and the Guarantors are
personally obligated and fully liable for the amounts due under the Notes. The
Lenders have the right to sue on the Notes and obtain a personal judgment
against the Company and the Guarantors for satisfaction of the amounts due under
the Notes either before or after a judicial foreclosure of the Alaska Deed of
Trust under Alaska Statute 09.45.170 - 09.45.220.
(f) Senior Debt. Tesoro Alaska's guarantee of the payment of the
Obligations constitutes Senior Debt as such term is defined in that certain
Subordination Agreement dated December 15, 1993, among the Company, Tesoro
Alaska, and the State of Alaska, attached as Exhibit 7 to the Settlement
Agreement dated December 15, 1992, among the Company, Tesoro Alaska, and the
State of Alaska.
3. Right of Contribution. Each Guarantor agrees that after all the
Obligations have been paid in full that if its then current Net Payments are
less than the amount of its then current Contribution Obligation, such Guarantor
shall pay to the other Guarantors an amount (together with any payments required
of the other Guarantors by this Section 3) such that the Net Payments made by
all Guarantors in respect of the Obligations shall be shared among all of the
Guarantors in proportion to their respective Contribution Percentage. The
provisions of this Paragraph 3 shall in no respect limit the obligations and
liabilities of any Guarantor to the Agent, the Issuing Banks or any Lender, and
each Guarantor shall remain liable to the Agent, the Issuing Banks and each
Lender for the full amount guaranteed by such Guarantor hereunder.
4. Right of Set-off. The Agent, the Issuing Bank and each Lender is hereby
irrevocably authorized upon the occurrence of an Event of Default without notice
to the Guarantors, any such notice being expressly waived by each Guarantor, to
set-off and credit against any credits, indebtedness or claims, in any currency,
in each case whether direct or indirect or contingent or matured or unmatured,
at any time held or owing by the Agent, either Issuing Bank or any Lender to or
for the credit or the account of any Guarantor, or any part thereof in such
amounts as the Agent, such Issuing Bank or such Lender may elect, against and on
account of the obligations and liabilities of the applicable Guarantor to the
Agent, the Issuing Banks and the Lenders hereunder and claims of every nature
and description of the Agent, the Issuing Banks and the Lenders against such
Guarantor, in any currency, whether arising hereunder, under the Credit
Agreement, any other Financing Document or otherwise, as the Agent, either
Issuing Bank or any Lender may elect, whether or not the Agent, such Issuing
Bank or such Lender has made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured. The Agent
agrees to notify (promptly after receipt of notice by the Agent) the Company and
the applicable Guarantor of any such set-off and the application made by the
Agent, such Issuing Bank or any such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Agent, either
-5-
Issuing Bank and each Lender under this paragraph are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which any such Person may have. If foreign currency is exchanged for U.S.
Dollars by the Agent, either Issuing Bank or any Lender, such Person shall use
the rate of exchange prevailing at the time for customers exchanging a similar
amount of currency.
5. No Subrogation. Notwithstanding any payment or payments made by any
Guarantor hereunder or any set-off or application of funds of any Guarantors by
the Agent, either Issuing Bank or any Lender, any such Guarantor shall not be
entitled to be subrogated to any of the rights of the Agent, either Issuing Bank
or any Lender against the Company or any collateral security or guaranty or
right of offset held by any such Person for the payment of the Obligations, nor
shall any Guarantor seek or be entitled to seek any contribution or
reimbursement from the Company in respect of payments made by any such Guarantor
hereunder, until all Obligations are paid in full. If any amount shall be paid
to any Guarantor on account of such subrogation rights at any time when all of
the Obligations shall not have been paid in full, such amount shall be held by
such Guarantor in trust for the Agent, the Issuing Banks and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Agent in the exact form received by
such Guarantor (duly indorsed by such Guarantor to the Agent, if required), to
be applied against the Obligations, whether matured or unmatured in such order
as the Agent may determine.
6. Amendments, etc. with respect to the Obligations; Waiver of Rights.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against the Guarantors and without notice to or
further assent by the Guarantors, any demand for payment of any of the
Obligations made by the Agent, either Issuing Bank or any Lender may be
rescinded and any of the Obligations continued, and the Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guaranty therefor or right of offset with respect thereto, may, from
time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Agent, the
Issuing Banks or the Lenders and the Credit Agreement, the Notes and any
collateral security document or other guaranty or document in connection
therewith (including, without limitation, the other Financing Documents) may be
amended, modified, supplemented or terminated, in whole or in part, as the
Agent, the Issuing Banks or the Lenders may deem advisable from time to time,
and any collateral security or guaranty or right of offset at any time held by
the Agent, the Issuing Banks or the Lenders for the payment of the Obligations
may be sold, exchanged, waived, surrendered or released, all without the
necessity of any reservation of rights against the Guarantors and without notice
to or further assent by the Guarantors which will remain bound hereunder,
notwithstanding any such renewal, extension, modification, acceleration,
compromise, amendment, supplement, termination, sale, exchange, waiver,
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surrender or release. Neither the Agent, either Issuing Bank nor any Lender
shall have an obligation to protect, secure, perfect or insure any Lien at any
time held as security for the Obligations or this Guaranty Agreement or any
Property subject thereto. When making any demand hereunder against any
Guarantor, the Agent may, but shall be under no obligation to, make a similar
demand on the Company or any other guarantor, and any failure by the Agent to
make any such demand or to collect any payments from the Company or any such
other guarantor, or any release of the Company or other guarantor, shall not
relieve any such Guarantor of its obligations or liabilities hereunder, and
shall not impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Agent, the Issuing Banks of the Lenders against each
Guarantor. For the purposes hereof "demand" shall include the commencement and
continuance of any legal proceedings.
7. Guaranty Absolute and Unconditional. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Obligations
and notice of or proof of reliance by the Agent, either Issuing Bank or any
Lender upon this Guaranty Agreement or acceptance of this Guaranty Agreement,
and the Obligations (and any of them) shall conclusively be deemed to have been
created, contracted or incurred and extended, amended and waived in reliance
upon this Guaranty Agreement, and all dealings between the Company or the
Guarantors and the Agent, either Issuing Bank or any Lender shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guaranty Agreement. Each Guarantor waives diligence, presentment, protest,
demand for payment and notice of default or nonpayment, notice of intention to
accelerate maturity and notice of acceleration of maturity to or upon the
Company or the Guarantors with respect to the Obligations. Each Guarantor
understands and agrees that this Guaranty Agreement shall be construed as a
continuing, absolute, completed, unconditional (except as expressly conditioned
pursuant to the terms hereof) and irrevocable guarantee of payment and not of
collection without regard to (a) the validity, regularity or enforceability of
the Credit Agreement, the other Financing Documents, any of the Obligations or
any collateral security or guaranty therefor or right of offset with respect
thereto at any time or from time to time held by the Agent, either Issuing Bank
or any Lender, (b) any defense, set-off or counterclaim which may at any time be
available to or be asserted by the Company or any other Person liable for the
Obligations against the Agent, either Issuing Bank or any Lender, or (c) any
other circumstance whatsoever (with or without notice to or knowledge of the
Company or any Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Company or any other Person
liable for the Obligations, or of any Guarantor under this Guaranty Agreement,
in bankruptcy or in any other instance. When pursuing its rights and remedies
hereunder against any Guarantor, the Agent, the Issuing Banks and the Lenders
may, but shall be under no obligation to, pursue such rights and remedies as
they may have against the Company or any other Person or against any collateral
security or guaranty for the Obligations or any right of offset with respect
thereto, and
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any failure by the Agent, the Issuing Banks or the Lenders to pursue such other
rights or remedies or to collect any payments from the Company or any such other
Person or to realize upon any such collateral security or guaranty or to
exercise any such right of offset, or any release of the Company or any such
other Person or any such collateral security, guaranty or right of offset, shall
not relieve any Guarantor of any liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Agent, either Issuing Bank or any Lender against any
Guarantor. This Guaranty Agreement shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon each Guarantor
and the respective successors and assigns thereof, and shall inure to the
benefit of the Agent, Issuing Banks and the Lenders, and the respective
successors, indorsees, transferees and assigns thereof, until all the
Obligations and the obligations of the Guarantors under this Guaranty Agreement
shall have been satisfied by payment in full.
8. Reinstatement. This Guaranty Agreement shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Obligations is rescinded or must otherwise be restored or
returned by the Agent, either Issuing Bank or any Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Company or any
Guarantor or any substantial part of such Person's property, or otherwise, all
as though such payments had not been made.
9. Payments. Each Guarantor hereby guarantees that payments hereunder will
be paid, without set-off or counterclaim and in immediately available funds and
in lawful currency of the United States of America, to Agent in Houston, Texas,
at the Agent's Payment Office, not later than 11:00 A.M., Houston time.
10. Representations and Warranties. Each Guarantor hereby represents and
warrants that:
(a) Corporate Existence. Each Guarantor (other than Tesoro E&P
Company, L.P.) is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation and
has the corporate power and authority and the legal right to own and lease
its property and to conduct its business.
(b) Corporate Power; Authorization. Each Guarantor (other than Tesoro
E&P Company, L.P.) has the corporate power and authority and the legal right
to make, deliver and perform this Guaranty Agreement. Each Guarantor has
taken all necessary
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corporate action to authorize the execution, delivery and performance of
this Guaranty Agreement.
(c) Partnership Existence and Authorization. Tesoro E&P Company, L.P.
is a limited partnership duly formed, validly existing and in good standing
under the laws of the State of Delaware and has the partnership power and
authority and the legal right to own and lease its property and to conduct
its business. Tesoro E&P Company, L.P. has the partnership power and
authority and the legal right to make, deliver and perform this Guaranty
Agreement and has taken all necessary partnership action to authorize the
execution, delivery and performance of this Guaranty Agreement.
(d) Enforceable Obligations. This Guaranty Agreement has been duly
executed and delivered by each Guarantor and constitutes a legal, valid and
binding obligation of such Guarantor enforceable against such Guarantor in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
11. No Waiver: Cumulative Remedies. Neither the Agent, either Issuing
Bank nor any of the Lenders shall by any act, delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise and no delay in exercising,
on the part of the Agent, either Issuing Bank or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof, or the exercise of any other power, privilege or right. A
waiver by the Agent, either Issuing Bank or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which any such Person would have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
12. Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including bank wire, telecopy or similar
teletransmission or writing) and, in the case of any Guarantor, shall be given
to such Guarantor at the address or telecopy number of the Company now or
hereafter provided for in the Credit Agreement and in the case of the Agent,
either Issuing Bank or any Lender, at the address or telecopy number for such
Person now or hereafter provided for in the Credit Agreement. Each such notice,
request or other communication shall be effective (i) if given by telecopier
during regular business hours, once such telecopy is transmitted to the telecopy
number specified in the Credit Agreement, (ii) if
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given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (iii) if given by any
other means (including, without limitation, by air courier), when delivered at
the address specified in the Credit Agreement; provided that notices to the
Agent shall not be effective until received.
13. Entire Agreement. This Guaranty Agreement, the Credit Agreement, the
Notes, the Security Instruments, the other Financing Documents referred to in
sections 3.02 the Credit Agreement, and the Fee Letter embody the entire
agreement and understanding between the Agent, the Issuing Banks, the Lenders
and the other respective parties hereto and thereto and supersede all prior
agreements and understandings between such parties relating to the subject
matter hereof and thereof. There are no unwritten oral agreements between the
parties. Any conflict or ambiguity between the terms and provisions of this
agreement and the terms and provisions in any other financing document shall be
controlled by the terms and provisions hereof.
14. Governing Law; Submission to Jurisdiction, Etc.
(a) This Guaranty Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by the law
(without giving effect to the conflict of law principles thereof) of the State
of Texas.
(b) Any legal action or proceeding with respect to this Agreement, may be
brought in the courts of the State of Texas or of the United States of America
for the Southern District of Texas, Houston Division, and, by execution and
delivery of this Agreement, each Guarantor hereby accepts for itself and in
respect of its Property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each Guarantor hereby irrevocably waives any objection,
including but not limited to any objection to the laying of venue or based on
the grounds of Forum Non Conveniens, which it may now or hereafter have to the
bringing of any such action or proceeding in such respective jurisdictions.
(c) The Company and the Agent, each Issuing Bank and each Lender hereby (i)
irrevocably and unconditionally waive, to the fullest extent permitted by law,
trial by jury in any legal action or proceeding relating to this Guaranty
Agreement or any Financing Document and for any counterclaim therein; (ii)
certify that no party hereto nor any representative or agent of counsel for any
party hereto has represented, expressly or otherwise, or
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implied that such party would not, in the event of litigation, seek to enforce
the foregoing waivers, and (iii) acknowledge that it has been induced to enter
into this Agreement, the Financing Documents and the transactions contemplated
hereby and thereby by, among other things, the mutual waivers and certifications
contained in this section.
(d) Each Guarantor that is not a Texas corporation hereby irrevocably
designates the General Counsel of the Company (as of the Closing Date, James C.
Reed, Jr.) located at 8700 Tesoro Drive, San Antonio, Texas 78217, as the
designee, appointee and agent of such Guarantor to receive, for and on behalf of
such Guarantor, service of process in such respective jurisdictions in any legal
action or proceeding with respect to this Agreement, the Notes, the Security
Instruments or the other Financing Documents. It is understood that a copy of
such process served on such agent will be promptly forwarded by mail to such
Guarantor at its address set forth opposite its signature below, but the failure
of such Guarantor to receive such copy shall not affect in any way the service
of such process. Each Guarantor further irrevocably consents to the service of
process of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage prepaid,
to such Guarantor at its said address, such service to become effective 30 days
after such mailing.
(e) Nothing herein shall affect the right of the Agent or any Lender or any
holder of a Note to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against any Guarantor in Texas
or any other jurisdiction in which assets of any Guarantor are located.
15. Severability. Any provision of this Guaranty Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. Paragraph Headings. The Paragraph headings used in this Guaranty
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
17. Interest. It is the intention of the parties hereto to conform
strictly to usury laws applicable to each Lender and the Transactions.
Accordingly, if the Transactions would be usurious as to any Lender under
applicable law, then, notwithstanding anything to the contrary in the Notes,
this Agreement or in any Financing Document or agreement entered into in
connection with the Transactions or as security for the Obligations, it is
agreed as follows:
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(i) the aggregate of all consideration which constitutes interest as to any
Lender under applicable law that is contracted for, taken, reserved, charged or
received by such Lender under the Notes, this Agreement or under any of the
Financing Documents or agreements or otherwise in connection with the
Transactions shall under no circumstances exceed the maximum amount allowed by
such applicable law, (ii) in the event that the maturity of the Notes is
accelerated for any reason, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest as to any Lender
under applicable law may never include more than the maximum amount allowed by
such applicable law, and (iii) excess interest, if any, provided for in this
Agreement or otherwise in connection with the Transactions shall be cancelled
automatically and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Obligations (or, to the extent that the principal amount
of the Obligations shall have been or would thereby be paid in full, refunded by
such Lender to the Company). The right to accelerate the maturity of the Notes
does not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and the Lenders do not intend to
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to each Lender for the use, forbearance or detention of sums
included in the Obligations shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of the Notes
until payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the applicable usury ceiling, if any. As used in
this Section, the term "applicable law" shall mean the laws of the State of
Texas (or of any other jurisdiction whose laws may be mandatorily applicable
notwithstanding other provisions of this Agreement) or laws of the United States
of America applicable to any Lender and the Transactions, which would permit
such Lender to contract for, charge, take, reserve or receive a greater amount
of interest than under Texas (or such other jurisdiction's) law. To the extent
that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to the
Lenders for the purpose of determining the Highest Lawful Rate, the Lenders
hereby elect to determine the applicable rate ceiling under such Article by the
indicated (weekly) rate ceiling from time to time in effect, subject to the
Lenders' right subsequently to change such method in accordance with applicable
law. In no event shall the provisions of Tex. Rev. Civ. Stat. art. 5069-2.01
through 5069-8.06 or 5069-15.01 through 5069-15.11 be applicable to the Loans
evidenced hereby.
18. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original but all of which
shall together constitute one and the same instrument.
[SIGNATURES BEGIN NEXT PAGE]
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IN WITNESS WHEREOF, the undersigned has caused this Guaranty Agreement to be
duly executed and delivered by its duly authorized officer on the day and year
first above written.
TESORO ALASKA PETROLEUM COMPANY
TESORO EXPLORATION AND PRODUCTION COMPANY
TESORO PETROLEUM COMPANIES, INC.
DIGICOMP, INC.
TESORO TECHNOLOGY PARTNERS COMPANY
INTERIOR FUELS COMPANY
TESORO ALASKA PIPELINE COMPANY
TESORO NORTHSTORE COMPANY
TESORO REFINING, MARKETING & SUPPLY COMPANY
TESORO NATURAL GAS COMPANY
TESORO BOLIVIA PETROLEUM COMPANY
TESORO VOSTOK COMPANY
KENAI PIPE LINE COMPANY
By: /s/ G. A. Wright
G. A. Wright
Vice President and Treasurer
TESORO COASTWIDE SERVICES COMPANY
COASTWIDE MARINE SERVICES, INC.
By: /s/ Sharon L. Layman
Sharon L. Layman
Assistant Treasurer
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TESORO E&P COMPANY, L.P.
By: TESORO EXPLORATION AND PRODUCTION COMPANY, as its
general partner
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President and Treasurer
TESORO GAS RESOURCES COMPANY, INC
By: /s/ George Dodgen
Name: George Dodgen
Title: President
BANQUE PARIBAS, AS ADMINISTRATIVE AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
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AMENDED AND RESTATED SECURITY AGREEMENT
(Accounts and Inventory)
Between
TESORO PETROLEUM CORPORATION
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
AMENDED AND RESTATED SECURITY AGREEMENT
Accounts and Inventory
THIS AMENDED AND RESTATED SECURITY AGREEMENT is made as of June 7, 1996,
between TESORO PETROLEUM CORPORATION, a Delaware corporation ("Debtor"), and
BANQUE PARIBAS, as Administrative Agent ("Secured Party"), for the Issuing Bank
and the Lenders.
RECITALS
A. On April 20, 1994, the Debtor, Texas Commerce Bank National
Association, individually and as agent, Banque Paribas, individually and as
co-agent and the other financial institutions parties thereto entered into a
Credit Agreement (as amended from time to time, the "Prior Credit Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
included the execution and delivery by Debtor of that certain Security Agreement
dated of even date therewith (the "Prior Security Agreement").
C. Of even date herewith, Debtor, Banque Paribas, as Administrative Agent,
The Bank of Nova Scotia, as Documentation Agent and various lenders (the
"Lenders") are entering into an Amended and Restated Credit Agreement (the
"Credit Agreement") amending and restating the Prior Credit Agreement.
D. In view of the foregoing and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Debtor hereby
agrees with Secured Party to amend and restate the Prior Security Agreement.
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Credit Agreement," "Debtor" and "Secured Party" shall have the meanings
respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in
the Collateral, whether as an account debtor (as defined in the Code),
obligor on an instrument, issuer of documents or securities, guarantor or
otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts and Inventory;
(b) (i) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in clause (a) of this definition; and (ii) all
certificates of title or other documents evidencing ownership or possession
of or otherwise relating to any Property referred to in clause (a) of this
definition;
(c) (i) all goods which were at any time included in the Collateral
described in clause (a) of this definition and which are returned to or for
the account of Debtor following their sale, lease or other disposition; (ii)
all policies of insurance (whether or not required by Secured Party)
covering any Property referred to in this definition; and (iii) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and Property necessary for the operation of any of the
Property referred to in this definition, including, without limitation,
insurance payable as a result of loss or damage to any of the Property
referred to in this definition, refunds of unearned premiums of any such
insurance policy and claims against third parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
-2-
(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in clause (a) of this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
"Inventory" shall mean all inventory (as defined in the Code).
"Obligations" shall mean: (i) the Lender Indebtedness described in the
Credit Agreement, including without limitation, the Letter of Credit
Liabilities and the Notes, and any and all renewals, extensions for any
period, rearrangements or enlargements thereof and any interest accrued
thereon, whether pre-petition or post-petition; (ii) payment of and
performance of any and all present or future obligations of Debtor according
to the terms of any present or future interest or currency rate swap, rate
cap, rate floor, rate collar, exchange transaction, forward rate agreement
or other exchange or rate protection agreements or any option with respect
to any such transaction now existing or hereafter entered into between
Debtor and Secured Party or any of the Lenders (or any of their Affiliates)
and authorized pursuant to the terms of the Credit Agreement; (iii) payment
of and performance of any and all present or future obligations of Debtor
according to the terms of any present or future swap agreements, cap, floor,
collar, exchange transaction, forward agreement or other exchange or
protection agreements relating to crude oil, natural gas or other
hydrocarbons or any option with respect to any such transaction now existing
or hereafter entered into between Debtor and Secured Party or any of the
Lenders (or any of their Affiliates) and authorized pursuant to the terms of
the Credit Agreement; (iv) the performance of all obligations and agreements
under the Financing Documents, including this Security Agreement; and (v)
all accrued and earned interest, charges, expenses, attorneys' or other fees
and any other sums payable to or incurred by Secured Party, any Issuing Bank
or any Lender in connection with the execution, administration or
enforcement of their rights and remedies hereunder or any other Financing
Document. The Obligations are Senior Debt as such term is defined in that
certain Subordination Agreement dated December 15, 1992 among the Debtor,
Tesoro Alaska Petroleum Company and the State of Alaska attached to the
Settlement Agreement among the Debtor, Tesoro Alaska Petroleum Company and
the State of Alaska.
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"Obligor" shall mean any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker, endorser,
guarantor, accommodation party, general partner or otherwise; and the term
"Obligor" shall specifically include each Guarantor named in the Credit
Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Amended and Restated Security
Agreement, as the same may be amended, modified or supplemented from time to
time.
Section 1.03 Other Defined Terms. Unless otherwise defined herein,
all terms beginning with a capital letter which are defined in the Credit
Agreement shall have the meanings assigned therein, unless the context hereof
requires otherwise. All uncapitalized terms which are defined in the Code shall
have their respective meanings as used in the Code, unless the context hereof
requires otherwise.
ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing
-4-
statement or other public notice or recording naming Secured Party as the
secured party therein), and Debtor will not execute any such financing statement
or other public notice or recording so long as any of the Obligations are
outstanding.
Section 3.03 No Name Changes. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein.
Section 3.04 Location of Debtor and Collateral. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth on the signature page hereof. The Collateral is located
at such address or at the location(s), if any, specified in Exhibit A hereto.
Any Collateral not at such location(s) nevertheless remains subject to Secured
Party's security interest.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no knowledge of
any bankruptcy, insolvency or other action affecting creditors' rights with
respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
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Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Inventory or other Collateral covered by one or more certificates of title
or other documents evidencing ownership or possession thereof, and with respect
to any Accounts or other Collateral supported by letters of credit, each of such
certificates, documents or letters of credit has been delivered to Secured Party
(provided, however, that all certificates, documents and letters of credit
referred to in Section 1.02 shall be subject to the security interest created by
this Security Agreement irrespective of whether or not such delivery shall have
been made).
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) any change in location of the
Collateral to a jurisdiction other than Texas, Alaska, California, Oregon or
Washington and which would cause the Secured Party to be unperfected in the
Collateral, (ii) the opening or closing of any place of Debtor's business or
(iii) any change in the location of Debtor's chief executive office or address.
Section 4.02 Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, Debtor will cause the security
interest of Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any
such Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03, 4.08 and 4.09 Debtor will deliver to Secured
Party all proceeds from the sale or other disposition of the Collateral promptly
upon receipt. If chattel paper, documents or instruments are received as
proceeds, which are required to be
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delivered to Secured Party, they will be, immediately upon receipt, properly
endorsed or assigned and delivered to Secured Party as Collateral.
Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except (i)
as permitted by Section 4.08, or (ii) with the prior written consent of the
Majority Lenders, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account. Debtor shall
conduct a physical count of the Inventory at such intervals as Secured Party
requests and promptly supply Secured Party with a copy of such count accompanied
by a report of the value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor ognizes that financing statements pertaining to the Collateral
will be filed with the offices of the Secretary of State of Texas, the Alaska
Department of Natural Resources, the Secretary of State of California, the
Secretary of State of Oregon and the Department of Licensing of the State of
Washington. Debtor will immediately notify Secured Party of any condition or
event that may change the proper location for the filing of any financing
statements or other public notice or recordings for the purpose of perfecting a
security interest in the Collateral. Without limiting the generality of the
foregoing, Debtor will (i) immediately notify Secured Party of any change to a
jurisdiction other than as represented in Section 3.04 (A) in the location of
Debtor's chief executive office or chief place of business, (B) in the location
of the office where Debtor keeps its records concerning the Accounts, or (C) in
the "location" of Debtor within the meaning of Section 9-103(c) of the Code;
(ii) immediately notify Secured Party of any change in the location of the
Collateral to any jurisdiction other than the States of Texas, Alaska,
California, Oregon and Washington; and (iii) notify Secured Party 30 days prior
to any change in Debtor's name, identity or corporate structure or Tax
Identification Number. In any notice furnished pursuant to this paragraph,
Debtor will expressly state that the notice is required by this Security
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of Secured Party's security interest in the Collateral. Debtor will promptly
provide written notice to Secured Party of all information which in any way
relates to or affects the Collateral generally, Secured Party's rights or
remedies with respect thereto, the filing of any financing statement or other
public notices or recordings, or the delivery and possession of items of
Collateral for the purpose of perfecting a security interest in the Collateral.
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Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Inventory. Unless an Event of Default has occurred and is
continuing and after any applicable notice and cure periods provided for in the
Credit Agreement, Debtor may use the Inventory in any lawful manner not
inconsistent with this Security Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory for cash or
terms in the ordinary course of business, and Debtor may retain the proceeds of
such sales, leases or other dispositions (subject to Section 4.03 and Section
4.09); provided, however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at Debtor's
address set forth in Section 3.04. Debtor shall bear any risk of loss of the
Inventory. Debtor shall not use any item of Inventory in a manner inconsistent
with the holding thereof for sale, lease or other disposition in the ordinary
course of business or in contravention of the terms of any agreement. Upon the
occurrence and continuance of an Event of Default and after any applicable cure
period, Debtor shall immediately deliver to Secured Party any checks, cash or
other forms of payment which Debtor receives in connection with any Inventory,
appropriately endorsed.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(i), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted in the Credit Agreement,
or with the prior written consent of Secured Party.
(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
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Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirements, or suffer it
to be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense to:
(a) obtain, adjust, sell and cancel any insurance with respect to the
Collateral and endorse any draft drawn by insurers of the Collateral, and
Secured Party may apply any proceeds or unearned premiums of such insurance
to the Obligations (whether or not due); and
(b) take any action and to execute any assignment, certificate,
financing statement, notification, document or instrument which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor
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representing any payment or other distribution in respect of the Collateral
or any part thereof and to give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by, Secured
Party's delay or failure to collect upon, foreclose, sell, take possession of or
otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for
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performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps necessary to preserve any rights against
any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Debtor authorizes Secured Party, without notice or demand
and without any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Obligations, from time to time to (x)
take and hold other Property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Security
Agreement and (z) renew, extend for any period, accelerate, amend or modify,
supplement, enforce, compromise, settle, waive or release the obligations of any
Obligor or any instrument or agreement of such other Person with respect to any
or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
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(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's request
Debtor shall, at Debtor's cost, assemble the Collateral and make it
available at a location to be specified by Secured Party which is reasonably
convenient to Debtor and Secured Party. In any event, Debtor shall bear the
risk of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability whatsoever for failure
to obtain or maintain insurance, nor to determine whether any insurance ever
in force is adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party
may elect, in a public or private transaction, at any location as deemed
reasonable by Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party, any Issuing Bank or any
Lender may be the purchaser of any or all Collateral so sold and may apply
upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person
shall be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay or appraisal which Debtor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the
Collateral or any part thereof be present at the location of any such sale
or transfer. Secured Party may, at its discretion, provide for a public
sale, and any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix
in the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any time
and place fixed for such sale, and such sale may be made at any time or
place to which the same may be so adjourned. In the event any sale or
transfer hereunder is not completed or is defective in the opinion of
Secured Party, such sale or transfer shall not exhaust the rights of Secured
Party hereunder, and Secured Party shall have the right to cause one or more
subsequent sales or transfers to be made hereunder. In the event that any
of the Collateral is sold or transferred on credit, or to be held by Secured
Party for future delivery to a purchaser or transferee, the Collateral so
sold or transferred may be retained by Secured Party until the purchase
price or other consideration is paid by the purchaser or transferee thereof,
but in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, neither
Secured Party, any Issuing Bank nor any Lender shall incur any liability in
connection therewith. If only part of the Collateral is sold or transferred
such that the Obligations remain outstanding (in whole or in part), Secured
Party's rights and remedies hereunder shall not
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be exhausted, waived or modified, and Secured Party is specifically
empowered to make one or more successive sales or transfers until all the
Collateral shall be sold or transferred and all the Obligations are paid.
In the event that Secured Party elects not to sell the Collateral, Secured
Party retains its rights to lease or otherwise dispose of or utilize the
Collateral or any part or parts thereof in any manner authorized or
permitted by law or in equity, and to apply the proceeds of the same towards
payment of the Obligations. Each and every method of disposition of the
Collateral described in this Section 6.02(c) or in Section 6.02(f) shall
constitute disposition in a commercially reasonable manner.
(d) Take possession of all books and records of Debtor pertaining to
the Collateral. Secured Party shall have the authority to enter upon any
real or immoveable property or improvements thereon in order to obtain any
such books or records, or any Collateral located thereon, and remove the
same therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable expenses of retaking, holding, preparing
for sale or other disposition, and the reasonable attorneys' fees and legal
expenses incurred by Secured Party, the Issuing Banks and the Lenders.
(f) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an
auctioneer or any officer or agent of Secured Party.
(g) Apply and set-off (i) any deposits of Debtor now or hereafter held
by Secured Party, the Issuing Banks and the Lenders; (ii) all claims of
Debtor against Secured Party, now or hereafter existing; (iii) any other
Property, rights or interests of Debtor which come into the possession or
custody or under the control of Secured Party; and (iv) the proceeds of any
of the foregoing as if the same were included in the Collateral. Secured
Party agrees to notify Debtor promptly after any such set-off or
application; provided, however, the failure of Secured Party to give any
notice shall not affect the validity of such set-off or application.
(h) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute,
assign and endorse negotiable and other instruments for the payment of
money, documents of title or other evidences of payment, shipment or storage
for any form of Collateral on behalf of and in the name of Debtor.
(i) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account Debtors
to make payments on
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the Accounts directly to Secured Party. To the extent Secured Party does
not so elect, Debtor shall continue to collect and retain the Accounts.
Secured Party or its designee shall also have the right, in its own name or
in the name of Debtor, to do any of the following: (i) to demand, collect,
receipt for, settle, compromise any amounts due, give acquittances for,
prosecute or defend any action which may be in relation to any monies due or
to become due by virtue of, the Accounts; (ii) to sell, transfer or assign
or otherwise deal in the Accounts or the proceeds thereof or the related
goods, as fully and effectively as if Secured Party were the absolute owner
thereof; (iii) to extend the time of payment of any of the Accounts, to
grant waivers and make any allowance or other adjustment with reference
thereto; (iv) to endorse the name of Debtor on notes, checks or other
evidences of payments on Collateral that may come into possession of Secured
Party; (v) to take control of cash and other proceeds of any Collateral;
(vi) to sign the name of Debtor on any invoice or bill of lading relating to
any Collateral, or any drafts against Account Debtors or other persons
making payment with respect to Collateral; (vii) to send a request for
verification of Accounts to any Account Debtor; and (viii) to do all other
acts and things necessary to carry out the intent of this Agreement.
(j) Exercise all other rights and remedies permitted by law or in
equity.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party, any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
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ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given as specified in
Section 9.01 of the Credit Agreement to the address specified on the signature
page of this Security Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security Agreement may be amended only by the manner set forth
in Section 9.02 of the Credit Agreement by an instrument in writing executed
jointly by Debtor and Secured Party and may be supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party, any Issuing Bank
nor any Lender shall be liable for any interest, cost or expense in connection
with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein
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Secured Party's offices are located at the address specified on the signature
page hereof, and in the Federal District Courts of the district wherein such
offices of Secured Party are located. This submission to jurisdiction is
nonexclusive and does not preclude Secured Party, any Issuing Bank or any Lender
from obtaining jurisdiction over Debtor or the Collateral in any court otherwise
having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party, the Issuing Banks and the Lenders hereunder are in addition to
all rights, powers and remedies given by law or in equity. The exercise by
Secured Party, any Issuing Bank or any Lender of any one or more of the rights,
powers and remedies herein shall not be construed as a waiver of any other
rights, powers and remedies, including, without limitation, any other rights of
set-off. If any of the Obligations are given in renewal, extension for any
period or rearrangement, or applied toward the payment of debt secured by any
lien, Secured Party shall be, and is hereby, subrogated to all the rights,
titles, interests and liens securing the debt so renewed, extended, rearranged
or paid.
Section 7.08 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder, including, without limitation, any action taken or
inaction pursuant to Section 6.02, shall be deemed to constitute a retention of
the Collateral in satisfaction of the Obligations or otherwise to be in full
satisfaction of the Obligations, and the Obligations shall remain in full force
and effect, until Secured Party, the Issuing Banks and the Lenders shall have
applied payments (including, without limitation, collections from Collateral)
towards the Obligations in the full amount then outstanding or until such
subsequent time as is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.09.
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(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party has not in the interim
period executed a written release or termination statement or returned
possession of or reassigned the Collateral to Debtor.
Section 7.09 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.08(c) shall survive the termination of this Security Agreement.
Section 7.10 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.11 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 7.12 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
Section 7.13 Amendment and Restatement. This Security Agreement amends
and restates in its entirety the Prior Security Agreement and all its terms,
provisions and conditions. Debtor acknowledges that the liens, claims, rights,
titles, interests and benefits created and granted by the Prior Security
Agreement continue to exist, remain valid and subsisting, shall not be impaired
or released hereby, shall remain in full force and effect and are hereby
renewed, extended, carried forward and conveyed as security for the Obligations.
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DEBTOR: TESORO PETROLEUM CORPORATION
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President, Corporate
Communications and Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
San Antonio, Texas 78217
SECURED PARTY: BANQUE PARIBAS, AS ADMINISTRATIVE
AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
Address:
1200 Smith Street, Suite 3100
Houston, Texas 77002
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AMENDED AND RESTATED SECURITY AGREEMENT
(Accounts and Inventory)
Between
TESORO ALASKA PETROLEUM COMPANY
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
AMENDED AND RESTATED SECURITY AGREEMENT
Accounts and Inventory
THIS AMENDED AND RESTATED SECURITY AGREEMENT is made as of June 7, 1996,
between TESORO ALASKA PETROLEUM COMPANY, a Delaware corporation ("Debtor"), and
BANQUE PARIBAS, as Administrative Agent ("Secured Party") for the Issuing Banks
and the Lenders parties to the Credit Agreement referred to below.
RECITALS
A. On April 20, 1994, Tesoro Petroleum Corporation (the "Company"), Texas
Commerce Bank National Association, individually and as agent, Banque Paribas,
individually and as co-agent and the other financial institutions parties
thereto entered into a Credit Agreement (as amended from time to time, the
"Prior Credit Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
included the execution and delivery by Debtor of that certain Security Agreement
dated of even date therewith (the "Prior Security Agreement").
C. On even date herewith, the Company, Secured Party, The Bank of Nova
Scotia, as Documentation Agent and the other financial institutions parties
thereto (the "Lenders") are entering into an Amended and Restated Credit
Agreement (as amended from time to time, the "Credit Agreement").
D. Therefore, in view of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor and Secured Party agree to amend and restate the Prior Security Agreement
as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Company," "Credit Agreement," "Debtor" and "Secured Party" shall have the
meanings respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in
the Collateral, whether as an account debtor (as defined in the Code),
obligor on an instrument, issuer of documents or securities, guarantor or
otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts and Inventory;
(b) (i) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in clause (a) of this definition; and (ii) all
certificates of title or other documents evidencing ownership or possession
of or otherwise relating to any Property referred to in clause (a) of this
definition;
(c) (i) all goods which were at any time included in the Collateral
described in clause (a) of this definition and which are returned to or for
the account of Debtor following their sale, lease or other disposition; (ii)
all policies of insurance (whether or not required by Secured Party)
covering any Property referred to in this definition; and (iii) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and Property necessary for the operation of any of the
Property referred to in this definition, including, without limitation,
insurance payable as a result of loss or damage to any of the Property
referred to in this definition, refunds of unearned premiums of any such
insurance policy and claims against third parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
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(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in clause (a) of this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
"Inventory" shall mean all inventory (as defined in the Code).
"Obligations" shall mean with respect to the Debtor, the Obligations
(as defined in the Guaranty Agreement) to the extent the Debtor is liable
therefor as provided in the Guaranty Agreement. The Obligations are Senior
Debt as such term is defined in that certain Subordination Agreement dated
December 15, 1992 among the Company, Tesoro Alaska Petroleum Company and the
State of Alaska attached to the Settlement Agreement among the Company,
Tesoro Alaska Petroleum Company and the State of Alaska.
"Obligor" shall mean the Company and any other Person, other than
Debtor, liable (whether directly or indirectly, primarily or secondarily)
for the payment or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner or
otherwise; and the term "Obligor" shall specifically include each Guarantor,
other than Debtor, named in the Credit Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Amended and Restated Security
Agreement, as the same may be amended, modified or supplemented from time to
time.
Section 1.03 Other Defined Terms. Unless otherwise defined herein,
all terms beginning with a capital letter which are defined in the Credit
Agreement shall have the meanings assigned therein, unless the context hereof
requires otherwise. All uncapitalized terms which are defined in the Code shall
have their respective meanings as used in the Code, unless the context hereof
requires otherwise.
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ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing statement or other public notice or recording
naming Secured Party as the secured party therein), and Debtor will not execute
any such financing statement or other public notice or recording so long as any
of the Obligations are outstanding.
Section 3.03 No Name Changes. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein.
Section 3.04 Location of Debtor and Collateral. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth on the signature page hereof. The Collateral is located
at such address or at the location(s), if any, specified in Exhibit A hereto.
Any Collateral not at such location(s) nevertheless remains subject to Secured
Party's security interest.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
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Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no knowledge of
any bankruptcy, insolvency or other action affecting creditors' rights with
respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Inventory or other Collateral covered by one or more certificates of title
or other documents evidencing ownership or possession thereof, and with respect
to any Accounts or other Collateral supported by letters of credit, each of such
certificates, documents or letters of credit has been delivered to Secured Party
(provided, however, that all certificates, documents and letters of credit
referred to in Section 1.02 shall be subject to the security interest created by
this Security Agreement irrespective of whether or not such delivery shall have
been made).
Section 3.08 Ownership of Collateral; Encumbrances; Valid and Binding
Agreement. Debtor is the legal and beneficial owner of the Collateral free and
clear of any adverse claim, lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
permitted by the Credit Agreement, and Debtor has full right, power and
authority to assign and grant a security interest in the Collateral to Secured
Party. This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable against Debtor in accordance with its terms. The execution,
delivery and performance of this Agreement will not violate the terms of any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which Debtor is subject and does not require the consent or approval of
any other Person.
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Section 3.09 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) any change in location of the
Collateral to a jurisdiction other than Texas, Alaska, California, Oregon or
Washington and which would cause the Secured Party to be unperfected in the
Collateral, (ii) the opening or closing of any place of Debtor's business or
(iii) any change in the location of Debtor's chief executive office or address.
Section 4.02 Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, Debtor will cause the security
interest of Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any
such Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03, 4.08 and 4.09, Debtor will deliver to Secured
Party all proceeds from the sale or other disposition of the Collateral promptly
upon receipt. If chattel paper, documents or instruments are received as
proceeds, which are required to be delivered to Secured Party, they will be,
immediately upon receipt, properly endorsed or assigned and delivered to Secured
Party as Collateral.
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Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except (i)
as permitted by Section 4.08, or (ii) with the prior written consent of the
Majority Lenders, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account. Debtor shall
conduct a physical count of the Inventory at such intervals as Secured Party
requests and promptly supply Secured Party with a copy of such count accompanied
by a report of the value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor will promptly furnish such information as Secured Party may from
time to time reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's rights or remedies
with respect thereto. Any balance sheets or financial statements requested by
Secured Party pursuant to this Section 4.06(b) shall conform to generally
accepted accounting principles.
(c) Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the offices of the Secretary of State of Texas,
the Alaska Department of Natural Resources, the Secretary of State of
California, the Secretary of State of Oregon and the Department of Licensing of
the State of Washington. Debtor will immediately notify Secured Party of any
condition or event that may change the proper location for the filing of any
financing statements or other public notice or recordings for the purpose of
perfecting a security interest in the Collateral. Without limiting the
generality of the foregoing, Debtor will (i) immediately notify Secured Party of
any change to a jurisdiction other than as represented in Section 3.04 (A) in
the location of Debtor's chief executive office or chief place of business, (B)
in the location of the office where Debtor keeps its records concerning the
Accounts, or (C) in the "location" of Debtor within the meaning of Section
9-103(c) of the Code; (ii) immediately notify Secured Party of any change in the
location of the Collateral to any jurisdiction other than the States of Texas,
Alaska, California, Oregon and Washington; and (ii) notify Secured Party 30 days
prior to any change in Debtor's name, identity or corporate structure or Tax
Identification Number. In any notice furnished pursuant to this paragraph,
Debtor will expressly state that the notice is required by this Security
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of Secured Party's security interest in the Collateral. Debtor will promptly
provide written notice to Secured Party of all information which in any way
relates to or affects the Collateral generally, Secured Party's rights or
remedies with respect thereto, the filing of any
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financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral.
Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Inventory. Unless an Event of Default has occurred and is
continuing and after any applicable notice and cure periods provided for in the
Credit Agreement, Debtor may use the Inventory in any lawful manner not
inconsistent with this Security Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory for cash or
terms in the ordinary course of business, and Debtor may retain the proceeds of
such sales, leases or other dispositions (subject to Section 4.03 and Section
4.09); provided, however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at Debtor's
address set forth in Section 3.04. Debtor shall bear any risk of loss of the
Inventory. Debtor shall not use any item of Inventory in a manner inconsistent
with the holding thereof for sale, lease or other disposition in the ordinary
course of business or in contravention of the terms of any agreement. Upon the
occurrence and continuance of an Event of Default and after any applicable cure
period, Debtor shall immediately deliver to Secured Party any checks, cash or
other forms of payment which Debtor receives in connection with any Inventory,
appropriately endorsed.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(i), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted by the Credit Agreement
or with the prior written consent of Secured Party.
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(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirement, or suffer it to
be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense to:
(a) obtain, adjust, sell and cancel any insurance with respect to the
Collateral and endorse any draft drawn by insurers of the Collateral, and
Secured Party may apply any proceeds or unearned premiums of such insurance
to the Obligations (whether or not due); and
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(b) take any action and to execute any assignment, certificate,
financing statement, notification, document or instrument which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any payment or
other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by,
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Secured Party's delay or failure to collect upon, foreclose, sell, take
possession of or otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Debtor authorizes Secured Party, without notice or demand
and without any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Obligations, from time to time to (x)
take and hold other Property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Security
Agreement and (z) renew, extend for any period, accelerate, amend or modify,
supplement, enforce, compromise, settle, waive or release the obligations of any
Obligor or any instrument or agreement of such other Person with respect to any
or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
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ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's request
Debtor shall, at Debtor's cost, assemble the Collateral and make it
available at a location to be specified by Secured Party which is reasonably
convenient to Debtor and Secured Party. In any event, Debtor shall bear the
risk of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability whatsoever for failure
to obtain or maintain insurance, nor to determine whether any insurance ever
in force is adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party
may elect, in a public or private transaction, at any location as deemed
reasonable by Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party, any Issuing Bank or any
Lender may be the purchaser of any or all Collateral so sold and may apply
upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person
shall be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay or appraisal which Debtor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the
Collateral or any part thereof be present at the location of any such sale
or transfer. Secured Party may, at its discretion, provide for a public
sale, and any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix
in the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any time
and place fixed for such sale, and such sale may be made at any time or
place to which the same may be so adjourned. In the event any sale or
transfer hereunder is not
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completed or is defective in the opinion of Secured Party, such sale or
transfer shall not exhaust the rights of Secured Party hereunder, and
Secured Party shall have the right to cause one or more subsequent sales or
transfers to be made hereunder. In the event that any of the Collateral is
sold or transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or transferred
may be retained by Secured Party until the purchase price or other
consideration is paid by the purchaser or transferee thereof, but in the
event that such purchaser or transferee fails to pay for the Collateral so
sold or transferred or to take delivery thereof, neither Secured Party, any
Issuing Bank nor any Lender shall incur any liability in connection
therewith. If only part of the Collateral is sold or transferred such that
the Obligations remain outstanding (in whole or in part), Secured Party's
rights and remedies hereunder shall not be exhausted, waived or modified,
and Secured Party is specifically empowered to make one or more successive
sales or transfers until all the Collateral shall be sold or transferred and
all the Obligations are paid. In the event that Secured Party elects not to
sell the Collateral, Secured Party retains its rights to lease or otherwise
dispose of or utilize the Collateral or any part or parts thereof in any
manner authorized or permitted by law or in equity, and to apply the
proceeds of the same towards payment of the Obligations. Each and every
method of disposition of the Collateral described in this Section 6.02(c) or
in Section 6.02(f) shall constitute disposition in a commercially reasonable
manner.
(d) Take possession of all books and records of Debtor pertaining to
the Collateral. Secured Party shall have the authority to enter upon any
real or immoveable property or improvements thereon in order to obtain any
such books or records, or any Collateral located thereon, and remove the
same therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable expenses of retaking, holding, preparing
for sale or other disposition, and the reasonable attorneys' fees and legal
expenses incurred by Secured Party, the Issuing Banks and the Lenders.
(f) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an
auctioneer or any officer or agent of Secured Party.
(g) Apply and set-off (i) any deposits of Debtor now or hereafter held
by Secured Party, the Issuing Banks and the Lenders; (ii) all claims of
Debtor against Secured Party, now or hereafter existing; (iii) any other
Property, rights or interests of Debtor which come into the possession or
custody or under the control of Secured Party; and (iv) the proceeds of any
of the foregoing as if the same were included in the Collateral. Secured
Party agrees to notify Debtor promptly after any such set-off or
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application; provided, however, the failure of Secured Party to give any
notice shall not affect the validity of such set-off or application.
(h) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute,
assign and endorse negotiable and other instruments for the payment of
money, documents of title or other evidences of payment, shipment or storage
for any form of Collateral on behalf of and in the name of Debtor.
(i) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account Debtors
to make payments on the Accounts directly to Secured Party. To the extent
Secured Party does not so elect, Debtor shall continue to collect and retain
the Accounts. Secured Party or its designee shall also have the right, in
its own name or in the name of Debtor, to do any of the following: (i) to
demand, collect, receipt for, settle, compromise any amounts due, give
acquittances for, prosecute or defend any action which may be in relation to
any monies due or to become due by virtue of, the Accounts; (ii) to sell,
transfer or assign or otherwise deal in the Accounts or the proceeds thereof
or the related goods, as fully and effectively as if Secured Party were the
absolute owner thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other adjustment with
reference thereto; (iv) to endorse the name of Debtor on notes, checks or
other evidences of payments on Collateral that may come into possession of
Secured Party; (v) to take control of cash and other proceeds of any
Collateral; (vi) to sign the name of Debtor on any invoice or bill of lading
relating to any Collateral, or any drafts against Account Debtors or other
persons making payment with respect to Collateral; (vii) to send a request
for verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this Agreement.
(j) Exercise all other rights and remedies permitted by law or in
equity.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
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Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Guaranty Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security Agreement may be amended only by the manner set forth
in Section 9.02 of the Credit Agreement by an instrument in writing executed
jointly by Debtor and Secured Party and may be supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds
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in a commercially reasonable time; provided, however, that neither Secured
Party, any Issuing Bank nor any Lender shall be liable for any interest, cost or
expense in connection with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified on the
signature page hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party, any Issuing
Bank or any Lender from obtaining jurisdiction over Debtor or the Collateral in
any court otherwise having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party, any Issuing Bank or
any Lender of any one or more of the rights, powers and remedies herein shall
not be construed as a waiver of any other rights, powers and remedies,
including, without limitation, any other rights of set-off. If any of the
Obligations are given in renewal, extension for any period or rearrangement, or
applied toward the payment of debt secured by any lien, Secured Party shall be,
and is hereby, subrogated to all the rights, titles, interests and liens
securing the debt so renewed, extended, rearranged or paid.
Section 7.08 Subrogation. Until the Obligations have been paid in full,
Debtor hereby waives any claim, right or remedy which Debtor may now have or
hereafter acquire against the Company which arises out of this Security
Agreement or from the performance by Debtor hereunder, including without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, indemnification, or participation in any such claim, right or
remedy of any other Person against the Company; provided, however,
notwithstanding the foregoing, Debtor reserves its rights of contribution and
reimbursement, if any, from any Obligor. Until the Obligations have been paid
in full, Debtor further waives any benefit of any right to participate in any
security now or hereafter held by Secured Party, the Issuing Banks and/or the
Lenders.
Section 7.09 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder,
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including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party, the Issuing Banks and the Lenders shall have applied payments
(including, without limitation, collections from Collateral) towards the
Obligations in the full amount then outstanding or until such subsequent time as
is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.10.
(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party has not in the interim
period executed a written release or termination statement or returned
possession of or reassigned the Collateral to Debtor.
Section 7.10 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.09(c) shall survive the termination of this Security Agreement.
Section 7.11 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.12 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the
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convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such articles, sections,
subsections or other divisions, such other content being controlling as to the
agreement between the parties hereto.
Section 7.13 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
Section 7.14 Amendment and Restatement. This Security Agreement amends
and restates in its entirety the Prior Security Agreement and all its terms,
provisions and conditions. Debtor acknowledges that the liens, claims, rights,
titles, interests and benefits created and granted by the Prior Security
Agreement continue to exist, remain valid and subsisting, shall not be impaired
or released hereby, shall remain in full force and effect and are hereby
renewed, extended, carried forward and conveyed as security for the Obligations.
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DEBTOR: TESORO ALASKA PETROLEUM COMPANY
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President and Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
San Antonio, Texas 78217
SECURED PARTY: BANQUE PARIBAS, AS ADMINISTRATIVE
AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
Address:
1200 Smith Street, Suite 3100
Houston, Texas 77002
AMENDED AND RESTATED SECURITY AGREEMENT
(Accounts and Inventory)
Between
TESORO REFINING, MARKETING & SUPPLY COMPANY
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
AMENDED AND RESTATED SECURITY AGREEMENT
Accounts and Inventory
THIS AMENDED AND RESTATED SECURITY AGREEMENT is made as of June 7, 1996,
between TESORO REFINING, MARKETING & SUPPLY COMPANY, a Delaware corporation
("Debtor"), and BANQUE PARIBAS, as Administrative Agent ("Secured Party") for
the Issuing Banks and the Lenders parties to the Credit Agreement referred to
below.
RECITALS
A. On April 20, 1994, Tesoro Petroleum Corporation (the "Company"), Texas
Commerce Bank National Association, individually and as agent, Banque Paribas,
individually and as co-agent and the other financial institutions parties
thereto entered into a Credit Agreement (as amended from time to time, the
"Prior Credit Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
included the execution and delivery by Debtor of that certain Security Agreement
dated of even date therewith (the "Prior Security Agreement").
C. On even date herewith, the Company, Secured Party, The Bank of Nova
Scotia, as Documentation Agent and the other financial institutions parties
thereto (the "Lenders") are entering into an Amended and Restated Credit
Agreement (as amended from time to time, the "Credit Agreement").
D. Therefore, in view of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor and Secured Party agree to amend and restate the Prior Security Agreement
as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Company," "Credit Agreement," "Debtor" and "Secured Party" shall have the
meanings respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in
the Collateral, whether as an account debtor (as defined in the Code),
obligor on an instrument, issuer of documents or securities, guarantor or
otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts and Inventory;
(b) (i) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in clause (a) of this definition; and (ii) all
certificates of title or other documents evidencing ownership or possession
of or otherwise relating to any Property referred to in clause (a) of this
definition;
(c) (i) all goods which were at any time included in the Collateral
described in clause (a) of this definition and which are returned to or for
the account of Debtor following their sale, lease or other disposition; (ii)
all policies of insurance (whether or not required by Secured Party)
covering any Property referred to in this definition; and (iii) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and Property necessary for the operation of any of the
Property referred to in this definition, including, without limitation,
insurance payable as a result of loss or damage to any of the Property
referred to in this definition, refunds of unearned premiums of any such
insurance policy and claims against third parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
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(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in clause (a) of this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
"Inventory" shall mean all inventory (as defined in the Code).
"Obligations" shall mean with respect to the Debtor, the Obligations
(as defined in the Guaranty Agreement) to the extent the Debtor is liable
therefor as provided in the Guaranty Agreement. The Obligations are Senior
Debt as such term is defined in that certain Subordination Agreement dated
December 15, 1992 among the Company, Tesoro Alaska Petroleum Company and the
State of Alaska attached to the Settlement Agreement among the Company,
Tesoro Alaska Petroleum Company and the State of Alaska.
"Obligor" shall mean the Company and any other Person, other than
Debtor, liable (whether directly or indirectly, primarily or secondarily)
for the payment or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner or
otherwise; and the term "Obligor" shall specifically include each Guarantor,
other than Debtor, named in the Credit Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Amended and Restated Security
Agreement, as the same may be amended, modified or supplemented from time to
time.
Section 1.03 Other Defined Terms. Unless otherwise defined herein,
all terms beginning with a capital letter which are defined in the Credit
Agreement shall have the meanings assigned therein, unless the context hereof
requires otherwise. All uncapitalized terms which are defined in the Code shall
have their respective meanings as used in the Code, unless the context hereof
requires otherwise.
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ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing statement or other public notice or recording
naming Secured Party as the secured party therein), and Debtor will not execute
any such financing statement or other public notice or recording so long as any
of the Obligations are outstanding.
Section 3.03 No Name Changes. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein.
Section 3.04 Location of Debtor and Collateral. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth on the signature page hereof. The Collateral is located
at such address or at the location(s), if any, specified in Exhibit A hereto.
Any Collateral not at such location(s) nevertheless remains subject to Secured
Party's security interest.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
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Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no knowledge of
any bankruptcy, insolvency or other action affecting creditors' rights with
respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Inventory or other Collateral covered by one or more certificates of title
or other documents evidencing ownership or possession thereof, and with respect
to any Accounts or other Collateral supported by letters of credit, each of such
certificates, documents or letters of credit has been delivered to Secured Party
(provided, however, that all certificates, documents and letters of credit
referred to in Section 1.02 shall be subject to the security interest created by
this Security Agreement irrespective of whether or not such delivery shall have
been made).
Section 3.08 Ownership of Collateral; Encumbrances; Valid and Binding
Agreement. Debtor is the legal and beneficial owner of the Collateral free and
clear of any adverse claim, lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
permitted by the Credit Agreement, and Debtor has full right, power and
authority to assign and grant a security interest in the Collateral to Secured
Party. This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable against Debtor in accordance with its terms. The execution,
delivery and performance of this Agreement will not violate the terms of any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which Debtor is subject and does not require the consent or approval of
any other Person.
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Section 3.09 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) any change in location of the
Collateral to a jurisdiction other than Texas, Alaska, California, Oregon or
Washington and which would cause the Secured Party to be unperfected in the
Collateral, (ii) the opening or closing of any place of Debtor's business or
(iii) any change in the location of Debtor's chief executive office or address.
Section 4.02 Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, Debtor will cause the security
interest of Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any
such Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03, 4.08 and 4.09, Debtor will deliver to Secured
Party all proceeds from the sale or other disposition of the Collateral promptly
upon receipt. If chattel paper, documents or instruments are received as
proceeds, which are required to be delivered to Secured Party, they will be,
immediately upon receipt, properly endorsed or assigned and delivered to Secured
Party as Collateral.
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Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except (i)
as permitted by Section 4.08, or (ii) with the prior written consent of the
Majority Lenders, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account. Debtor shall
conduct a physical count of the Inventory at such intervals as Secured Party
requests and promptly supply Secured Party with a copy of such count accompanied
by a report of the value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor will promptly furnish such information as Secured Party may from
time to time reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's rights or remedies
with respect thereto. Any balance sheets or financial statements requested by
Secured Party pursuant to this Section 4.06(b) shall conform to generally
accepted accounting principles.
(c) Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the offices of the Secretary of State of Texas,
the Alaska Department of Natural Resources, the Secretary of State of
California, the Secretary of State of Oregon and the Department of Licensing of
the State of Washington. Debtor will immediately notify Secured Party of any
condition or event that may change the proper location for the filing of any
financing statements or other public notice or recordings for the purpose of
perfecting a security interest in the Collateral. Without limiting the
generality of the foregoing, Debtor will (i) immediately notify Secured Party of
any change to a jurisdiction other than as represented in Section 3.04 (A) in
the location of Debtor's chief executive office or chief place of business, (B)
in the location of the office where Debtor keeps its records concerning the
Accounts, or (C) in the "location" of Debtor within the meaning of Section
9-103(c) of the Code; (ii) immediately notify Secured Party of any change in the
location of the Collateral to any jurisdiction other than the States of Texas,
Alaska, California, Oregon and Washington; and (ii) notify Secured Party 30 days
prior to any change in Debtor's name, identity or corporate structure or Tax
Identification Number. In any notice furnished pursuant to this paragraph,
Debtor will expressly state that the notice is required by this Security
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of Secured Party's security interest in the Collateral. Debtor will promptly
provide written notice to Secured Party of all information which in any way
relates to or affects the Collateral generally, Secured Party's rights or
remedies with respect thereto, the filing of any
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financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral.
Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Inventory. Unless an Event of Default has occurred and is
continuing and after any applicable notice and cure periods provided for in the
Credit Agreement, Debtor may use the Inventory in any lawful manner not
inconsistent with this Security Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory for cash or
terms in the ordinary course of business, and Debtor may retain the proceeds of
such sales, leases or other dispositions (subject to Section 4.03 and Section
4.09); provided, however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at Debtor's
address set forth in Section 3.04. Debtor shall bear any risk of loss of the
Inventory. Debtor shall not use any item of Inventory in a manner inconsistent
with the holding thereof for sale, lease or other disposition in the ordinary
course of business or in contravention of the terms of any agreement. Upon the
occurrence and continuance of an Event of Default and after any applicable cure
period, Debtor shall immediately deliver to Secured Party any checks, cash or
other forms of payment which Debtor receives in connection with any Inventory,
appropriately endorsed.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(i), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted by the Credit Agreement
or with the prior written consent of Secured Party.
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(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirement, or suffer it to
be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense to:
(a) obtain, adjust, sell and cancel any insurance with respect to the
Collateral and endorse any draft drawn by insurers of the Collateral, and
Secured Party may apply any proceeds or unearned premiums of such insurance
to the Obligations (whether or not due); and
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(b) take any action and to execute any assignment, certificate,
financing statement, notification, document or instrument which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any payment or
other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by,
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Secured Party's delay or failure to collect upon, foreclose, sell, take
possession of or otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Debtor authorizes Secured Party, without notice or demand
and without any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Obligations, from time to time to (x)
take and hold other Property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Security
Agreement and (z) renew, extend for any period, accelerate, amend or modify,
supplement, enforce, compromise, settle, waive or release the obligations of any
Obligor or any instrument or agreement of such other Person with respect to any
or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
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ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's request
Debtor shall, at Debtor's cost, assemble the Collateral and make it
available at a location to be specified by Secured Party which is reasonably
convenient to Debtor and Secured Party. In any event, Debtor shall bear the
risk of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability whatsoever for failure
to obtain or maintain insurance, nor to determine whether any insurance ever
in force is adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party
may elect, in a public or private transaction, at any location as deemed
reasonable by Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party, any Issuing Bank or any
Lender may be the purchaser of any or all Collateral so sold and may apply
upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person
shall be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay or appraisal which Debtor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the
Collateral or any part thereof be present at the location of any such sale
or transfer. Secured Party may, at its discretion, provide for a public
sale, and any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix
in the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any time
and place fixed for such sale, and such sale may be made at any time or
place to which the same may be so adjourned. In the event any sale or
transfer hereunder is not
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completed or is defective in the opinion of Secured Party, such sale or
transfer shall not exhaust the rights of Secured Party hereunder, and
Secured Party shall have the right to cause one or more subsequent sales or
transfers to be made hereunder. In the event that any of the Collateral is
sold or transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or transferred
may be retained by Secured Party until the purchase price or other
consideration is paid by the purchaser or transferee thereof, but in the
event that such purchaser or transferee fails to pay for the Collateral so
sold or transferred or to take delivery thereof, neither Secured Party, any
Issuing Bank nor any Lender shall incur any liability in connection
therewith. If only part of the Collateral is sold or transferred such that
the Obligations remain outstanding (in whole or in part), Secured Party's
rights and remedies hereunder shall not be exhausted, waived or modified,
and Secured Party is specifically empowered to make one or more successive
sales or transfers until all the Collateral shall be sold or transferred and
all the Obligations are paid. In the event that Secured Party elects not to
sell the Collateral, Secured Party retains its rights to lease or otherwise
dispose of or utilize the Collateral or any part or parts thereof in any
manner authorized or permitted by law or in equity, and to apply the
proceeds of the same towards payment of the Obligations. Each and every
method of disposition of the Collateral described in this Section 6.02(c) or
in Section 6.02(f) shall constitute disposition in a commercially reasonable
manner.
(d) Take possession of all books and records of Debtor pertaining to
the Collateral. Secured Party shall have the authority to enter upon any
real or immoveable property or improvements thereon in order to obtain any
such books or records, or any Collateral located thereon, and remove the
same therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable expenses of retaking, holding, preparing
for sale or other disposition, and the reasonable attorneys' fees and legal
expenses incurred by Secured Party, the Issuing Banks and the Lenders.
(f) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an
auctioneer or any officer or agent of Secured Party.
(g) Apply and set-off (i) any deposits of Debtor now or hereafter held
by Secured Party, the Issuing Banks and the Lenders; (ii) all claims of
Debtor against Secured Party, now or hereafter existing; (iii) any other
Property, rights or interests of Debtor which come into the possession or
custody or under the control of Secured Party; and (iv) the proceeds of any
of the foregoing as if the same were included in the Collateral. Secured
Party agrees to notify Debtor promptly after any such set-off or
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application; provided, however, the failure of Secured Party to give any
notice shall not affect the validity of such set-off or application.
(h) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute,
assign and endorse negotiable and other instruments for the payment of
money, documents of title or other evidences of payment, shipment or storage
for any form of Collateral on behalf of and in the name of Debtor.
(i) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account Debtors
to make payments on the Accounts directly to Secured Party. To the extent
Secured Party does not so elect, Debtor shall continue to collect and retain
the Accounts. Secured Party or its designee shall also have the right, in
its own name or in the name of Debtor, to do any of the following: (i) to
demand, collect, receipt for, settle, compromise any amounts due, give
acquittances for, prosecute or defend any action which may be in relation to
any monies due or to become due by virtue of, the Accounts; (ii) to sell,
transfer or assign or otherwise deal in the Accounts or the proceeds thereof
or the related goods, as fully and effectively as if Secured Party were the
absolute owner thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other adjustment with
reference thereto; (iv) to endorse the name of Debtor on notes, checks or
other evidences of payments on Collateral that may come into possession of
Secured Party; (v) to take control of cash and other proceeds of any
Collateral; (vi) to sign the name of Debtor on any invoice or bill of lading
relating to any Collateral, or any drafts against Account Debtors or other
persons making payment with respect to Collateral; (vii) to send a request
for verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this Agreement.
(j) Exercise all other rights and remedies permitted by law or in
equity.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
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Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Guaranty Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security Agreement may be amended only by the manner set forth
in Section 9.02 of the Credit Agreement by an instrument in writing executed
jointly by Debtor and Secured Party and may be supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds
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in a commercially reasonable time; provided, however, that neither Secured
Party, any Issuing Bank nor any Lender shall be liable for any interest, cost or
expense in connection with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified on the
signature page hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party, any Issuing
Bank or any Lender from obtaining jurisdiction over Debtor or the Collateral in
any court otherwise having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party, any Issuing Bank or
any Lender of any one or more of the rights, powers and remedies herein shall
not be construed as a waiver of any other rights, powers and remedies,
including, without limitation, any other rights of set-off. If any of the
Obligations are given in renewal, extension for any period or rearrangement, or
applied toward the payment of debt secured by any lien, Secured Party shall be,
and is hereby, subrogated to all the rights, titles, interests and liens
securing the debt so renewed, extended, rearranged or paid.
Section 7.08 Subrogation. Until the Obligations have been paid in full,
Debtor hereby waives any claim, right or remedy which Debtor may now have or
hereafter acquire against the Company which arises out of this Security
Agreement or from the performance by Debtor hereunder, including without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, indemnification, or participation in any such claim, right or
remedy of any other Person against the Company; provided, however,
notwithstanding the foregoing, Debtor reserves its rights of contribution and
reimbursement, if any, from any Obligor. Until the Obligations have been paid
in full, Debtor further waives any benefit of any right to participate in any
security now or hereafter held by Secured Party, the Issuing Banks and/or the
Lenders.
Section 7.09 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder,
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including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party, the Issuing Banks and the Lenders shall have applied payments
(including, without limitation, collections from Collateral) towards the
Obligations in the full amount then outstanding or until such subsequent time as
is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.10.
(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party has not in the interim
period executed a written release or termination statement or returned
possession of or reassigned the Collateral to Debtor.
Section 7.10 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.09(c) shall survive the termination of this Security Agreement.
Section 7.11 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.12 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the
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convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such articles, sections,
subsections or other divisions, such other content being controlling as to the
agreement between the parties hereto.
Section 7.13 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
Section 7.14 Amendment and Restatement. This Security Agreement amends
and restates in its entirety the Prior Security Agreement and all its terms,
provisions and conditions. Debtor acknowledges that the liens, claims, rights,
titles, interests and benefits created and granted by the Prior Security
Agreement continue to exist, remain valid and subsisting, shall not be impaired
or released hereby, shall remain in full force and effect and are hereby
renewed, extended, carried forward and conveyed as security for the Obligations.
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DEBTOR: TESORO REFINING, MARKETING & SUPPLY
COMPANY
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President and Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
San Antonio, Texas 78217
SECURED PARTY: BANQUE PARIBAS, AS ADMINISTRATIVE
AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
Address:
1200 Smith Street, Suite 3100
Houston, Texas 77002
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SECURITY AGREEMENT
(Accounts and Inventory)
Between
KENAI PIPE LINE COMPANY
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
SECURITY AGREEMENT
Accounts and Inventory
THIS SECURITY AGREEMENT is made as of June 7, 1996, between KENAI PIPE LINE
COMPANY, a Delaware corporation ("Debtor"), and BANQUE PARIBAS, as
Administrative Agent ("Secured Party") for the Issuing Banks and the Lenders
parties to the Credit Agreement referred to below.
RECITALS
A. On even date herewith, Tesoro Petroleum Corporation (the "Company"),
Secured Party, The Bank of Nova Scotia, as Documentation Agent and the other
financial institutions parties thereto (the "Lenders") are entering into an
Amended and Restated Credit Agreement (as amended from time to time, the "Credit
Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
include the execution and delivery by Debtor of this Security Agreement, and
Debtor has agreed to enter into this Security Agreement.
C. Therefore, (i) in order to comply with the terms and conditions of the
Credit Agreement, (ii) to induce the Lenders at any time from time to time to
loan monies and the Issuing Banks to issue Letters of Credit, with or without
security to or for the account of the Company in accordance with the terms of
the Credit Agreement, (iii) at the special insistence and request of the Agent,
the Issuing Banks and the Lenders, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor agrees with Secured Party as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Company," "Credit Agreement," "Debtor" and "Secured Party" shall have the
meanings respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in
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the Collateral, whether as an account debtor (as defined in the Code),
obligor on an instrument, issuer of documents or securities, guarantor or
otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts and Inventory;
(b) (i) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in clause (a) of this definition; and (ii) all
certificates of title or other documents evidencing ownership or possession
of or otherwise relating to any Property referred to in clause (a) of this
definition;
(c) (i) all goods which were at any time included in the Collateral
described in clause (a) of this definition and which are returned to or for
the account of Debtor following their sale, lease or other disposition; (ii)
all policies of insurance (whether or not required by Secured Party)
covering any Property referred to in this definition; and (iii) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and Property necessary for the operation of any of the
Property referred to in this definition, including, without limitation,
insurance payable as a result of loss or damage to any of the Property
referred to in this definition, refunds of unearned premiums of any such
insurance policy and claims against third parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
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(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in clause (a) of this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
"Inventory" shall mean all inventory (as defined in the Code).
"Obligations" shall mean with respect to the Debtor, the Obligations
(as defined in the Guaranty Agreement) to the extent the Debtor is liable
therefor as provided in the Guaranty Agreement. The Obligations are Senior
Debt as such term is defined in that certain Subordination Agreement dated
December 15, 1992 among the Company, Tesoro Alaska Petroleum Company and the
State of Alaska attached to the Settlement Agreement among the Company,
Tesoro Alaska Petroleum Company and the State of Alaska.
"Obligor" shall mean the Company and any other Person, other than
Debtor, liable (whether directly or indirectly, primarily or secondarily)
for the payment or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner or
otherwise; and the term "Obligor" shall specifically include each Guarantor,
other than Debtor, named in the Credit Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Security Agreement, as the same
may be amended, modified or supplemented from time to time.
Section 1.03 Other Defined Terms. Unless otherwise defined herein,
all terms beginning with a capital letter which are defined in the Credit
Agreement shall have the meanings assigned therein, unless the context hereof
requires otherwise. All uncapitalized terms which are defined in the Code shall
have their respective meanings as used in the Code, unless the context hereof
requires otherwise.
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ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing statement or other public notice or recording
naming Secured Party as the secured party therein), and Debtor will not execute
any such financing statement or other public notice or recording so long as any
of the Obligations are outstanding.
Section 3.03 No Name Changes. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein.
Section 3.04 Location of Debtor and Collateral. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth on the signature page hereof. The Collateral is located
at such address or at the location(s), if any, specified in Exhibit A hereto.
Any Collateral not at such location(s) nevertheless remains subject to Secured
Party's security interest.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
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Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no knowledge of
any bankruptcy, insolvency or other action affecting creditors' rights with
respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Inventory or other Collateral covered by one or more certificates of title
or other documents evidencing ownership or possession thereof, and with respect
to any Accounts or other Collateral supported by letters of credit, each of such
certificates, documents or letters of credit has been delivered to Secured Party
(provided, however, that all certificates, documents and letters of credit
referred to in Section 1.02 shall be subject to the security interest created by
this Security Agreement irrespective of whether or not such delivery shall have
been made).
Section 3.08 Ownership of Collateral; Encumbrances; Valid and Binding
Agreement. Debtor is the legal and beneficial owner of the Collateral free and
clear of any adverse claim, lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
permitted by the Credit Agreement, and Debtor has full right, power and
authority to assign and grant a security interest in the Collateral to Secured
Party. This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable against Debtor in accordance with its terms. The execution,
delivery and performance of this Agreement will not violate the terms of any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which Debtor is subject and does not require the consent or approval of
any other Person.
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Section 3.09 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) any change in location of the
Collateral to a jurisdiction other than Texas, Alaska, California, Oregon or
Washington and which would cause the Secured Party to be unperfected in the
Collateral, (ii) the opening or closing of any place of Debtor's business or
(iii) any change in the location of Debtor's chief executive office or address.
Section 4.02 Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, Debtor will cause the security
interest of Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any
such Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03, 4.08 and 4.09, Debtor will deliver to Secured
Party all proceeds from the sale or other disposition of the Collateral promptly
upon receipt. If chattel paper, documents or instruments are received as
proceeds, which are required to be delivered to Secured Party, they will be,
immediately upon receipt, properly endorsed or assigned and delivered to Secured
Party as Collateral.
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Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except (i)
as permitted by Section 4.08, or (ii) with the prior written consent of the
Majority Lenders, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account. Debtor shall
conduct a physical count of the Inventory at such intervals as Secured Party
requests and promptly supply Secured Party with a copy of such count accompanied
by a report of the value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor will promptly furnish such information as Secured Party may from
time to time reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's rights or remedies
with respect thereto. Any balance sheets or financial statements requested by
Secured Party pursuant to this Section 4.06(b) shall conform to generally
accepted accounting principles.
(c) Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the offices of the Secretary of State of Texas,
the Alaska Department of Natural Resources, the Secretary of State of
California, the Secretary of State of Oregon and the Department of Licensing of
the State of Washington. Debtor will immediately notify Secured Party of any
condition or event that may change the proper location for the filing of any
financing statements or other public notice or recordings for the purpose of
perfecting a security interest in the Collateral. Without limiting the
generality of the foregoing, Debtor will (i) immediately notify Secured Party of
any change to a jurisdiction other than as represented in Section 3.04 (A) in
the location of Debtor's chief executive office or chief place of business, (B)
in the location of the office where Debtor keeps its records concerning the
Accounts, or (C) in the "location" of Debtor within the meaning of Section
9-103(c) of the Code; (ii) immediately notify Secured Party of any change in the
location of the Collateral to any jurisdiction other than the States of Texas,
Alaska, California, Oregon and Washington; and (ii) notify Secured Party 30 days
prior to any change in Debtor's name, identity or corporate structure or Tax
Identification Number. In any notice furnished pursuant to this paragraph,
Debtor will expressly state that the notice is required by this Security
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of Secured Party's security interest in the Collateral. Debtor will promptly
provide written notice to Secured Party of all information which in any way
relates to or affects the Collateral generally, Secured Party's rights or
remedies with respect thereto, the filing of any
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financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral.
Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Inventory. Unless an Event of Default has occurred and is
continuing and after any applicable notice and cure periods provided for in the
Credit Agreement, Debtor may use the Inventory in any lawful manner not
inconsistent with this Security Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory for cash or
terms in the ordinary course of business, and Debtor may retain the proceeds of
such sales, leases or other dispositions (subject to Section 4.03 and Section
4.09); provided, however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at Debtor's
address set forth in Section 3.04. Debtor shall bear any risk of loss of the
Inventory. Debtor shall not use any item of Inventory in a manner inconsistent
with the holding thereof for sale, lease or other disposition in the ordinary
course of business or in contravention of the terms of any agreement. Upon the
occurrence and continuance of an Event of Default and after any applicable cure
period, Debtor shall immediately deliver to Secured Party any checks, cash or
other forms of payment which Debtor receives in connection with any Inventory,
appropriately endorsed.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(i), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted by the Credit Agreement
or with the prior written consent of Secured Party.
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(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirement, or suffer it to
be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense to:
(a) obtain, adjust, sell and cancel any insurance with respect to the
Collateral and endorse any draft drawn by insurers of the Collateral, and
Secured Party may apply any proceeds or unearned premiums of such insurance
to the Obligations (whether or not due); and
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(b) take any action and to execute any assignment, certificate,
financing statement, notification, document or instrument which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any payment or
other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by,
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Secured Party's delay or failure to collect upon, foreclose, sell, take
possession of or otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Debtor authorizes Secured Party, without notice or demand
and without any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Obligations, from time to time to (x)
take and hold other Property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Security
Agreement and (z) renew, extend for any period, accelerate, amend or modify,
supplement, enforce, compromise, settle, waive or release the obligations of any
Obligor or any instrument or agreement of such other Person with respect to any
or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
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ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's request
Debtor shall, at Debtor's cost, assemble the Collateral and make it
available at a location to be specified by Secured Party which is reasonably
convenient to Debtor and Secured Party. In any event, Debtor shall bear the
risk of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability whatsoever for failure
to obtain or maintain insurance, nor to determine whether any insurance ever
in force is adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party
may elect, in a public or private transaction, at any location as deemed
reasonable by Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party, any Issuing Bank or any
Lender may be the purchaser of any or all Collateral so sold and may apply
upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person
shall be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay or appraisal which Debtor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the
Collateral or any part thereof be present at the location of any such sale
or transfer. Secured Party may, at its discretion, provide for a public
sale, and any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix
in the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any time
and place fixed for such sale, and such sale may be made at any time or
place to which the same may be so adjourned. In the event any sale or
transfer hereunder is not
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completed or is defective in the opinion of Secured Party, such sale or
transfer shall not exhaust the rights of Secured Party hereunder, and
Secured Party shall have the right to cause one or more subsequent sales or
transfers to be made hereunder. In the event that any of the Collateral is
sold or transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or transferred
may be retained by Secured Party until the purchase price or other
consideration is paid by the purchaser or transferee thereof, but in the
event that such purchaser or transferee fails to pay for the Collateral so
sold or transferred or to take delivery thereof, neither Secured Party, any
Issuing Bank nor any Lender shall incur any liability in connection
therewith. If only part of the Collateral is sold or transferred such that
the Obligations remain outstanding (in whole or in part), Secured Party's
rights and remedies hereunder shall not be exhausted, waived or modified,
and Secured Party is specifically empowered to make one or more successive
sales or transfers until all the Collateral shall be sold or transferred and
all the Obligations are paid. In the event that Secured Party elects not to
sell the Collateral, Secured Party retains its rights to lease or otherwise
dispose of or utilize the Collateral or any part or parts thereof in any
manner authorized or permitted by law or in equity, and to apply the
proceeds of the same towards payment of the Obligations. Each and every
method of disposition of the Collateral described in this Section 6.02(c) or
in Section 6.02(f) shall constitute disposition in a commercially reasonable
manner.
(d) Take possession of all books and records of Debtor pertaining to
the Collateral. Secured Party shall have the authority to enter upon any
real or immoveable property or improvements thereon in order to obtain any
such books or records, or any Collateral located thereon, and remove the
same therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable expenses of retaking, holding, preparing
for sale or other disposition, and the reasonable attorneys' fees and legal
expenses incurred by Secured Party, the Issuing Banks and the Lenders.
(f) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an
auctioneer or any officer or agent of Secured Party.
(g) Apply and set-off (i) any deposits of Debtor now or hereafter held
by Secured Party, the Issuing Banks and the Lenders; (ii) all claims of
Debtor against Secured Party, now or hereafter existing; (iii) any other
Property, rights or interests of Debtor which come into the possession or
custody or under the control of Secured Party; and (iv) the proceeds of any
of the foregoing as if the same were included in the Collateral. Secured
Party agrees to notify Debtor promptly after any such set-off or
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application; provided, however, the failure of Secured Party to give any
notice shall not affect the validity of such set-off or application.
(h) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute,
assign and endorse negotiable and other instruments for the payment of
money, documents of title or other evidences of payment, shipment or storage
for any form of Collateral on behalf of and in the name of Debtor.
(i) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account Debtors
to make payments on the Accounts directly to Secured Party. To the extent
Secured Party does not so elect, Debtor shall continue to collect and retain
the Accounts. Secured Party or its designee shall also have the right, in
its own name or in the name of Debtor, to do any of the following: (i) to
demand, collect, receipt for, settle, compromise any amounts due, give
acquittances for, prosecute or defend any action which may be in relation to
any monies due or to become due by virtue of, the Accounts; (ii) to sell,
transfer or assign or otherwise deal in the Accounts or the proceeds thereof
or the related goods, as fully and effectively as if Secured Party were the
absolute owner thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other adjustment with
reference thereto; (iv) to endorse the name of Debtor on notes, checks or
other evidences of payments on Collateral that may come into possession of
Secured Party; (v) to take control of cash and other proceeds of any
Collateral; (vi) to sign the name of Debtor on any invoice or bill of lading
relating to any Collateral, or any drafts against Account Debtors or other
persons making payment with respect to Collateral; (vii) to send a request
for verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this Agreement.
(j) Exercise all other rights and remedies permitted by law or in
equity.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
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Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Guaranty Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security Agreement may be amended only by the manner set forth
in Section 9.02 of the Credit Agreement by an instrument in writing executed
jointly by Debtor and Secured Party and may be supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds
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in a commercially reasonable time; provided, however, that neither Secured
Party, any Issuing Bank nor any Lender shall be liable for any interest, cost or
expense in connection with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified on the
signature page hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party, any Issuing
Bank or any Lender from obtaining jurisdiction over Debtor or the Collateral in
any court otherwise having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party, any Issuing Bank or
any Lender of any one or more of the rights, powers and remedies herein shall
not be construed as a waiver of any other rights, powers and remedies,
including, without limitation, any other rights of set-off. If any of the
Obligations are given in renewal, extension for any period or rearrangement, or
applied toward the payment of debt secured by any lien, Secured Party shall be,
and is hereby, subrogated to all the rights, titles, interests and liens
securing the debt so renewed, extended, rearranged or paid.
Section 7.08 Subrogation. Until the Obligations have been paid in full,
Debtor hereby waives any claim, right or remedy which Debtor may now have or
hereafter acquire against the Company which arises out of this Security
Agreement or from the performance by Debtor hereunder, including without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, indemnification, or participation in any such claim, right or
remedy of any other Person against the Company; provided, however,
notwithstanding the foregoing, Debtor reserves its rights of contribution and
reimbursement, if any, from any Obligor. Until the Obligations have been paid
in full, Debtor further waives any benefit of any right to participate in any
security now or hereafter held by Secured Party, the Issuing Banks and/or the
Lenders.
Section 7.09 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder,
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including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party, the Issuing Banks and the Lenders shall have applied payments
(including, without limitation, collections from Collateral) towards the
Obligations in the full amount then outstanding or until such subsequent time as
is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.10.
(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party has not in the interim
period executed a written release or termination statement or returned
possession of or reassigned the Collateral to Debtor.
Section 7.10 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.09(c) shall survive the termination of this Security Agreement.
Section 7.11 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.12 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the
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convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such articles, sections,
subsections or other divisions, such other content being controlling as to the
agreement between the parties hereto.
Section 7.13 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
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DEBTOR: KENAI PIPE LINE COMPANY
By: /s/ G. A. Wright
G. A. Wright
Vice President and Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
San Antonio, Texas 78217
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SECURITY AGREEMENT
(Accounts and Inventory)
Between
TESORO COASTWIDE SERVICES COMPANY
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
SECURITY AGREEMENT
Accounts and Inventory
THIS SECURITY AGREEMENT is made as of June 7, 1996, between TESORO COASTWIDE
SERVICES COMPANY, a Delaware corporation ("Debtor"), and BANQUE PARIBAS, as
Administrative Agent ("Secured Party") for the Issuing Banks and the Lenders
parties to the Credit Agreement referred to below.
RECITALS
A. On even date herewith, Tesoro Petroleum Corporation (the "Company"),
Secured Party, The Bank of Nova Scotia, as Documentation Agent and the other
financial institutions parties thereto (the "Lenders") are entering into an
Amended and Restated Credit Agreement (as amended from time to time, the "Credit
Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
include the execution and delivery by Debtor of this Security Agreement, and
Debtor has agreed to enter into this Security Agreement.
C. Therefore, (i) in order to comply with the terms and conditions of the
Credit Agreement, (ii) to induce the Lenders at any time from time to time to
loan monies and the Issuing Banks to issue Letters of Credit, with or without
security to or for the account of the Company in accordance with the terms of
the Credit Agreement, (iii) at the special insistence and request of the Agent,
the Issuing Banks and the Lenders, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor agrees with Secured Party as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Company," "Credit Agreement," "Debtor" and "Secured Party" shall have the
meanings respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in
the Collateral, whether as an account debtor (as defined in the Code),
obligor on an instrument, issuer of documents or securities, guarantor or
otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts and Inventory;
(b) (i) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in clause (a) of this definition; and (ii) all
certificates of title or other documents evidencing ownership or possession
of or otherwise relating to any Property referred to in clause (a) of this
definition;
(c) (i) all goods which were at any time included in the Collateral
described in clause (a) of this definition and which are returned to or for
the account of Debtor following their sale, lease or other disposition; (ii)
all policies of insurance (whether or not required by Secured Party)
covering any Property referred to in this definition; and (iii) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and Property necessary for the operation of any of the
Property referred to in this definition, including, without limitation,
insurance payable as a result of loss or damage to any of the Property
referred to in this definition, refunds of unearned premiums of any such
insurance policy and claims against third parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
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(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in clause (a) of this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
"Inventory" shall mean all inventory (as defined in the Code).
"Obligations" shall mean with respect to the Debtor, the Obligations
(as defined in the Guaranty Agreement) to the extent the Debtor is liable
therefor as provided in the Guaranty Agreement. The Obligations are Senior
Debt as such term is defined in that certain Subordination Agreement dated
December 15, 1992 among the Company, Tesoro Alaska Petroleum Company and the
State of Alaska attached to the Settlement Agreement among the Company,
Tesoro Alaska Petroleum Company and the State of Alaska.
"Obligor" shall mean the Company and any other Person, other than
Debtor, liable (whether directly or indirectly, primarily or secondarily)
for the payment or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner or
otherwise; and the term "Obligor" shall specifically include each Guarantor,
other than Debtor, named in the Credit Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Security Agreement, as the same
may be amended, modified or supplemented from time to time.
Se tion 03 Other Defined Terms. Unless otherwise defined herein, all
terms beginning with a capital letter which are defined in the Credit Agreement
shall have the meanings assigned therein, unless the context hereof requires
otherwise. All uncapitalized terms which are defined in the Code shall have
their respective meanings as used in the Code, unless the context hereof
requires otherwise.
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ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing statement or other public notice or recording
naming Secured Party as the secured party therein), and Debtor will not execute
any such financing statement or other public notice or recording so long as any
of the Obligations are outstanding.
Section 3.03 No Name Changes. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein.
Section 3.04 Location of Debtor and Collateral. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth on the signature page hereof. The Collateral is located
at such address or at the location(s), if any, specified in Exhibit A hereto.
Any Collateral not at such location(s) nevertheless remains subject to Secured
Party's security interest.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
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Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no knowledge of
any bankruptcy, insolvency or other action affecting creditors' rights with
respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Inventory or other Collateral covered by one or more certificates of title
or other documents evidencing ownership or possession thereof, and with respect
to any Accounts or other Collateral supported by letters of credit, each of such
certificates, documents or letters of credit has been delivered to Secured Party
(provided, however, that all certificates, documents and letters of credit
referred to in Section 1.02 shall be subject to the security interest created by
this Security Agreement irrespective of whether or not such delivery shall have
been made).
Section 3.08 Ownership of Collateral; Encumbrances; Valid and Binding
Agreement. Debtor is the legal and beneficial owner of the Collateral free and
clear of any adverse claim, lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
permitted by the Credit Agreement, and Debtor has full right, power and
authority to assign and grant a security interest in the Collateral to Secured
Party. This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable against Debtor in accordance with its terms. The execution,
delivery and performance of this Agreement will not violate the terms of any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which Debtor is subject and does not require the consent or approval of
any other Person.
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Section 3.09 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) any change in location of the
Collateral to a jurisdiction other than Louisiana and Texas and which would
cause the Secured Party to be unperfected in the Collateral, (ii) the opening or
closing of any place of Debtor's business or (iii) any change in the location of
Debtor's chief executive office or address.
Section 4.02 Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, Debtor will cause the security
interest of Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any
such Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03, 4.08 and 4.09, Debtor will deliver to Secured
Party all proceeds from the sale or other disposition of the Collateral promptly
upon receipt. If chattel paper, documents or instruments are received as
proceeds, which are required to be delivered to Secured Party, they will be,
immediately upon receipt, properly endorsed or assigned and delivered to Secured
Party as Collateral.
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Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except (i)
as permitted by Section 4.08, or (ii) with the prior written consent of the
Majority Lenders, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account. Debtor shall
conduct a physical count of the Inventory at such intervals as Secured Party
requests and promptly supply Secured Party with a copy of such count accompanied
by a report of the value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor will promptly furnish such information as Secured Party may from
time to time reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's rights or remedies
with respect thereto. Any balance sheets or financial statements requested by
Secured Party pursuant to this Section 4.06(b) shall conform to generally
accepted accounting principles.
(c) Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the offices of the Parish Clerk of Bienville
Parish, Louisiana and of the Secretary of State of Texas. Debtor will
immediately notify Secured Party of any condition or event that may change the
proper location for the filing of any financing statements or other public
notice or recordings for the purpose of perfecting a security interest in the
Collateral. Without limiting the generality of the foregoing, Debtor will (i)
immediately notify Secured Party of any change to a jurisdiction other than as
represented in Section 3.04 (A) in the location of Debtor's chief executive
office or chief place of business, (B) in the location of the office where
Debtor keeps its records concerning the Accounts, or (C) in the "location" of
Debtor within the meaning of Section 9-103(c) of the Code; (ii) immediately
notify Secured Party of any change in the location of the Collateral to any
jurisdiction other than the States of Texas, Alaska, California, Oregon and
Washington; and (ii) notify Secured Party 30 days prior to any change in
Debtor's name, identity or corporate structure or Tax Identification Number. In
any notice furnished pursuant to this paragraph, Debtor will expressly state
that the notice is required by this Security Agreement and contains facts that
will or may require additional filings of financing statements or other notices
for the purpose of continuing perfection of Secured Party's security interest in
the Collateral. Debtor will promptly provide written notice to Secured Party of
all information which in any way relates to or affects the Collateral generally,
Secured Party's rights or remedies with respect thereto, the filing of any
financing statement or other public notices or recordings,
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or the delivery and possession of items of Collateral for the purpose of
perfecting a security interest in the Collateral.
Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Inventory. Unless an Event of Default has occurred and is
continuing and after any applicable notice and cure periods provided for in the
Credit Agreement, Debtor may use the Inventory in any lawful manner not
inconsistent with this Security Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory for cash or
terms in the ordinary course of business, and Debtor may retain the proceeds of
such sales, leases or other dispositions (subject to Section 4.03 and Section
4.09); provided, however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at Debtor's
address set forth in Section 3.04. Debtor shall bear any risk of loss of the
Inventory. Debtor shall not use any item of Inventory in a manner inconsistent
with the holding thereof for sale, lease or other disposition in the ordinary
course of business or in contravention of the terms of any agreement. Upon the
occurrence and continuance of an Event of Default and after any applicable cure
period, Debtor shall immediately deliver to Secured Party any checks, cash or
other forms of payment which Debtor receives in connection with any Inventory,
appropriately endorsed.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(a)(ix),
Debtor will collect the Accounts in the ordinary course of its business and may
retain the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted by the Credit Agreement
or with the prior written consent of Secured Party.
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(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirement, or suffer it to
be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense to:
(a) obtain, adjust, sell and cancel any insurance with respect to the
Collateral and endorse any draft drawn by insurers of the Collateral, and
Secured Party may apply any proceeds or unearned premiums of such insurance
to the Obligations (whether or not due); and
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(b) take any action and to execute any assignment, certificate,
financing statement, notification, document or instrument which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any payment or
other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by,
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Secured Party's delay or failure to collect upon, foreclose, sell, take
possession of or otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Debtor authorizes Secured Party, without notice or demand
and without any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Obligations, from time to time to (x)
take and hold other Property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Security
Agreement and (z) renew, extend for any period, accelerate, amend or modify,
supplement, enforce, compromise, settle, waive or release the obligations of any
Obligor or any instrument or agreement of such other Person with respect to any
or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
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ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
(a) With respect to Collateral located in any jurisdiction:
(i) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Debtor or any Obligor.
(ii) Take possession of the Collateral, or at Secured Party's request
Debtor shall, at Debtor's cost, assemble the Collateral and make it
available at a location to be specified by Secured Party which is reasonably
convenient to Debtor and Secured Party. In any event, Debtor shall bear the
risk of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability whatsoever for failure
to obtain or maintain insurance, nor to determine whether any insurance ever
in force is adequate as to amount or as to risk insured.
(iii) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party
may elect, in a public or private transaction, at any location as deemed
reasonable by Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party, any Issuing Bank or any
Lender may be the purchaser of any or all Collateral so sold and may apply
upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person
shall be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay or appraisal which Debtor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the
Collateral or any part thereof be present at the location of any such sale
or transfer. Secured Party may, at its discretion, provide for a public
sale, and any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix
in the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any
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time and place fixed for such sale, and such sale may be made at any time or
place to which the same may be so adjourned. In the event any sale or
transfer hereunder is not completed or is defective in the opinion of
Secured Party, such sale or transfer shall not exhaust the rights of Secured
Party hereunder, and Secured Party shall have the right to cause one or more
subsequent sales or transfers to be made hereunder. In the event that any
of the Collateral is sold or transferred on credit, or to be held by Secured
Party for future delivery to a purchaser or transferee, the Collateral so
sold or transferred may be retained by Secured Party until the purchase
price or other consideration is paid by the purchaser or transferee thereof,
but in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, neither
Secured Party, any Issuing Bank nor any Lender shall incur any liability in
connection therewith. If only part of the Collateral is sold or transferred
such that the Obligations remain outstanding (in whole or in part), Secured
Party's rights and remedies hereunder shall not be exhausted, waived or
modified, and Secured Party is specifically empowered to make one or more
successive sales or transfers until all the Collateral shall be sold or
transferred and all the Obligations are paid. In the event that Secured
Party elects not to sell the Collateral, Secured Party retains its rights to
lease or otherwise dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and to
apply the proceeds of the same towards payment of the Obligations. Each and
every method of disposition of the Collateral described in this Section
6.02(c) or in Section 6.02(f) shall constitute disposition in a commercially
reasonable manner.
(iv) Take possession of all books and records of Debtor pertaining to
the Collateral. Secured Party shall have the authority to enter upon any
real or immoveable property or improvements thereon in order to obtain any
such books or records, or any Collateral located thereon, and remove the
same therefrom without liability.
(v) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable expenses of retaking, holding, preparing
for sale or other disposition, and the reasonable attorneys' fees and legal
expenses incurred by Secured Party, the Issuing Banks and the Lenders.
(vi) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an
auctioneer or any officer or agent of Secured Party.
(vii) Apply and set-off (i) any deposits of Debtor now or hereafter
held by Secured Party, the Issuing Banks and the Lenders; (ii) all claims of
Debtor against Secured Party, now or hereafter existing; (iii) any other
Property, rights or interests of Debtor which come into the possession or
custody or under the control of Secured Party;
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and (iv) the proceeds of any of the foregoing as if the same were included
in the Collateral. Secured Party agrees to notify Debtor promptly after any
such set-off or application; provided, however, the failure of Secured Party
to give any notice shall not affect the validity of such set-off or
application.
(viii) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute,
assign and endorse negotiable and other instruments for the payment of
money, documents of title or other evidences of payment, shipment or storage
for any form of Collateral on behalf of and in the name of Debtor.
(ix) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account Debtors
to make payments on the Accounts directly to Secured Party. To the extent
Secured Party does not so elect, Debtor shall continue to collect and retain
the Accounts. Secured Party or its designee shall also have the right, in
its own name or in the name of Debtor, to do any of the following: (i) to
demand, collect, receipt for, settle, compromise any amounts due, give
acquittances for, prosecute or defend any action which may be in relation to
any monies due or to become due by virtue of, the Accounts; (ii) to sell,
transfer or assign or otherwise deal in the Accounts or the proceeds thereof
or the related goods, as fully and effectively as if Secured Party were the
absolute owner thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other adjustment with
reference thereto; (iv) to endorse the name of Debtor on notes, checks or
other evidences of payments on Collateral that may come into possession of
Secured Party; (v) to take control of cash and other proceeds of any
Collateral; (vi) to sign the name of Debtor on any invoice or bill of lading
relating to any Collateral, or any drafts against Account Debtors or other
persons making payment with respect to Collateral; (vii) to send a request
for verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this Agreement.
(x) Exercise all other rights and remedies permitted by law or in
equity.
(b) With respect to any Collateral located in Louisiana, Secured Party's
rights shall also include the following:
(i) Secured Party, at its option, may declare all Obligations
immediately due and payable or performable and Secured Party shall
thereupon, in addition to the rights and remedies provided in this Security
Agreement or in any other instrument or document executed by Debtor, have
all the rights and remedies of a "secured party" under Louisiana Commercial
Laws (La. R.S. 10:9-101 et seq.) and under all other applicable laws of
Louisiana or any other state having jurisdiction. Secured Party shall have
the right to sell, transfer or otherwise dispose of any and all of the
Collateral and to apply the proceeds thereof toward payment of all costs,
expenses, attorney's fees and legal expenses thereby incurred by Secured
Party and toward payment and performance of the
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Obligations in such order or manner as Secured Party may elect. Unless the
Collateral threatens to decline speedily in value, Secured Party shall send
Debtor reasonable notice of the time and place of any public sale or of the
time after which any private sale or the disposition thereof is to be made.
The requirement of sending a reasonable notice shall be met if such notice
is mailed, postage prepaid, to Debtor at the address set forth on the
signature page hereof at least fifteen (15) days before the time of such
sale or disposition. All expenses of retaking, holding, maintaining,
preparing for sale, selling and the like, including Secured Party's
reasonable attorney's fees and legal expenses, shall constitute additional
Obligations of Debtor and shall be immediately due and payable, and payment
of the same shall be secured by and entitled to the benefits of this
Security Agreement. If the proceeds of any sale or other lawful disposition
of the Collateral by Secured Party are insufficient to fully pay the
Obligations, then Debtor shall pay or cause to be paid any deficiency.
(ii) Debtor agrees that, in the event any proceedings are taken under
this Security Agreement by way of executory process or otherwise, any and
all declarations of fact made by authentic act before a notary public and in
the presence of two witnesses by person declaring that such facts lie within
his knowledge shall constitute authentic evidence of such facts for purposes
of executory process, and in connection with any such action to foreclose or
otherwise realize upon the Collateral.
(iii) Debtor expressly waives:
(A) The benefit of appraisement provided for in Articles 2332,
2336, 2723, 2724, Louisiana Code of Civil Procedure and all other laws
conferring such benefits.
(B) The demand and three days' delay accorded by Articles 2639
and 2721, Louisiana Code of Civil Procedure.
(C) The three days' delay provided by Articles 2331 and 2722,
Louisiana Code of Civil Procedure.
(D) The benefit of the other provisions of Articles 2331, 2722
and 2723, Louisiana Code of Civil Procedure; Debtor expressly agrees to
the immediate seizure of the Collateral in the event of suit hereon.
(iv) Debtor does further confess judgment for the full amount of the
Obligations in principal, interest, attorneys' fees and all other costs and
charges and does consent and agree that upon the occurrence of any Event of
Default, Secured Party may cause all of the Collateral to be seized and sold
under executory or any other legal process, at the option of Secured Party.
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(v) Notwithstanding anything to the contrary contained in this
Article VI or elsewhere in this Security Agreement, the Obligations shall
immediately become fully due, payable, performable, satisfiable and
dischargeable without the necessity of further action on the part of Secured
Party, and Debtor hereby expressly waives any required notice of intent to
accelerate the Obligations and notice of acceleration of the Obligations.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Guaranty Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise
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thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security Agreement may be amended only by the manner set forth
in Section 9.02 of the Credit Agreement by an instrument in writing executed
jointly by Debtor and Secured Party and may be supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party, any Issuing Bank
nor any Lender shall be liable for any interest, cost or expense in connection
with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified on the
signature page hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party, any Issuing
Bank or any Lender from obtaining jurisdiction over Debtor or the Collateral in
any court otherwise having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party, any Issuing Bank or
any Lender of any one or more of the rights, powers and remedies herein shall
not be construed as a waiver of any other rights, powers and remedies,
including, without limitation, any other rights of set-off. If any of the
Obligations are given in renewal, extension for any period or rearrangement, or
applied toward the payment of
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debt secured by any lien, Secured Party shall be, and is hereby, subrogated to
all the rights, titles, interests and liens securing the debt so renewed,
extended, rearranged or paid.
Section 7.08 Subrogation. Until the Obligations have been paid in full,
Debtor hereby waives any claim, right or remedy which Debtor may now have or
hereafter acquire against the Company which arises out of this Security
Agreement or from the performance by Debtor hereunder, including without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, indemnification, or participation in any such claim, right or
remedy of any other Person against the Company; provided, however,
notwithstanding the foregoing, Debtor reserves its rights of contribution and
reimbursement, if any, from any Obligor. Until the Obligations have been paid
in full, Debtor further waives any benefit of any right to participate in any
security now or hereafter held by Secured Party, the Issuing Banks and/or the
Lenders.
Section 7.09 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder, including, without limitation, any action taken or
inaction pursuant to Section 6.02, shall be deemed to constitute a retention of
the Collateral in satisfaction of the Obligations or otherwise to be in full
satisfaction of the Obligations, and the Obligations shall remain in full force
and effect, until Secured Party, the Issuing Banks and the Lenders shall have
applied payments (including, without limitation, collections from Collateral)
towards the Obligations in the full amount then outstanding or until such
subsequent time as is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.10.
(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party
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has not in the interim period executed a written release or termination
statement or returned possession of or reassigned the Collateral to Debtor.
Section 7.10 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.09(c) shall survive the termination of this Security Agreement.
Section 7.11 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.12 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 7.13 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
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DEBTOR: TESORO COASTWIDE SERVICES COMPANY
By: /s/ Sharon L. Layman
Sharon L. Layman
Assistant Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
San Antonio, Texas 78217
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SECURITY AGREEMENT
(Accounts and Inventory)
Between
COASTWIDE MARINE SERVICES, INC.
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
SECURITY AGREEMENT
Accounts and Inventory
THIS SECURITY AGREEMENT is made as of June 7, 1996, between COASTWIDE
MARINE SERVICES, INC., a Texas corporation ("Debtor"), and BANQUE PARIBAS, as
Administrative Agent ("Secured Party") for the Issuing Banks and the Lenders
parties to the Credit Agreement referred to below.
RECITALS
A. On even date herewith, Tesoro Petroleum Corporation (the "Company"),
Secured Party, The Bank of Nova Scotia, as Documentation Agent and the other
financial institutions parties thereto (the "Lenders") are entering into an
Amended and Restated Credit Agreement (as amended from time to time, the "Credit
Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
include the execution and delivery by Debtor of this Security Agreement, and
Debtor has agreed to enter into this Security Agreement.
C. Therefore, (i) in order to comply with the terms and conditions of the
Credit Agreement, (ii) to induce the Lenders at any time from time to time to
loan monies and the Issuing Banks to issue Letters of Credit, with or without
security to or for the account of the Company in accordance with the terms of
the Credit Agreement, (iii) at the special insistence and request of the Agent,
the Issuing Banks and the Lenders, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor agrees with Secured Party as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Company," "Credit Agreement," "Debtor" and "Secured Party" shall have the
meanings respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in
the Collateral, whether as an account debtor (as defined in the Code),
obligor on an instrument, issuer of documents or securities, guarantor or
otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts and Inventory;
(b) (i) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in clause (a) of this definition; and (ii) all
certificates of title or other documents evidencing ownership or possession
of or otherwise relating to any Property referred to in clause (a) of this
definition;
(c) (i) all goods which were at any time included in the Collateral
described in clause (a) of this definition and which are returned to or for
the account of Debtor following their sale, lease or other disposition; (ii)
all policies of insurance (whether or not required by Secured Party)
covering any Property referred to in this definition; and (iii) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and Property necessary for the operation of any of the
Property referred to in this definition, including, without limitation,
insurance payable as a result of loss or damage to any of the Property
referred to in this definition, refunds of unearned premiums of any such
insurance policy and claims against third parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
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(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in clause (a) of this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
"Inventory" shall mean all inventory (as defined in the Code).
"Obligations" shall mean with respect to the Debtor, the Obligations
(as defined in the Guaranty Agreement) to the extent the Debtor is liable
therefor as provided in the Guaranty Agreement. The Obligations are Senior
Debt as such term is defined in that certain Subordination Agreement dated
December 15, 1992 among the Company, Tesoro Alaska Petroleum Company and the
State of Alaska attached to the Settlement Agreement among the Company,
Tesoro Alaska Petroleum Company and the State of Alaska.
"Obligor" shall mean the Company and any other Person, other than
Debtor, liable (whether directly or indirectly, primarily or secondarily)
for the payment or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner or
otherwise; and the term "Obligor" shall specifically include each Guarantor,
other than Debtor, named in the Credit Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Security Agreement, as the same
may be amended, modified or supplemented from time to time.
Section 1.03 Other Defined Terms. Unless otherwise defined herein, all
terms beginning with a capital letter which are defined in the Credit Agreement
shall have the meanings assigned therein, unless the context hereof requires
otherwise. All uncapitalized terms which are defined in the Code shall have
their respective meanings as used in the Code, unless the context hereof
requires otherwise.
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ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing statement or other public notice or recording
naming Secured Party as the secured party therein), and Debtor will not execute
any such financing statement or other public notice or recording so long as any
of the Obligations are outstanding.
Section 3.03 No Name Changes. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein.
Section 3.04 Location of Debtor and Collateral. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth on the signature page hereof. The Collateral is located
at such address or at the location(s), if any, specified in Exhibit A hereto.
Any Collateral not at such location(s) nevertheless remains subject to Secured
Party's security interest.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
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Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no knowledge of
any bankruptcy, insolvency or other action affecting creditors' rights with
respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Inventory or other Collateral covered by one or more certificates of title
or other documents evidencing ownership or possession thereof, and with respect
to any Accounts or other Collateral supported by letters of credit, each of such
certificates, documents or letters of credit has been delivered to Secured Party
(provided, however, that all certificates, documents and letters of credit
referred to in Section 1.02 shall be subject to the security interest created by
this Security Agreement irrespective of whether or not such delivery shall have
been made).
Section 3.08 Ownership of Collateral; Encumbrances; Valid and Binding
Agreement. Debtor is the legal and beneficial owner of the Collateral free and
clear of any adverse claim, lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
permitted by the Credit Agreement, and Debtor has full right, power and
authority to assign and grant a security interest in the Collateral to Secured
Party. This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable against Debtor in accordance with its terms. The execution,
delivery and performance of this Agreement will not violate the terms of any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which Debtor is subject and does not require the consent or approval of
any other Person.
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Section 3.09 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) any change in location of the
Collateral to a jurisdiction other than Louisiana and Texas and which would
cause the Secured Party to be unperfected in the Collateral, (ii) the opening or
closing of any place of Debtor's business or (iii) any change in the location of
Debtor's chief executive office or address.
Section 4.02 Documents; Collateral in Possession of Third Parties. If
certificates of title or other documents evidencing ownership or possession of
the Collateral are issued or outstanding, Debtor will cause the security
interest of Secured Party to be properly noted thereon and will, forthwith upon
receipt, deliver same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any
such Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03, 4.08 and 4.09, Debtor will deliver to Secured
Party all proceeds from the sale or other disposition of the Collateral promptly
upon receipt. If chattel paper, documents or instruments are received as
proceeds, which are required to be delivered to Secured Party, they will be,
immediately upon receipt, properly endorsed or assigned and delivered to Secured
Party as Collateral.
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Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except (i)
as permitted by Section 4.08, or (ii) with the prior written consent of the
Majority Lenders, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account. Debtor shall
conduct a physical count of the Inventory at such intervals as Secured Party
requests and promptly supply Secured Party with a copy of such count accompanied
by a report of the value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor will promptly furnish such information as Secured Party may from
time to time reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's rights or remedies
with respect thereto. Any balance sheets or financial statements requested by
Secured Party pursuant to this Section 4.06(b) shall conform to generally
accepted accounting principles.
(c) Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the offices of the Parish Clerk of Bienville
Parish, Louisiana and of the Secretary of State of Texas. Debtor will
immediately notify Secured Party of any condition or event that may change the
proper location for the filing of any financing statements or other public
notice or recordings for the purpose of perfecting a security interest in the
Collateral. Without limiting the generality of the foregoing, Debtor will (i)
immediately notify Secured Party of any change to a jurisdiction other than as
represented in Section 3.04 (A) in the location of Debtor's chief executive
office or chief place of business, (B) in the location of the office where
Debtor keeps its records concerning the Accounts, or (C) in the "location" of
Debtor within the meaning of Section 9-103(c) of the Code; (ii) immediately
notify Secured Party of any change in the location of the Collateral to any
jurisdiction other than the States of Texas, Alaska, California, Oregon and
Washington; and (ii) notify Secured Party 30 days prior to any change in
Debtor's name, identity or corporate structure or Tax Identification Number. In
any notice furnished pursuant to this paragraph, Debtor will expressly state
that the notice is required by this Security Agreement and contains facts that
will or may require additional filings of financing statements or other notices
for the purpose of continuing perfection of Secured Party's security interest in
the Collateral. Debtor will promptly provide written notice to Secured Party of
all information which in any way relates to or affects the Collateral generally,
Secured Party's rights or remedies with respect thereto, the filing of any
financing statement or other public notices or recordings,
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or the delivery and possession of items of Collateral for the purpose of
perfecting a security interest in the Collateral.
Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Inventory. Unless an Event of Default has occurred and is
continuing and after any applicable notice and cure periods provided for in the
Credit Agreement, Debtor may use the Inventory in any lawful manner not
inconsistent with this Security Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory for cash or
terms in the ordinary course of business, and Debtor may retain the proceeds of
such sales, leases or other dispositions (subject to Section 4.03 and Section
4.09); provided, however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at Debtor's
address set forth in Section 3.04. Debtor shall bear any risk of loss of the
Inventory. Debtor shall not use any item of Inventory in a manner inconsistent
with the holding thereof for sale, lease or other disposition in the ordinary
course of business or in contravention of the terms of any agreement. Upon the
occurrence and continuance of an Event of Default and after any applicable cure
period, Debtor shall immediately deliver to Secured Party any checks, cash or
other forms of payment which Debtor receives in connection with any Inventory,
appropriately endorsed.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(a)(ix),
Debtor will collect the Accounts in the ordinary course of its business and may
retain the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted by the Credit Agreement
or with the prior written consent of Secured Party.
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(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirement, or suffer it to
be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense to:
(a) obtain, adjust, sell and cancel any insurance with respect to the
Collateral and endorse any draft drawn by insurers of the Collateral, and
Secured Party may apply any proceeds or unearned premiums of such insurance
to the Obligations (whether or not due); and
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(b) take any action and to execute any assignment, certificate,
financing statement, notification, document or instrument which Secured
Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any payment or
other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by,
-10-
Secured Party's delay or failure to collect upon, foreclose, sell, take
possession of or otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Debtor authorizes Secured Party, without notice or demand
and without any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Obligations, from time to time to (x)
take and hold other Property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Security
Agreement and (z) renew, extend for any period, accelerate, amend or modify,
supplement, enforce, compromise, settle, waive or release the obligations of any
Obligor or any instrument or agreement of such other Person with respect to any
or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
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ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
(a) With respect to Collateral located in any jurisdiction:
(i) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Debtor or any Obligor.
(ii) Take possession of the Collateral, or at Secured Party's request
Debtor shall, at Debtor's cost, assemble the Collateral and make it
available at a location to be specified by Secured Party which is reasonably
convenient to Debtor and Secured Party. In any event, Debtor shall bear the
risk of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability whatsoever for failure
to obtain or maintain insurance, nor to determine whether any insurance ever
in force is adequate as to amount or as to risk insured.
(iii) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party
may elect, in a public or private transaction, at any location as deemed
reasonable by Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party, any Issuing Bank or any
Lender may be the purchaser of any or all Collateral so sold and may apply
upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person
shall be absolutely free from any claim of right by Debtor, including any
equity or right of redemption, stay or appraisal which Debtor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the
Collateral or any part thereof be present at the location of any such sale
or transfer. Secured Party may, at its discretion, provide for a public
sale, and any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix
in the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any
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time and place fixed for such sale, and such sale may be made at any time or
place to which the same may be so adjourned. In the event any sale or
transfer hereunder is not completed or is defective in the opinion of
Secured Party, such sale or transfer shall not exhaust the rights of Secured
Party hereunder, and Secured Party shall have the right to cause one or more
subsequent sales or transfers to be made hereunder. In the event that any
of the Collateral is sold or transferred on credit, or to be held by Secured
Party for future delivery to a purchaser or transferee, the Collateral so
sold or transferred may be retained by Secured Party until the purchase
price or other consideration is paid by the purchaser or transferee thereof,
but in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, neither
Secured Party, any Issuing Bank nor any Lender shall incur any liability in
connection therewith. If only part of the Collateral is sold or transferred
such that the Obligations remain outstanding (in whole or in part), Secured
Party's rights and remedies hereunder shall not be exhausted, waived or
modified, and Secured Party is specifically empowered to make one or more
successive sales or transfers until all the Collateral shall be sold or
transferred and all the Obligations are paid. In the event that Secured
Party elects not to sell the Collateral, Secured Party retains its rights to
lease or otherwise dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and to
apply the proceeds of the same towards payment of the Obligations. Each and
every method of disposition of the Collateral described in this Section
6.02(c) or in Section 6.02(f) shall constitute disposition in a commercially
reasonable manner.
(iv) Take possession of all books and records of Debtor pertaining to
the Collateral. Secured Party shall have the authority to enter upon any
real or immoveable property or improvements thereon in order to obtain any
such books or records, or any Collateral located thereon, and remove the
same therefrom without liability.
(v) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable expenses of retaking, holding, preparing
for sale or other disposition, and the reasonable attorneys' fees and legal
expenses incurred by Secured Party, the Issuing Banks and the Lenders.
(vi) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an
auctioneer or any officer or agent of Secured Party.
(vii) Apply and set-off (i) any deposits of Debtor now or hereafter
held by Secured Party, the Issuing Banks and the Lenders; (ii) all claims of
Debtor against Secured Party, now or hereafter existing; (iii) any other
Property, rights or interests of Debtor which come into the possession or
custody or under the control of Secured Party;
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and (iv) the proceeds of any of the foregoing as if the same were included
in the Collateral. Secured Party agrees to notify Debtor promptly after any
such set-off or application; provided, however, the failure of Secured Party
to give any notice shall not affect the validity of such set-off or
application.
(viii) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute,
assign and endorse negotiable and other instruments for the payment of
money, documents of title or other evidences of payment, shipment or storage
for any form of Collateral on behalf of and in the name of Debtor.
(ix) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account Debtors
to make payments on the Accounts directly to Secured Party. To the extent
Secured Party does not so elect, Debtor shall continue to collect and retain
the Accounts. Secured Party or its designee shall also have the right, in
its own name or in the name of Debtor, to do any of the following: (i) to
demand, collect, receipt for, settle, compromise any amounts due, give
acquittances for, prosecute or defend any action which may be in relation to
any monies due or to become due by virtue of, the Accounts; (ii) to sell,
transfer or assign or otherwise deal in the Accounts or the proceeds thereof
or the related goods, as fully and effectively as if Secured Party were the
absolute owner thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other adjustment with
reference thereto; (iv) to endorse the name of Debtor on notes, checks or
other evidences of payments on Collateral that may come into possession of
Secured Party; (v) to take control of cash and other proceeds of any
Collateral; (vi) to sign the name of Debtor on any invoice or bill of lading
relating to any Collateral, or any drafts against Account Debtors or other
persons making payment with respect to Collateral; (vii) to send a request
for verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this Agreement.
(x) Exercise all other rights and remedies permitted by law or in
equity.
(b) With respect to any Collateral located in Louisiana, Secured Party's
rights shall also include the following:
(i) Secured Party, at its option, may declare all Obligations
immediately due and payable or performable and Secured Party shall
thereupon, in addition to the rights and remedies provided in this Security
Agreement or in any other instrument or document executed by Debtor, have
all the rights and remedies of a "secured party" under Louisiana Commercial
Laws (La. R.S. 10:9-101 et seq.) and under all other applicable laws of
Louisiana or any other state having jurisdiction. Secured Party shall have
the right to sell, transfer or otherwise dispose of any and all of the
Collateral and to apply the proceeds thereof toward payment of all costs,
expenses, attorney's fees and legal expenses thereby incurred by Secured
Party and toward payment and performance of the
-14-
Obligations in such order or manner as Secured Party may elect. Unless the
Collateral threatens to decline speedily in value, Secured Party shall send
Debtor reasonable notice of the time and place of any public sale or of the
time after which any private sale or the disposition thereof is to be made.
The requirement of sending a reasonable notice shall be met if such notice
is mailed, postage prepaid, to Debtor at the address set forth on the
signature page hereof at least fifteen (15) days before the time of such
sale or disposition. All expenses of retaking, holding, maintaining,
preparing for sale, selling and the like, including Secured Party's
reasonable attorney's fees and legal expenses, shall constitute additional
Obligations of Debtor and shall be immediately due and payable, and payment
of the same shall be secured by and entitled to the benefits of this
Security Agreement. If the proceeds of any sale or other lawful disposition
of the Collateral by Secured Party are insufficient to fully pay the
Obligations, then Debtor shall pay or cause to be paid any deficiency.
(ii) Debtor agrees that, in the event any proceedings are taken under
this Security Agreement by way of executory process or otherwise, any and
all declarations of fact made by authentic act before a notary public and in
the presence of two witnesses by person declaring that such facts lie within
his knowledge shall constitute authentic evidence of such facts for purposes
of executory process, and in connection with any such action to foreclose or
otherwise realize upon the Collateral.
(iii) Debtor expressly waives:
(A) The benefit of appraisement provided for in Articles 2332,
2336, 2723, 2724, Louisiana Code of Civil Procedure and all other laws
conferring such benefits.
(B) The demand and three days' delay accorded by Articles 2639
and 2721, Louisiana Code of Civil Procedure.
(C) The three days' delay provided by Articles 2331 and 2722,
Louisiana Code of Civil Procedure.
(D) The benefit of the other provisions of Articles 2331, 2722
and 2723, Louisiana Code of Civil Procedure; Debtor expressly agrees to
the immediate seizure of the Collateral in the event of suit hereon.
(iv) Debtor does further confess judgment for the full amount of the
Obligations in principal, interest, attorneys' fees and all other costs and
charges and does consent and agree that upon the occurrence of any Event of
Default, Secured Party may cause all of the Collateral to be seized and sold
under executory or any other legal process, at the option of Secured Party.
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(v) Notwithstanding anything to the contrary contained in this
Article VI or elsewhere in this Security Agreement, the Obligations shall
immediately become fully due, payable, performable, satisfiable and
dischargeable without the necessity of further action on the part of Secured
Party, and Debtor hereby expressly waives any required notice of intent to
accelerate the Obligations and notice of acceleration of the Obligations.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Guaranty Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise
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thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security Agreement may be amended only by the manner set forth
in Section 9.02 of the Credit Agreement by an instrument in writing executed
jointly by Debtor and Secured Party and may be supplemented only by documents
delivered or to be delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party, any Issuing Bank
nor any Lender shall be liable for any interest, cost or expense in connection
with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified on the
signature page hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party, any Issuing
Bank or any Lender from obtaining jurisdiction over Debtor or the Collateral in
any court otherwise having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party, any Issuing Bank or
any Lender of any one or more of the rights, powers and remedies herein shall
not be construed as a waiver of any other rights, powers and remedies,
including, without limitation, any other rights of set-off. If any of the
Obligations are given in renewal, extension for any period or rearrangement, or
applied toward the payment of
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debt secured by any lien, Secured Party shall be, and is hereby, subrogated to
all the rights, titles, interests and liens securing the debt so renewed,
extended, rearranged or paid.
Section 7.08 Subrogation. Until the Obligations have been paid in full,
Debtor hereby waives any claim, right or remedy which Debtor may now have or
hereafter acquire against the Company which arises out of this Security
Agreement or from the performance by Debtor hereunder, including without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, indemnification, or participation in any such claim, right or
remedy of any other Person against the Company; provided, however,
notwithstanding the foregoing, Debtor reserves its rights of contribution and
reimbursement, if any, from any Obligor. Until the Obligations have been paid
in full, Debtor further waives any benefit of any right to participate in any
security now or hereafter held by Secured Party, the Issuing Banks and/or the
Lenders.
Section 7.09 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder, including, without limitation, any action taken or
inaction pursuant to Section 6.02, shall be deemed to constitute a retention of
the Collateral in satisfaction of the Obligations or otherwise to be in full
satisfaction of the Obligations, and the Obligations shall remain in full force
and effect, until Secured Party, the Issuing Banks and the Lenders shall have
applied payments (including, without limitation, collections from Collateral)
towards the Obligations in the full amount then outstanding or until such
subsequent time as is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.10.
(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party
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has not in the interim period executed a written release or termination
statement or returned possession of or reassigned the Collateral to Debtor.
Section 7.10 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.09(c) shall survive the termination of this Security Agreement.
Section 7.11 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.12 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 7.13 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
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DEBTOR: COASTWIDE MARINE SERVICES, INC.
By: /s/ Sharon L. Layman
Sharon L. Layman
Assistant Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
San Antonio, Texas 78217
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SECURITY AGREEMENT
(Accounts)
Between
TESORO VOSTOK COMPANY
and
BANQUE PARIBAS,
AS ADMINISTRATIVE AGENT
June 7, 1996
SECURITY AGREEMENT
Accounts
THIS SECURITY AGREEMENT is made as of June 7, 1996, between TESORO VOSTOK
COMPANY, a Delaware corporation ("Debtor"), and BANQUE PARIBAS, as
Administrative Agent ("Secured Party"), for the Issuing Banks and the Lenders.
RECITALS
A. On even date herewith, Tesoro Petroleum Corporation (the "Company"),
Secured Party, The Bank of Nova Scotia, as Documentation Agent and the other
financial institutions parties thereto (the "Lenders") are entering into an
Amended and Restated Credit Agreement (as amended from time to time, the "Credit
Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
include the execution and delivery by Debtor of this Security Agreement, and
Debtor has agreed to enter into this Security Agreement.
C. Therefore, (i) in order to comply with the terms and conditions of the
Credit Agreement, (ii) to induce the Lenders at any time from time to time to
loan monies and the Issuing Banks to issue Letters of Credit, with or without
security to or for the account of the Company in accordance with the terms of
the Credit Agreement, (iii) at the special insistence and request of the Agent,
the Issuing Banks and the Lenders, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Debtor agrees with Secured Party as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Security Agreement, the
terms "Company," "Credit Agreement," "Debtor" and "Secured Party" shall have the
meanings respectively assigned to them.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall mean all accounts (as such term is defined in the
Code).
"Account Debtor" shall mean any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of any
obligations included in the Collateral, whether as an account debtor (as
defined in the Code), obligor on an instrument, issuer of documents or
securities, guarantor or otherwise.
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas, Texas Business and Commerce Code, Chapters 1 through 9.
"Collateral" shall mean the following types or items of Property
(including Property hereafter acquired by Debtor as well as Property which
Debtor now owns or in which Debtor has rights):
(a) all of Debtor's Accounts;
(b) any Property from time to time delivered to or deposited with
Secured Party by or for the account of Debtor which is related to any
Property referred to in this definition;
(c) all proceeds, replacements, additions to and substitutions for any
of the Property referred to in this definition and claims against third
parties;
(d) all books and records related to any of the Property referred to
in this definition, including, without limitation, any and all books of
account, customer lists and other records relating in any way to the
Collateral described in this definition;
(e) all of Debtor's general intangibles (as defined in the Code) which
are related (but only those related) to any Property referred to in this
definition, including, without limitation, all (i) letters of credit, bonds,
guaranties, purchase or sales agreements and other contractual rights,
rights to performance, and claims for damages, refunds (including tax
refunds) or other monies due or to become due; (ii) orders, franchises,
permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority; (iii)
business records, computer tapes and computer software; and (iv) other
intangible personal property, whether similar or dissimilar to the Property
referred to in clause (a) of this definition; and
(f) all of Debtor's chattel paper, documents and instruments (as such
terms are defined in the Code) related to or arising out of any Property
referred to in this definition.
It is expressly contemplated that additional Property may from time to
time be pledged, assigned or granted to Secured Party as additional security
for the Obligations, and, if so, then the term "Collateral" as used herein
shall be deemed for all purposes hereof to include all such additional
Property, together with all other Property of the types described above
related thereto. It is expressly agreed that Collateral shall not include
and shall be exclusive of any equipment.
"Event of Default" shall have the meaning assigned such term in Section
6.01 of this Security Agreement.
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"Obligations" shall mean with respect to the Debtor, the Obligations
(as defined in the Guaranty Agreement) to the extent the Debtor is liable
therefor as provided in the Guaranty Agreement. The Obligations are Senior
Debt as such term is defined in that certain Subordination Agreement dated
December 15, 1992 among the Company, Tesoro Alaska Petroleum Company and the
State of Alaska attached to the Settlement Agreement among the Company,
Tesoro Alaska Petroleum Company and the State of Alaska.
"Obligor" shall mean the Company and any other Person, other than
Debtor, liable (whether directly or indirectly, primarily or secondarily)
for the payment or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner or
otherwise; and the term "Obligor" shall specifically include each Guarantor,
other than Debtor, named in the Credit Agreement.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Security Agreement" shall mean this Security Agreement, as the same
may be amended, modified or supplemented from time to time.
Section 1.03 Other Defined Terms. Unless otherwise defined herein,
all terms beginning with a capital letter which are defined in the Credit
Agreement shall have the meanings assigned therein, unless the context hereof
requires otherwise. All uncapitalized terms which are defined in the Code shall
have their respective meanings as used in the Code, unless the context hereof
requires otherwise.
ARTICLE II
Security Interest
Section 2.01 Grant of Security Interest. Debtor hereby assigns and grants
to Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in, lien upon and right of set-off against the
Collateral to secure the prompt payment and performance of the Obligations.
ARTICLE III
Representations and Warranties
Debtor represents and warrants to Secured Party, the Issuing Banks and the
Lenders (which representations and warranties will survive the creation and
payment of the Obligations) that:
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Section 3.01 First Priority Security Interest. The grant of the security
interest in the Collateral pursuant to this Security Agreement creates a valid
and perfected first priority security interest in the Collateral, enforceable
against Debtor and all third parties and securing payment of the Obligations.
Section 3.02 No Filings By Third Parties. No financing statement or other
public notice or recording covering the Collateral is on file in any public
office (other than any financing statement or other public notice or recording
naming Secured Party as the secured party therein), and Debtor will not execute
any such financing statement or other public notice or recording so long as any
of the Obligations are outstanding.
Section 3.03 No Name Changes; Federal Tax Identification Number. Debtor
has not, during the preceding five years, entered into any contract, agreement,
security instrument or other document using a name other than, or been known by
or otherwise used any name other than, the name used by Debtor herein.
Section 3.04 Location of Debtor. Debtor's chief executive office and
Debtor's records concerning the Collateral are located at the address or
location set forth on the signature page hereof.
Section 3.05 Collateral. All statements or other information provided by
Debtor to Secured Party, any Issuing Bank or any Lender with respect to the
Collateral is or (in the case of subsequently furnished information) will be
when provided correct and complete in all material respects. The delivery at
any time by Debtor to Secured Party of additional Collateral or of additional
descriptions of Collateral shall constitute a representation and warranty by
Debtor to Secured Party hereunder that the representations and warranties of
this Article III are correct insofar as they would pertain to such Collateral or
the descriptions thereof.
Section 3.06 Accounts.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition by
Debtor of goods or services and is not and will not be subject to contra
accounts, set-offs, defenses, counterclaims, allowances or adjustments (other
than discounts for prompt payment shown on the invoice), or objections or
complaints by the Account Debtor concerning its liability on the Account; and
any goods, the sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt by the
Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be the
true and undisputed amount owing and unpaid thereon. Except as disclosed in
writing to Secured Party, each Account arose or shall have arisen in the
ordinary course of Debtor's business; provided, however, that any Accounts which
arose or hereafter arise outside the ordinary course of Debtor's business shall
nevertheless be included as part of the Collateral. Debtor has no
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knowledge of any bankruptcy, insolvency or other action affecting creditors'
rights with respect to any Account Debtor.
(c) Except as disclosed in writing to Secured Party, each invoice or
agreement evidencing the Accounts is or will be due and payable not more than 90
days from the date thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.07 Delivery of Documents or Letters of Credit. With respect to
any Accounts or other Collateral supported by letters of credit, each of such
letters of credit has been delivered to Secured Party (provided, however, that
all letters of credit referred to in Section 1.02 shall be subject to the
security interest created by this Security Agreement irrespective of whether or
not such delivery shall have been made).
Section 3.08 Ownership of Collateral; Encumbrances; Valid and Binding
Agreement. Debtor is the legal and beneficial owner of the Collateral free and
clear of any adverse claim, lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
permitted by the Credit Agreement, and Debtor has full right, power and
authority to assign and grant a security interest in the Collateral to Secured
Party. This Agreement constitutes a legal, valid and binding obligation of
Debtor enforceable against Debtor in accordance with its terms. The execution,
delivery and performance of this Agreement will not violate the terms of any
contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which Debtor is subject and does not require the consent or approval of
any other Person.
Section 3.09 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
ARTICLE IV
Covenants and Agreements
Debtor covenants and agrees that so long as any part of the Obligations are
outstanding:
Section 4.01 Change in Location of Collateral or Debtor. Debtor will give
Secured Party 30 days' prior written notice of (i) the opening or closing of any
place of Debtor's business or (ii) any change in the location of Debtor's chief
executive office or address.
Section 4.02 Intentionally left blank.
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Section 4.03 Delivery of Letters of Credit and Instruments; Proceeds.
Debtor will deliver each letter of credit, if any, included in the Collateral to
Secured Party, in each case forthwith upon receipt by or for the account of
Debtor. If any Account becomes evidenced by a promissory note, trade acceptance
or any other instrument for the payment of money (other than checks or drafts in
payment of Accounts collected by Debtor in the ordinary course of business prior
to notification by Secured Party under Section 5.04), Debtor will immediately
deliver such instrument to Secured Party appropriately endorsed to Secured
Party, as collateral assignee and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Debtor will remain liable thereon until such instrument is paid in full. Except
as permitted by Sections 4.03 and 4.09, Debtor will deliver to Secured Party all
proceeds from the sale or other disposition of the Collateral promptly upon
receipt. If chattel paper, documents or instruments are received as proceeds,
which are required to be delivered to Secured Party, they will be, immediately
upon receipt, properly endorsed or assigned and delivered to Secured Party as
Collateral.
Section 4.04 Sale, Disposition or Encumbrance of Collateral. Except with
the prior written consent of the Majority Lenders, Debtor will not in any way
encumber any of the Collateral (or permit or suffer any of the Collateral to be
encumbered) or sell, assign, lend, rent, lease or otherwise dispose of or
transfer any of the Collateral to or in favor of any Person other than Secured
Party.
Section 4.05 Intentionally left blank.
Section 4.06 Records and Information.
(a) Debtor shall keep accurate and complete records of the Collateral
(including proceeds). These records shall reflect all facts concerning each
Account. Secured Party may at any time have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral.
(b) Debtor will promptly furnish such information as Secured Party may from
time to time reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's rights or remedies
with respect thereto. Any balance sheets or financial statements requested by
Secured Party pursuant to this Section 4.06(b) shall conform to generally
accepted accounting principles.
(c) Debtor recognizes that financing statements pertaining to the
Collateral will be filed with the offices of the Secretary of State of Texas,
the Alaska Department of Natural Resources, the Secretary of State of
California, the Secretary of State of Oregon and the Department of Licensing of
the State of Washington. Debtor will immediately notify Secured Party of any
condition or event that may change the proper location for the filing of any
financing statements or other public notice or recordings for the purpose of
perfecting a security interest in the Collateral. Without limiting the
generality of the foregoing, Debtor will (i) immediately notify Secured Party of
any change to a jurisdiction other than as represented in
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Section 3.04 (A) in the location of Debtor's chief executive office or chief
place of business, (B) in the location of the office where Debtor keeps its
records concerning the Accounts, or (C) in the "location" of Debtor within the
meaning of Section 9-103(c) of the Code; and (ii) notify Secured Party 30 days
prior to any change in Debtor's name, identity or corporate structure or Tax
Identification Number. In any notice furnished pursuant to this paragraph,
Debtor will expressly state that the notice is required by this Security
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of Secured Party's security interest in the Collateral. Debtor will promptly
provide written notice to Secured Party of all information which in any way
relates to or affects the Collateral generally, Secured Party's rights or
remedies with respect thereto, the filing of any financing statement or other
public notices or recordings, or the delivery and possession of items of
Collateral for the purpose of perfecting a security interest in the Collateral.
Section 4.07 Further Assurances. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.08 Intentionally left blank.
Section 4.09 Accounts.
(a) Prior to notification by Secured Party under Section 6.02(i), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.03).
(b) Debtor shall immediately notify Secured Party in writing in the event
that any representation given in Article III with respect to any Account ceases
to be true and correct in all material respects; such notice specifying other
representation(s) that cease to be true and correct and the action, if any, that
Debtor proposes to take with respect thereto.
(c) Debtor will not modify, extend or substitute any contract, the terms of
which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than 90 days.
Debtor shall not adjust, settle, discount or compromise any of the Accounts,
except in the ordinary course of business, as permitted in the Credit Agreement
or with the prior written consent of Secured Party.
(d) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
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Section 4.10 Condition of Collateral. Debtor will maintain all Collateral
in good condition and in accordance with industry standards and practices.
Debtor will not misuse, abuse, waste, destroy or endanger the Collateral nor
allow it to be used in any manner other than its intended use. Debtor will not
use any Collateral in violation of any Governmental Requirement, or suffer it to
be so used.
Section 4.11 Collateral Separate and Distinct. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other Property; provided, however,
proceeds of the Collateral may be kept in various concentration accounts of the
Parent or the Guarantors.
Section 4.12 Change in Debtor's Name or Corporate Structure. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default has occurred and is continuing, but
only after having given Debtor at least three (3) days prior notice:
Section 5.01 Attorney-in-Fact. Secured Party is hereby fully authorized
and empowered (without the necessity of any further consent or authorization
from Debtor) and the right is expressly granted to Secured Party, and Debtor
hereby irrevocably appoints and makes Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor or otherwise, from time to time in Secured Party's
discretion, but at Debtor's cost and expense, to take any action and to execute
any assignment, certificate, financing statement, notification, document or
instrument which Secured Party may deem necessary or advisable to accomplish the
purposes of this Security Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to Debtor representing any
payment or other distribution in respect of the Collateral or any part thereof
and to give full discharge for the same.
Section 5.02 Transfer of Collateral. Secured Party may transfer any or
all of the Obligations, and upon any such transfer, Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
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Section 5.03 Purchase Money Financing. To the extent that the Lenders
have advanced or will advance funds to or for the account of Debtor to enable
Debtor to purchase or otherwise acquire specific types or items of Collateral,
the Lenders may at their option pay such funds (i) directly to the Person from
whom Debtor will make such purchase or acquire such rights or (ii) to Debtor, in
which case Debtor covenants promptly to pay the same to such Person and
forthwith furnish to Secured Party, on request, evidence satisfactory to Secured
Party that such payment has been made from the funds so provided by Secured
Party for such payment.
Section 5.04 Proceeds. If so requested by Debtor, any payments received
by Secured Party on the Accounts or as proceeds of other Collateral shall upon
final collection by Secured Party be credited towards payment of the
Obligations. In the absence of such request from Debtor, and until so
requested, Secured Party may hold such collected payments as cash Collateral
(and Secured Party may at any time place a hold or freeze on all or a part of
any deposit account of Debtor containing deposits of such payments up to the
amount of such deposits).
Section 5.05 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral, may pay for insurance on the Collateral and
may pay for the maintenance and preservation of the Collateral. Debtor agrees
to reimburse Secured Party upon demand for any payment so made, plus interest on
the portion thereof from time to time remaining unpaid from the date of Secured
Party's demand at the rate for overdue principal and interest set forth in
Section 2.06(c) of the Credit Agreement.
Section 5.06 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Security Agreement are
to protect the interest of Secured Party, the Issuing Banks and the Lenders in
the Collateral and shall not impose any duty upon Secured Party, the Issuing
Banks or any Lender to exercise any such powers. Debtor hereby agrees that
Secured Party, the Issuing Banks and the Lenders shall not be liable for, nor
shall the indebtedness evidenced by the Obligations be diminished by, Secured
Party's delay or failure to collect upon, foreclose, sell, take possession of or
otherwise obtain value for the Collateral.
(b) Except as provided in the Credit Agreement, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person.
Section 5.07 Modification of Obligations; Other Security. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of
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any Obligor or for any other reason. Debtor authorizes Secured Party, without
notice or demand and without any reservation of rights against Debtor and
without affecting Debtor's liability hereunder or on the Obligations, from time
to time to (x) take and hold other Property, other than the Collateral, as
security for the Obligations, and exchange, enforce, waive and release any or
all of the Collateral, (y) apply the Collateral in the manner permitted by this
Security Agreement and (z) renew, extend for any period, accelerate, amend or
modify, supplement, enforce, compromise, settle, waive or release the
obligations of any Obligor or any instrument or agreement of such other Person
with respect to any or all of the Obligations or Collateral.
Section 5.08 Waiver of Notice; Demand and Presentment; etc. Except for
any notice required under the Credit Agreement, Debtor hereby waives any demand,
notice of default, notice of acceleration of the maturity of the Obligations,
notice of intent to accelerate the maturity of the Obligations, presentment,
protest and notice of dishonor as to any action taken by Secured Party in
connection with this Security Agreement, or any instrument or document. Debtor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party, any Issuing Bank or any Lender to proceed
against any Obligor, Account Debtor or other Person, exhaust any Collateral or
enforce any other remedy which Secured Party, any Issuing Bank or any Lender now
has or may hereafter have against any Obligor or other Person.
Section 5.09 Non-judicial Enforcement. To the fullest extent allowed by
applicable law, Secured Party may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the fullest extent permitted by law
Debtor expressly waives any and all legal rights which might otherwise require
Secured Party to enforce its rights by judicial process.
ARTICLE VI
Events of Default
Section 6.01 Events of Default. An Event of Default under the Credit
Agreement shall constitute an "Event of Default" under this Security Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required under the Credit Agreement or
below) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the Obligations
immediately due and payable and enforce payment of the same by Debtor or any
Obligor.
(b) Take possession of the Collateral, or at Secured Party's request Debtor
shall, at Debtor's cost, assemble the Collateral and make it available at a
location to be specified by Secured Party which is reasonably convenient to
Debtor and Secured Party. In any event, Debtor shall bear the risk of
accidental loss or damage to or diminution in value of the Collateral, and
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Secured Party shall have no liability whatsoever for failure to obtain or
maintain insurance, nor to determine whether any insurance ever in force is
adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or more
parcels, or otherwise dispose of any or all of the Collateral in its then
condition or in any other commercially reasonable manner as Secured Party may
elect, in a public or private transaction, at any location as deemed reasonable
by Secured Party (including, without limitation, Debtor's premises), either for
cash or credit or for future delivery at such price as Secured Party may deem
fair, and (unless prohibited by the Code, as adopted in any applicable
jurisdiction) Secured Party, any Issuing Bank or any Lender may be the purchaser
of any or all Collateral so sold and may apply upon the purchase price therefor
any Obligations secured hereby. Any such sale or transfer by Secured Party
either to itself or to any other Person shall be absolutely free from any claim
of right by Debtor, including any equity or right of redemption, stay or
appraisal which Debtor has or may have under any rule of law, regulation or
statute now existing or hereafter adopted. Upon any such sale or transfer,
Secured Party shall have the right to deliver, assign and transfer to the
purchaser or transferee thereof the Collateral so sold or transferred. It shall
not be necessary that the Collateral or any part thereof be present at the
location of any such sale or transfer. Secured Party may, at its discretion,
provide for a public sale, and any such public sale shall be held at such time
or times within ordinary business hours and at such place or places as Secured
Party may fix in the notice of such sale. Secured Party shall not be obligated
to make any sale pursuant to any such notice. Secured Party may, without notice
or publication, adjourn any public or private sale by announcement at any time
and place fixed for such sale, and such sale may be made at any time or place to
which the same may be so adjourned. In the event any sale or transfer hereunder
is not completed or is defective in the opinion of Secured Party, such sale or
transfer shall not exhaust the rights of Secured Party hereunder, and Secured
Party shall have the right to cause one or more subsequent sales or transfers to
be made hereunder. In the event that any of the Collateral is sold or
transferred on credit, or to be held by Secured Party for future delivery to a
purchaser or transferee, the Collateral so sold or transferred may be retained
by Secured Party until the purchase price or other consideration is paid by the
purchaser or transferee thereof, but in the event that such purchaser or
transferee fails to pay for the Collateral so sold or transferred or to take
delivery thereof, neither Secured Party, any Issuing Bank nor any Lender shall
incur any liability in connection therewith. If only part of the Collateral is
sold or transferred such that the Obligations remain outstanding (in whole or in
part), Secured Party's rights and remedies hereunder shall not be exhausted,
waived or modified, and Secured Party is specifically empowered to make one or
more successive sales or transfers until all the Collateral shall be sold or
transferred and all the Obligations are paid. In the event that Secured Party
elects not to sell the Collateral, Secured Party retains its rights to lease or
otherwise dispose of or utilize the Collateral or any part or parts thereof in
any manner authorized or permitted by law or in equity, and to apply the
proceeds of the same towards payment of the Obligations. Each and every method
of disposition of the Collateral described in this Section 6.02(c) or in Section
6.02(f) shall constitute disposition in a commercially reasonable manner.
(d) Take possession of all books and records of Debtor pertaining to the
Collateral. Secured Party shall have the authority to enter upon any real or
immoveable property or
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improvements thereon in order to obtain any such books or records, or any
Collateral located thereon, and remove the same therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the Obligations
in any manner elected by Secured Party and permitted by the Code or otherwise
permitted by law or in equity. Such application may include, without
limitation, the reasonable expenses of retaking, holding, preparing for sale or
other disposition, and the reasonable attorneys' fees and legal expenses
incurred by Secured Party, the Issuing Banks and the Lenders.
(f) Appoint any Person as agent to perform any act or acts necessary or
incident to any sale or transfer by Secured Party of the Collateral.
Additionally, any sale or transfer hereunder may be conducted by an auctioneer
or any officer or agent of Secured Party.
(g) Apply and set-off (A) any deposits of Debtor now or hereafter held by
Secured Party, the Issuing Banks and the Lenders; (B) all claims of Debtor
against Secured Party, now or hereafter existing; (C) any other Property, rights
or interests of Debtor which come into the possession or custody or under the
control of Secured Party; and (D) the proceeds of any of the foregoing as if the
same were included in the Collateral. Secured Party agrees to notify Debtor
promptly after any such set-off or application; provided, however, the failure
of Secured Party to give any notice shall not affect the validity of such
set-off or application.
(h) With respect to the Collateral, receive, change the address for
delivery, open and dispose of mail addressed to Debtor, and to execute, assign
and endorse negotiable and other instruments for the payment of money, documents
of title or other evidences of payment, shipment or storage for any form of
Collateral on behalf of and in the name of Debtor.
(i) Notify or require Debtor to notify Account Debtors that the Accounts
have been assigned to Secured Party and direct such Account Debtors to make
payments on the Accounts directly to Secured Party. To the extent Secured Party
does not so elect, Debtor shall continue to collect and retain the Accounts.
Secured Party or its designee shall also have the right, in its own name or in
the name of Debtor, to do any of the following: (A) to demand, collect, receipt
for, settle, compromise any amounts due, give acquittances for, prosecute or
defend any action which may be in relation to any monies due or to become due by
virtue of, the Accounts; (B) to sell, transfer or assign or otherwise deal in
the Accounts or the proceeds thereof or the related goods, as fully and
effectively as if Secured Party were the absolute owner thereof; (C) to extend
the time of payment of any of the Accounts, to grant waivers and make any
allowance or other adjustment with reference thereto; (D) to endorse the name of
Debtor on notes, checks or other evidences of payments on Collateral that may
come into possession of Secured Party; (E) to take control of cash and other
proceeds of any Collateral; (F) to sign the name of Debtor on any invoice or
bill of lading relating to any Collateral, or any drafts against Account Debtors
or other persons making payment with respect to Collateral; (G) to send a
request for verification of Accounts to any Account Debtor; and (H) to do all
other acts and things necessary to carry out the intent of this Agreement.
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(j) Exercise all other rights and remedies permitted by law or in equity.
Section 6.03 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any Issuing Bank or any other action of
Secured Party, any Issuing Bank or any Lender hereunder results in reduction of
the Obligations, such action will not release Debtor from its liability to
Secured Party, the Issuing Banks and the Lenders for any unpaid Obligations,
including costs, charges and expenses incurred in the liquidation of Collateral,
together with interest thereon, and the same shall be immediately due and
payable to Secured Party at Secured Party's address set forth on the signature
page of this Security Agreement.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party any Issuing Bank or any Lender to give reasonable notice
of any sale or disposition or other action, Debtor hereby agrees that fifteen
(15) days' prior written notice shall constitute reasonable notice thereof.
Such notice, in the case of public sale, shall state the time and place fixed
for such sale and, in the case of private sale, the time after which such sale
is to be made.
Section 6.05 Account Debtors. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
ARTICLE VIII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Guaranty Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Debtor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Debtor hereby agrees that if Secured Party agrees to a waiver of any
provision hereunder, or an exchange of or release of the Collateral, or the
addition or release of any Obligor, any such action shall not constitute a
waiver of any of Secured Party's other rights or of Debtor's obligations
hereunder. This Security
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Agreement may be amended only by the manner set forth in Section 9.02 of the
Credit Agreement by an instrument in writing executed jointly by Debtor and
Secured Party and may be supplemented only by documents delivered or to be
delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party, any Issuing Bank
nor any Lender shall be liable for any interest, cost or expense in connection
with any delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby). Debtor consents to and submits to in personam
jurisdiction and venue in the state district and county courts of the county
wherein Secured Party's offices are located at the address specified on the
signature page hereof, and in the Federal District Courts of the district
wherein such offices of Secured Party are located. This submission to
jurisdiction is nonexclusive and does not preclude Secured Party, any Issuing
Bank or any Lender from obtaining jurisdiction over Debtor or the Collateral in
any court otherwise having jurisdiction.
Section 7.07 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party, any Issuing Bank or
any Lender of any one or more of the rights, powers and remedies herein shall
not be construed as a waiver of any other rights, powers and remedies,
including, without limitation, any other rights of set-off. If any of the
Obligations are given in renewal, extension for any period or rearrangement, or
applied toward the payment of debt secured by any lien, Secured Party shall be,
and is hereby, subrogated to all the rights, titles, interests and liens
securing the debt so renewed, extended, rearranged or paid.
Section 7.08 Subrogation. Until the Obligations have been paid in full,
Debtor hereby waives any claim, right or remedy which Debtor may now have or
hereafter acquire against the Company which arises out of this Security
Agreement or from the performance by Debtor
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hereunder, including without limitation, any claim, remedy or right of
subrogation, reimbursement, exoneration, indemnification, or participation in
any such claim, right or remedy of any other Person against the Company;
provided, however, notwithstanding the foregoing, Debtor reserves its rights of
contribution and reimbursement, if any, from any Obligor. Until the Obligations
have been paid in full, Debtor further waives any benefit of any right to
participate in any security now or hereafter held by Secured Party, the Issuing
Banks and/or the Lenders.
Section 7.09 Continuing Security Agreement.
(a) This Security Agreement shall constitute a continuing security
agreement, and all representations and warranties, covenants and agreements
shall, as applicable, apply to all future as well as existing transactions.
Provisions of this Security Agreement, unless they are by their terms exclusive,
shall be in addition to other agreements between the parties.
(b) Except as may be expressly applicable pursuant to Section 9.505 of the
Code, no action taken or omission to act by Secured Party, the Issuing Banks or
the Lenders hereunder, including, without limitation, any action taken or
inaction pursuant to Section 6.02, shall be deemed to constitute a retention of
the Collateral in satisfaction of the Obligations or otherwise to be in full
satisfaction of the Obligations, and the Obligations shall remain in full force
and effect, until Secured Party, the Issuing Banks and the Lenders shall have
applied payments (including, without limitation, collections from Collateral)
towards the Obligations in the full amount then outstanding or until such
subsequent time as is hereinafter provided in subsection (c) below.
(c) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, the Issuing Banks or the Lenders, and Secured Party's, the
Issuing Banks' and the Lenders' security interests, rights, powers and remedies
hereunder shall continue in full force and effect. In such event, this Security
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.10.
(d) In the event that the Obligations are structured such that there are
times when no Indebtedness is owing thereunder, this Security Agreement shall
remain valid and in full force and effect as to all subsequent indebtedness
included in the Obligations, provided Secured Party has not in the interim
period executed a written release or termination statement or returned
possession of or reassigned the Collateral to Debtor.
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Section 7.10 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its possession
to Debtor, and executed a written release or termination statement and
reassigned to Debtor without recourse or warranty any remaining Collateral and
all rights conveyed hereby. Upon the complete payment of the Obligations and
the compliance by Debtor with all covenants and agreements hereof, Secured
Party, at the written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Security Agreement to be of
no further force or effect. Notwithstanding the foregoing, the provisions of
Section 7.09(c) shall survive the termination of this Security Agreement.
Section 7.11 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Debtor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, the Issuing Banks or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.12 Headings Descriptive. All titles or headings to articles,
sections, subsections or other divisions of this Security Agreement or the
exhibits hereto are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
Section 7.13 Delivery of Copy/Waiver. The Debtor hereby acknowledges
receiving a copy of this Security Agreement. The Debtor waives all rights to
receive from the Secured Party a copy of any financing statement or financing
change statement filed or registered or verification statement issued at any
time in respect of this Security Agreement.
[SIGNATURE BEGINS NEXT PAGE]
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DEBTOR:
TESORO VOSTOK COMPANY
By: /s/ G. A. Wright
G. A. Wright
Vice President and Treasurer
Address of Chief Executive Office and Location of
the Collateral:
8700 Tesoro Drive
Houston, Texas 78217
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AMENDED AND RESTATED SECURITY AGREEMENT
(Pledge)
By
TESORO PETROLEUM CORPORATION
in favor of
BANQUE PARIBAS,
as Administrative Agent,
June 7, 1996
AMENDED AND RESTATED SECURITY AGREEMENT
(Pledge)
THIS AMENDED AND RESTATED SECURITY AGREEMENT (Pledge) is made as of June
7, 1996, by TESORO PETROLEUM CORPORATION, a Delaware corporation, with principal
offices at 8700 Tesoro Drive, San Antonio, Texas 78217 ("Pledgor"); in favor of
BANQUE PARIBAS, with offices at 1200 Smith Street, Houston, Texas 77002, as
Administrative Agent ("Secured Party") for the Issuing Banks and the Lenders
parties to the Credit Agreement referred to below.
RECITALS
A. On April 20, 1994, the Pledgor, Texas Commerce Bank National
Association, individually and as agent, Banque Paribas, individually and as
co-agent and the other financial institutions parties thereto entered into a
Credit Agreement (as amended from time to time, the "Prior Credit Agreement").
B. The conditions precedent to the effectiveness of the Credit Agreement
included the execution and delivery by Pledgor of that certain Pledge Agreement
dated of even date therewith (the "Prior Security Agreement").
C. On even date herewith, Pledgor, Secured Party, The Bank of Nova Scotia,
as Documentation Agent and the other financial institutions parties thereto (the
"Lenders") are entering into an Amended and Restated Credit Agreement (as
amended from time to time, the "Credit Agreement").
D. Therefore, in view of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Pledgor and Secured Party agree to amend and restate the Prior Security
Agreement as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above or in the Credit Agreement. As used in
this Security Agreement, the terms defined above shall have the meanings
respectively assigned to them. Other capitalized terms which are defined in the
Credit Agreement, but which are not defined herein shall have the same meanings
as defined in the Credit Agreement.
Section 1.02 Certain Definitions. As used in this Security Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of Texas. Unless otherwise indicated by the context herein, all
uncapitalized terms
which are defined in the Code shall have their respective meanings as used
in Articles 8 and 9 of the Code.
"Collateral" shall mean the following types or items of property:
(a) The securities described or referred to in Exhibit A attached
hereto and made a part hereof; and
(b) (i) all shares of, all securities convertible or exchangeable into,
and all warrants, options or other rights to purchase shares of, stock of
any of the Issuers; (ii) all certificates or instruments representing such
additional shares, convertible or exchangeable securities, warrants, and
other rights and all proceeds, income and profits thereon, and all interest,
dividends and other payments, property and distributions with respect
thereto; (iii) all proceeds received or receivable by the Pledgor in cash,
stock or otherwise, from any sale of substantially all the assets of any
Issuer; (iv) all proceeds received or receivable by the Pledgor, in cash,
stock or otherwise, from any recapitalization, reclassification, merger,
dissolution, liquidation or other termination of the existence of any
Issuer; (v) all other proceeds or assets received or receivable by the
Pledgor in respect of its status as a shareholder of any Issuer; and (vi)
any proceeds of any of the foregoing. The inclusion of proceeds in this
Agreement does not authorize the Pledgor to sell, dispose of or otherwise
use the Collateral in any manner not specifically authorized hereby.
Contemporaneously with the execution and delivery hereof, the Pledgor is
delivering to Secured Party in pledge hereunder the certificates and other
instruments evidencing all Pledged Securities owned by the Pledgor as of the
date hereof.
(c) It is expressly contemplated that additional securities or other
property may from time to time be pledged, assigned or granted to Secured
Party as additional security for the Obligations, and the term "Collateral"
as used herein shall be deemed for all purposes hereof to include all such
additional securities and property, together with all other property of the
types described above related thereto.
"Event of Default" shall mean any event specified in Section 6.01.
"Issuer" shall mean those entities listed on Schedule 1.02 hereto and
any other direct Subsidiary of Pledgor whether now owned or hereafter
acquired by Pledgor which is an issuer of Pledged Securities pursuant to
this Security Agreement.
"Obligations" shall mean: (i) the Lender Indebtedness described in the
Credit Agreement, including without limitation, the Letter of Credit
Liabilities and the Notes, and any and all renewals, extensions for any
period, rearrangements or enlargements thereof and any interest accrued
thereon, whether pre-petition or post-petition; (ii) payment of and
performance of any and all present or future obligations of Pledgor
according to the terms of any present or future interest or currency rate
swap, rate cap, rate floor, rate collar, exchange transaction, forward rate
agreement or other exchange
-2-
or rate protection agreements or any option with respect to any such
transaction now existing or hereafter entered into between Pledgor and
Secured Party or any of the Lenders (or any of their Affiliates) and
authorized pursuant to the terms of the Credit Agreement; (iii) payment of
and performance of any and all present or future obligations of Pledgor
according to the terms of any present or future swap agreements, cap, floor,
collar, exchange transaction, forward agreement or other exchange or
protection agreements relating to crude oil, natural gas or other
hydrocarbons or any option with respect to any such transaction now existing
or hereafter entered into between Pledgor and Secured Party or any of the
Lenders (or any of their Affiliates) and authorized pursuant to the terms of
the Credit Agreement; (iv) the performance of all obligations and agreements
under the Financing Documents, including this Security Agreement; and (v)
all interest accrued and earned, charges, expenses, attorneys' or other fees
and any other sums payable to or incurred by Secured Party, any Issuing Bank
or any Lender in connection with the execution, administration or
enforcement of their rights and remedies hereunder or any other Financing
Document.
"Obligor" shall mean any Person, other than Pledgor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker, endorser,
guarantor, accommodation party, general partner or otherwise.
"Pledged Securities" shall mean all of the securities and other
property (whether or not the same constitutes a "security" under the Code)
referred to in Section 1.02 and all additional securities (as that term is
defined in the Code), if any, constituting Collateral under this Security
Agreement.
"Security Agreement" shall mean this Amended and Restated Security
Agreement (Pledge), as the same may from time to time be amended or
supplemented.
ARTICLE II
Security Interest
Section 2.01 Pledge. Pledgor hereby pledges, assigns and grants to
Secured Party, for its benefit and the benefit of the Lenders and the Issuing
Banks, a security interest in the Collateral to secure the prompt payment and
performance of the Obligations. This security interest is granted as security
only and shall not subject Secured Party, any Issuing Bank or any Lender to, or
transfer or in any way affect or modify, any obligation or liability of the
Pledgor or any Obligor with respect to any of the Collateral, the Obligations or
any transaction in connection therewith.
Section 2.02 Transfer of Collateral. All certificates or instruments
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant hereto by Secured
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Party or a Person designated by Secured Party and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, and accompanied by any required transfer tax
stamps, or (in the case of either certificated or uncertificated securities)
Secured Party shall have been provided with evidence that the Pledged Securities
have been otherwise transferred to Secured Party in accordance with Section
8.301 of the Code, all in form and substance satisfactory to Secured Party.
Notwithstanding the preceding sentence, at Secured Party's discretion, all
Pledged Securities must be delivered or transferred in such manner as to permit
Secured Party to be a "protected purchaser" to the extent of its security
interest as provided in Section 8.303 of the Code (if Secured Party otherwise
qualifies as a bona fide purchaser). Upon the occurrence and continuance of an
Event of Default and after any notice and cure periods provided for in the
Credit Agreement, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgor, to transfer to or to register in the
name of Secured Party or any of its nominees any or all of the Pledged
Securities, subject only to the revocable rights specified in Section 6.06. In
addition, upon the occurrence and continuance of an Event of Default and after
any notice and cure periods provided for in the Credit Agreement, Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Pledged Securities for certificates or instruments of
smaller or larger denominations.
ARTICLE III
Representations and Warranties
In order to induce Secured Party, the Issuing Banks and the Lenders to
accept this Security Agreement, Pledgor represents and warrants to Secured
Party, the Issuing Banks and the Lenders (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 Ownership of Collateral; Encumbrances. Pledgor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Security Agreement, and Pledgor has full
right, power and authority to pledge, assign and grant a security interest in
the Collateral to Secured Party.
Section 3.02 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or registration, recordation or filing with,
any governmental authority or regulatory body is required for (i) the due
execution, delivery and performance by Pledgor of this Security Agreement, (ii)
the grant by Pledgor of the security interest granted by this Security
Agreement, (iii) the perfection of such security interest or (iv) the exercise
by Secured Party of its rights and remedies under this Security Agreement.
Neither the Pledgor nor any of its Subsidiaries has performed or will perform
any acts which might prevent Secured Party from enforcing any of the terms and
conditions of this Security Agreement or which would limit Secured Party in any
such enforcement.
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Section 3.03 Pledged Securities. The Pledged Securities have been duly
authorized and validly issued, are fully paid and non-assessable and constitute
100% of the issued and outstanding shares of capital stock of the Issuer
thereof.
Section 3.04 First Priority Security Interest. The pledge of Pledged
Securities pursuant to this Security Agreement creates a valid and perfected
first priority security interest in the Collateral, enforceable against Pledgor
and all third parties and securing payment of the Obligations.
ARTICLE IV
Covenants and Agreements
Pledgor will at all times comply with the covenants and agreements contained
in this Article IV, from the date hereof and for so long as any part of the
Obligations are outstanding.
Section 4.01 Sale, Disposition or Encumbrance of Collateral. Pledgor will
not in any way encumber any of the Collateral (or permit or suffer any of the
Collateral to be encumbered) or sell, pledge, assign, lend or otherwise dispose
of or transfer any of the Collateral to or in favor of any Person other than
Secured Party. The Pledgor is not and will not become a party to or otherwise
be bound by any agreement, other than this Agreement, which restricts in any
manner the rights of any present or future holder of any of the Pledged
Securities with respect thereto.
Section 4.02 Dividends or Distributions. So long as no Event of Default
shall have occurred and be continuing, Pledgor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the Collateral,
provided, however, that any and all:
(a) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for (including, without
limitation, any certificate or share purchased or exchanged in connection
with a tender offer or merger agreement), any Collateral,
(b) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total liquidation
or dissolution or in connection with a reduction of capital, capital surplus
or paid-in surplus, or reclassification, and
(c) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Pledgor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Secured Party as Collateral in the
same form as so received (with any necessary indorsement).
-5-
Section 4.03 Records and Information. Pledgor shall keep accurate and
complete records of the Collateral (including proceeds, payments, distributions,
income and profits). Upon reasonable notice and without undue interference with
the Pledgor's business, Secured Party may at any time during normal business
hours have access to, examine, audit, make extracts from and inspect without
hindrance or delay Pledgor's records, files and the Collateral.
Section 4.04 Further Assurances. Upon the request of Secured Party,
Pledgor shall (at Pledgor's expense) execute and deliver all such assignments,
certificates, instruments, securities, financing statements, notifications to
financial intermediaries, clearing corporations, Issuers of securities or other
third parties or other documents and give further assurances and do all other
acts and things as Secured Party may reasonably request to perfect Secured
Party's interest in the Collateral or which is necessary to protect, enforce or
otherwise effect Secured Party's rights and remedies hereunder.
Section 4.05 Stock Powers. Pledgor shall furnish to Secured Party such
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Collateral when and as often as may be requested by
Secured Party.
Section 4.06 Rights to Sell.
(a) If Secured Party shall determine to exercise its rights to sell
all or any of the Collateral pursuant to its rights hereunder, Pledgor
agrees that, upon request of Secured Party, Pledgor will, at its own
expense:
(i) use its best efforts to qualify the Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by
Secured Party; and
(ii) use its best efforts to do or cause to be done all such
others acts and things as may be necessary to make such sale of the
Collateral or any part thereof valid and binding and in compliance with
applicable law.
(b) Pledgor further acknowledges the impossibility of ascertaining the
amount of damages which would be suffered by Secured Party, the Issuing
Banks and the Lenders by reason of the failure by Pledgor to perform any of
the covenants contained in this Section 4.06 and consequently agrees that if
Pledgor shall fail to perform any of such covenants, it shall pay, as
liquidated damages, and not as penalty, an amount equal to the value of the
Collateral on the date the Secured Party shall demand compliance with this
Section 4.06.
Section 4.07 Voting and Other Consensual Rights. Except to the extent
otherwise provided in Section 6.06(d), Pledgor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Collateral or any
part thereof for any purpose not inconsistent with the terms of this Security
Agreement; provided however, that Pledgor shall not exercise or
-6-
refrain from exercising any such right if such action would have a material
adverse effect on the value of the Collateral or any part thereof, and,
provided, further, that upon request of Secured Party at any time or from time
to time, Pledgor shall give Secured Party prompt written notice of the manner in
which Pledgor has exercised, or the reasons for refraining from exercising, any
such right.
Section 4.08 Pledged Securities Percentage. The Pledged Securities will
at all times constitute at least 100% of the issued and outstanding shares of
capital stock of the Issuer thereof. Pledgor will not, to the extent it may
legally do so, (a) permit any Issuer to issue any additional or substitute
shares of stock of any class, or (b) amend any Issuer's charter or by-laws or
other constitutional documents in any way which would reasonably be expected to
materially and adversely affect the rights of Secured Party, the Issuing Banks
or the Lenders, without the prior written consent of the Majority Lenders.
ARTICLE V
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
Section 5.01 Discharge Encumbrances. Secured Party may, at its option,
after giving Pledgor three (3) days prior notice, discharge any taxes, liens,
security interests or other encumbrances at any time levied or placed on the
Collateral. Pledgor agrees to reimburse Secured Party within 30 days of demand
for any payment so made, plus interest on the portion thereof from time to time
remaining unpaid from the date of Secured Party's demand at the rate for overdue
principal and interest set forth in Section 2.06(c) of the Credit Agreement.
Section 5.02 Transfer of Collateral. Secured Party may, at its option,
after giving Pledgor three (3) days prior notice, transfer any or all of the
Obligations, and upon any such transfer Secured Party may transfer its interest
in any or all of the Collateral and shall be fully discharged thereafter from
all liability therefor. Any transferee of the Collateral shall be vested with
all rights, powers and remedies of Secured Party hereunder.
Section 5.03 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party of any one or more of
the rights, powers and remedies herein shall not be construed as a waiver of any
other rights, powers and remedies, including, without limitation, any other
rights of set-off. If any of the Obligations are given in renewal, extension
for any period or rearrangement, or applied toward the payment of debt secured
by any lien, Secured Party shall be, and is hereby, subrogated to all the
rights, titles, interests and liens securing the debt so renewed, extended,
rearranged or paid.
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Section 5.04 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party, any Issuing Bank or any Lender to exercise any such powers.
Pledgor hereby agrees that Secured Party shall not be liable for, nor shall
the indebtedness evidenced by the Obligations be diminished by, Secured
Party's delay or failure to collect upon, foreclose, sell, take possession
of or otherwise obtain value for the Collateral.
(b) To the fullest extent permitted by applicable law, Secured Party
shall be under no duty whatsoever (except as may be required under the
Credit Agreement) to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent
to accelerate, notice of acceleration, or other notice or demand in
connection with any Collateral or the Obligations, or to take any steps
necessary to preserve any rights against any Obligor or other Person.
Pledgor waives any right of marshaling in respect of any and all Collateral,
and waives any right to require Secured Party, any Issuing Bank or any
Lender to proceed against any Obligor or other Person, exhaust any
Collateral or enforce any other remedy which Secured Party, any Issuing Bank
or any Lender now has or may hereafter have against any Obligor or other
Person.
Section 5.05 Modification of Obligations; Other Security. Pledgor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) to the fullest extent permitted by
applicable law, any defense of any Obligor by reason of disability, lack of
authorization, cessation of the liability of any Obligor or for any other
reason. Pledgor authorizes Secured Party, without notice or demand and without
any reservation of rights against Pledgor and without affecting Pledgor's
liability hereunder or on the Obligations, from time to time to (x) take and
hold other property, other than the Collateral, as security for the Obligations,
and exchange, enforce, waive and release any or all of the Collateral, (y) apply
the Collateral in the manner permitted by this Security Agreement and (z) renew,
extend for any period, accelerate, amend or modify, supplement, enforce,
compromise, settle, waive or release the obligations of any Obligor or any
instrument or agreement of such other Person with respect to any or all of the
Obligations or Collateral.
Section 5.06 Custody and Preservation of the Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral, it being understood and agreed, however, that neither
Secured Party, any Issuing Bank nor any Lender shall have responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Secured Party has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps to preserve rights against Persons or entities with respect
to any Collateral.
-8-
ARTICLE VI
Events of Default
Section 6.01 Events. It shall constitute an Event of Default under this
Security Agreement if an Event of Default occurs and is continuing under the
Credit Agreement.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Pledgor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same by
Pledgor or any Obligor.
(b) Sell, in one or more sales and in one or more parcels, or
otherwise dispose of any or all of the Collateral in any commercially
reasonable manner as Secured Party may elect, in a public or private
transaction, at any location as deemed reasonable by Secured Party either
for cash or credit or for future delivery at such price as Secured Party may
deem fair, and (unless prohibited by the Code, as adopted in any applicable
jurisdiction) Secured Party, any Issuing Bank or any Lender may be the
purchaser of any or all Collateral so sold and may apply upon the purchase
price therefor any Obligations secured hereby. Any such sale or transfer by
Secured Party either to itself or to any other Person shall be absolutely
free from any claim of right by Pledgor, including any equity or right of
redemption, stay or appraisal which Pledgor has or may have under any rule
of law, regulation or statute now existing or hereafter adopted. Upon any
such sale or transfer, Secured Party shall have the right to deliver, assign
and transfer to the purchaser or transferee thereof the Collateral so sold
or transferred. If Secured Party deems it advisable to do so, it may
restrict the bidders or purchasers of any such sale or transfer to Persons
or entities who will represent and agree that they are purchasing the
Collateral for their own account and not with the view to the distribution
or resale of any of the Collateral. Secured Party may, at its discretion,
provide for a public sale, and any such public sale shall be held at such
time or times within ordinary business hours and at such place or places as
Secured Party may fix in the notice of such sale. Secured Party shall not
be obligated to make any sale pursuant to any such notice. Secured Party
may, without notice or publication, adjourn any public or private sale by
announcement at any time and place fixed for such sale, and such sale may be
made at any time or place to which the same may be so adjourned. In the
event any sale or transfer hereunder is not completed or is defective in the
opinion of Secured Party, such sale or transfer shall not exhaust the rights
of Secured Party hereunder, and Secured Party shall have the right to cause
one or more subsequent sales or transfers to be made hereunder. If only
part of the Collateral is sold or transferred such that the Obligations
remain outstanding (in whole or in part), Secured Party's rights and
remedies hereunder shall not be exhausted, waived
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or modified, and Secured Party is specifically empowered to make one or more
successive sales or transfers until all the Collateral shall be sold or
transferred and all the Obligations are paid. In the event that Secured
Party elects not to sell the Collateral, Secured Party retains its rights to
dispose of or utilize the Collateral or any part or parts thereof in any
manner authorized or permitted by law or in equity, and to apply the
proceeds of the same towards payment of the Obligations. Each and every
method of disposition of the Collateral described in this subsection or in
subsection (d) shall constitute disposition in a commercially reasonable
manner.
(c) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Code
or otherwise permitted by law or in equity. Such application may include,
without limitation, the reasonable attorneys' fees and legal expenses
incurred by Secured Party, the Issuing Banks and the Lenders.
(d) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
(e) Execute, assign and endorse negotiable and other instruments for
the payment of money, documents of title or other evidences of payment,
shipment or storage for any form of Collateral on behalf of and in the name
of Pledgor.
Section 6.03 Attorney-in-Fact. Pledgor hereby irrevocably appoints
Secured Party as Pledgor's attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor or otherwise, from time to time
in Secured Party's reasonable discretion upon the occurrence and during the
continuance of an Event of Default and after any applicable notice and cure
period provided for in the Credit Agreement, but at Pledgor's cost and expense,
to take any action and to execute any assignment, certificate, financing
statement, stock power, notification, document or instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Security
Agreement, including, without limitation, to receive, endorse and collect all
instruments made payable to Pledgor representing any dividend, interest payment
or other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 6.04 Liability for Deficiency. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party, any Issuing
Bank or any Lender hereunder results in reduction of the Obligations, such
action will not release Pledgor from its liability to Secured Party, the Issuing
Banks and the Lenders for any unpaid Obligations, including reasonable costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.05 Reasonable Notice. If any applicable provision of any law
requires Secured Party, any Issuing Bank or any Lender to give reasonable notice
of any sale or
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disposition or other action, Pledgor hereby agrees that fifteen (15) days' prior
written notice shall constitute reasonable notice thereof. Such notice, in the
case of public sale, shall state the time and place fixed for such sale and, in
the case of private sale, the time after which such sale is to be made.
Section 6.06 Pledged Securities. Upon the occurrence and during the
continuance of an Event of Default and after any applicable notice and cure
period provided for in the Credit Agreement:
(a) All rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 4.02 shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right to
receive and hold as Collateral such dividends and interest payments, but
Secured Party shall have no duty to receive and hold such dividends and
interest payments and shall not be responsible for any failure to do so or
delay in so doing.
(b) All dividends and interest payments which are received by Pledgor
contrary to the provisions of this Section 6.06 shall be received in trust
for the benefit of Secured Party, shall be segregated from other funds of
Pledgor and shall be forthwith paid over to Secured Party as Collateral in
the same form as so received (with any necessary indorsement).
(c) Secured Party may exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining
to any of the Pledged Securities as if it were the absolute owner thereof,
including without limitation, the right to exchange at its discretion, any
and all of the Pledged Securities upon the merger, consolidation,
reorganization, recapitalization or other readjustment of any Issuer of such
Pledged Securities or upon the exercise by any such Issuer or Secured Party
of any right, privilege or option pertaining to any of the Pledged
Securities, and in connection therewith, to deposit and deliver any and all
of the Pledged Securities with any committee, depository, transfer agent,
registrar or other designated agency upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it, but Secured Party shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
(d) All rights of Pledgor to exercise the voting and other consensual
rights which Pledgor would otherwise be entitled to exercise pursuant to
Section 4.07 with respect to the Pledged Securities issued by such Issuer
shall cease, and all such rights shall thereupon become vested in Secured
Party who shall thereupon have the sole right to exercise such voting and
other consensual rights, but Secured Party shall have no duty to exercise
any such voting or other consensual rights and shall not be responsible for
any failure to do so or delay in so doing.
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Section 6.07 Non-judicial Enforcement. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Pledgor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
Section 6.08 Private Sale of Pledged Securities. Pledgor recognizes that
Secured Party may deem it impracticable to effect a public sale of all or any
part of the Pledged Securities and that Secured Party may, therefore, determine
to make one or more private sales of any such Pledged Securities to a restricted
group of purchasers who will be obligated to agree, among other things, to
acquire such Pledged Securities for their own account, for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges that
any such private sale may be at prices and on terms less favorable to the seller
than the prices and other terms which might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sale shall be
deemed to have been made in a commercially reasonably manner and that Secured
Party shall have no obligation to delay sale of any such Pledged Securities for
the period of time necessary to permit Pledgor to register such Pledged
Securities for public sale under the Securities Act of 1933, as amended (the
"Securities Act"). Pledgor further acknowledges and agrees that any offer to
sell such Pledged Securities which has been (i) publicly advertised on a bona
fide basis in a newspaper or other publication of general circulation in the
financial community of Houston, Texas (to the extent that such an offer may be
so advertised without prior registration under the Securities Act), or (ii) made
privately in the manner described above to not less than fifteen (15) bona fide
offerees shall be deemed to involve a "public sale" for the purposes of Section
9-504(c) of the Code (or any successor or similar, applicable statutory
provision) as then in effect in the State of Texas, notwithstanding that such
sale may not constitute a "public offering" under the Securities Act and that
Secured Party or any Lender may, in such event, bid for the purchase of such
Pledged Securities.
ARTICLE VII
Miscellaneous
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Security Agreement shall be given in accordance with
the notice provisions of the Credit Agreement.
Section 7.02 Amendments and Waivers. Secured Party's, any Issuing Bank's
or any Lender's acceptance of partial or delinquent payments or any forbearance,
failure or delay by Secured Party in exercising any right, power or remedy
hereunder shall not be deemed a waiver of any obligation of Pledgor or any
Obligor, or of any right, power or remedy of Secured Party; and no partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof. Secured Party may remedy any Event of Default hereunder or in
connection with the Obligations without waiving the Event of Default so
remedied. Pledgor hereby agrees that if
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Secured Party agrees to a waiver of any provision hereunder, or an exchange of
or release of the Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of Secured Party's
other rights or of Pledgor's obligations hereunder. This Security Agreement may
be amended only by an instrument in writing in the manner set forth in the
Credit Agreement and may be supplemented only by documents delivered or to be
delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Security Agreement may be delivered by Pledgor or Secured
Party to any financial intermediary or other third party for the purpose of
transferring or perfecting any or all of the Pledged Securities to Secured Party
or its designee or assignee.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Pledgor or such other Person as may be required by
a court of competent jurisdiction such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party, any Issuing Bank
nor any Lender shall have any liability for any interest, cost or expense in
connection with any reasonable delay in delivering such proceeds to Pledgor.
Section 7.06 Governing Law; Jurisdiction. This Security Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby).
Section 7.07 Continuing Security Agreement.
(a) Except as may be expressly applicable pursuant to Section 9-505 of
the Code, no action taken or omission to act by Secured Party, the Issuing
Banks or the Lenders hereunder, including, without limitation, any exercise
of voting or consensual rights pursuant to Section 4.07 or any other action
taken or inaction pursuant to Section 6.02, shall be deemed to constitute a
retention of the Collateral in satisfaction of the Obligations or otherwise
to be in full satisfaction of the Obligations, and the Obligations shall
remain in full force and effect, until Secured Party, the Issuing Banks and
the Lenders shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside
-13-
or required to be repaid to a trustee, debtor in possession, receiver or
other Person under any bankruptcy law, common law or equitable cause, then
to such extent the Obligations so satisfied shall be revived and continue as
if such payment or proceeds had not been received by Secured Party, the
Issuing Banks or the Lenders, and Secured Party's, the Issuing Banks' and
the Lenders' security interests, rights, powers and remedies hereunder shall
continue in full force and effect. In such event, this Security Agreement
shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.08.
Section 7.08 Termination. The grant of a security interest hereunder and
all of Secured Party's, the Issuing Banks' and the Lenders' rights, powers and
remedies in connection therewith shall remain in full force and effect until the
complete payment of the Obligations and the compliance by Pledgor with all
covenants and agreements hereof and the termination of the Credit Agreement, at
which time Secured Party, at the written request and expense of Pledgor, will
release, reassign and transfer the Collateral to Pledgor and declare this
Security Agreement to be of no further force or effect. Notwithstanding the
foregoing, the provisions of Section 7.07(b) shall survive the termination of
this Security Agreement.
Section 7.09 Counterparts, Effectiveness. This Security Agreement may be
executed in two or more counterparts. Each counterpart is deemed an original,
but all such counterparts taken together constitute one and the same instrument.
This Security Agreement becomes effective upon the execution hereof by Pledgor
and delivery of the same to Secured Party, and it is not necessary for Secured
Party, any Issuing Bank or any Lender to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
Section 7.10 Amendment and Restatement. This Security Agreement amends
and restates in its entirety the Prior Security Agreement and all its terms,
provisions and conditions. Pledgor acknowledges that the liens, claims, rights,
titles, interests and benefits created and granted by the Prior Security
Agreement continue to exist, remain valid and subsisting, shall not be impaired
or released hereby, shall remain in full force and effect and are hereby
renewed, extended, carried forward and conveyed as security for the Obligations.
[SIGNATURES BEGIN NEXT PAGE]
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PLEDGOR: TESORO PETROLEUM CORPORATION
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President, Corporate
Communications and Treasurer
SECURED PARTY: BANQUE PARIBAS, AS ADMINISTRATIVE
AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
-15-
SCHEDULE 1.02
ISSUERS
Tesoro Alaska Petroleum Company, a Delaware corporation
Tesoro Refining, Marketing & Supply Company, a Delaware corporation
Tesoro Alaska Pipeline Company, a Delaware corporation
Tesoro Exploration and Production Company, a Delaware corporation
Tesoro Gas Resources Company, Inc., a Delaware corporation
Tesoro Natural Gas Company, a Delaware corporation
EXHIBIT A
PLEDGED SECURITIES
1. 10 shares of the common stock of Tesoro - Alaskan Petroleum Corporation (now
known as Tesoro Alaska Petroleum Company), a Delaware corporation ("TAPC"),
registered in the name of Tesoro Petroleum Corporation ("Pledgor") on the
books of TAPC, as represented by Certificate No. 1.
2. 1,000 shares of the common stock Nikiski Alaska Pipeline Company (now known
as Tesoro Alaska Pipeline Corporation), a Delaware corporation ("Alaska
Pipeline"), registered in the name of Pledgor on the books of Alaska
Pipeline as represented by Certificate No. 2.
3. 1,000 shares of the common stock of Tesoro Refining, Marketing & Supply
Company, a Delaware corporation ("TRMSC"), registered in the name of Pledgor
on the books of TRMSC, as represented by Certificate No. 1.
4. 1,000 shares of the common stock of Tesoro Exploration and Production
Company, a Delaware corporation ("TEP"), registered in the name of Pledgor
on the books of TEP, as represented by Certificate No. 1.
5. 1,000 shares of the common stock of Tesoro Gas Resources Company, Inc., a
Delaware corporation ("TGR"), registered in the name of Pledgor on the books
of TGR, as represented by Certificate No. 1.
6. 900 shares of the common stock of Tesoro Natural Gas Company, a Delaware
corporation ("TNG"), registered in the name of Pledgor on the books of TNG,
as represented by Certificate No. 2.
7. 100 shares of the common stock of Tesoro Natural Gas Company, a Delaware
corporation ("TNG"), registered in the name of Pledgor on the books of TNG,
as represented by Certificate No. 1.
FIRST AMENDMENT TO DEED OF TRUST,
SECURITY AGREEMENT AND FINANCING STATEMENT
THIS FIRST AMENDMENT TO DEED OF TRUST, SECURITY AGREEMENT AND FINANCING
STATEMENT (this "Amendment") is entered into as of the effective time and date
hereinafter stated (the "Effective Date") by and among TESORO ALASKA PETROLEUM
COMPANY, a Delaware corporation with an address for notice hereunder of 8700
Tesoro Drive, San Antonio, Texas 78217 ("Trustor"), TRANSALASKA TITLE INSURANCE
AGENCY, INC., an Alaska corporation, whose address is 400 W. Tudor Road,
Anchorage, Alaska 99503 (including any successor trustee at the time acting as
such hereunder, "Trustee") and BANQUE PARIBAS, as Administrative Agent for the
benefit of the Issuing Banks and the Lenders, with offices and banking quarters
at 1200 Smith, Suite 3100, Houston, Texas 77002 ("Beneficiary"). Any
capitalized term used but not defined in this Amendment shall have the meaning
assigned to such term in the hereinafter described Credit Agreement.
R E C I T A L S
A. Tesoro Petroleum Corporation (the "Company"), Texas Commerce Bank
National Association, as agent and various lenders (the "Prior Lenders") entered
into a Credit Agreement dated as of April 20, 1994 (as amended from time to
time, the "Prior Credit Agreement"), and Trustor and others entered into a
Guaranty Agreement dated of even date therewith guaranteeing the prompt and
complete payment of the indebtedness and obligations of the Company under the
Prior Credit Agreement (the "Prior Guaranty Agreement").
B. The Prior Credit Agreement and the Prior Guaranty Agreement was
secured by, among other things, that certain Deed of Trust, Security Agreement
and Financing Statement dated as of even date therewith from Trustor to Texas
Commerce Bank National Association, as agent, as beneficiary ("Prior
Beneficiary") for the benefit of the Prior Lenders (the "Deed of Trust").
C. The Deed of Trust was duly recorded in Book 441, page 848, File No.
94-3633 of the real estate records of the Kenai Recording District, Third
Judicial District, State of Alaska on April 27, 1994.
D. Of even date herewith, the Company, Banque Paribas, as Administrative
Agent, The Bank of Nova Scotia, as Documentation Agent and various lenders (the
"Lenders") are entering into an Amended and Restated Credit Agreement (the
"Credit Agreement") amending and restating the Prior Credit Agreement, and
Trustor and others are entering into an Amended and Restated Guaranty Agreement
amending and restating the Prior Guaranty Agreement.
E. Also of even date herewith, Prior Beneficiary is entering into an
Assignment of Liens assigning all of its right, title and interest under the
Deed of Trust to Banque Paribas, as Administrative Agent for the benefit of the
Issuing Banks and the Lenders ("Beneficiary").
F. Trustor and Beneficiary now desire to amend the Deed of Trust.
NOW, THEREFORE, in view of the foregoing, Trustor and Beneficiary do hereby
agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Deed of Trust.
2. All references in the Deed of Trust to "this Deed of Trust", as
defined in Section 1.02 of the Deed of Trust shall mean the Deed of Trust as
amended hereby and as the same may from time to time be further amended or
supplemented.
3. All references in the Deed of Trust to "Beneficiary" shall mean Banque
Paribas, as Administrative Agent for the benefit of the Issuing Banks and the
Lenders, and all references in the Deed of Trust to "Credit Agreement" shall
mean the above-described Credit Agreement as the same may be amended,
supplemented or restated from time to time.
4. Section 2.03 of the Deed of Trust is amended in its entirety to
hereafter read as follows:
"Section 2.03 Indebtedness Secured. This Deed of Trust is executed
and delivered by Trustor to secure and enforce the following (the
"Indebtedness"):
(a) Payment of and performance of any and all indebtedness,
obligations and liabilities of Trustor pursuant to that certain Amended and
Restated Guaranty Agreement dated June 7, 1996 executed by the Trustor,
among others, in favor of BANQUE PARIBAS, as Administrative Agent for the
Issuing Banks and the Lenders (as the same may from time to time be
amended, supplemented or otherwise modified, the "Guaranty Agreement"),
guaranteeing the prompt and complete payment when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations (as
defined in the Guaranty Agreement) including, without limitation, the
Letters of Credit and the Notes evidencing Loans the proceeds of which may
be disbursed over time, then satisfied in whole or in part, and then
disbursed again over time, which indebtedness, obligations and liabilities
will have a total principal balance from time to time of not more than
$150,000,000 and any obligations arising under the Hedging Agreements with
any Lender or its Affiliates.
-2-
(b) Any sums which may be advanced or paid by Beneficiary or any
Lender under the terms hereof on account of the failure of Trustor to
comply with the covenants of the Trustor contained herein or in the Credit
Agreement; and all other indebtedness of Trustor arising pursuant to the
provisions of this Deed of Trust.
The Indebtedness which is secured by this Deed of Trust, if not sooner
paid, is all due and payable on the 30th day of April, 2000. For the
purpose of AS 34.20.150, the period of this Deed of Trust and the date when
this Deed of Trust matures is six (6) years after said date.
The Indebtedness is Senior Debt as such term is defined in that
certain Subordination Agreement dated December 15, 1992 among Trustor, the
Company and the State of Alaska attached as Exhibit 7 to the Settlement
Agreement dated December 15, 1992 among Trustor, the Company and the State
of Alaska."
5. Trustor hereby confirms that it has heretofore granted, bargained,
sold, assigned, mortgaged, warranted, transferred and conveyed to Trustee for
the benefit of Beneficiary, and granted a security interest to Beneficiary in,
the Mortgaged Property, and Trustor further grants, bargains, sells, assigns,
mortgages, warrants, transfers and conveys to Trustee for the benefit of
Beneficiary, and grants a security interest to Beneficiary in, the Mortgaged
Property, to Beneficiary on behalf of the Lenders to secure the payment and
performance of the Indebtedness as defined herein.
6. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Deed of Trust shall remain
in full force and effect in accordance with its terms. None of the rights,
titles and interests existing and to exist under the Deed of Trust are hereby
released, diminished or impaired, and Trustor hereby reaffirms all covenants,
representations and warranties made in the Deed of Trust.
7. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof.
-3-
EXECUTED this ___ day of June, 1996, to be effective as of the 7th day of June,
1996 (the "Effective Date").
TRUSTOR:
TESORO ALASKA PETROLEUM COMPANY
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President and Treasurer
BENEFICIARY:
BANQUE PARIBAS, AS ADMINISTRATIVE AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
-4-
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me the 7th day of June,
1996 by G. A. Wright, Vice President and Treasurer of TESORO ALASKA PETROLEUM
COMPANY, a Delaware corporation, on behalf of such corporation.
Seal: /s/ Linda Daugherty
Notary Public in and for the
State of Texas
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me the 7th day of June,
1996 by Brian Malone, Vice President of BANQUE PARIBAS, a bank organized under
the laws of France acting through its Houston, Texas agency, on behalf of such
bank.
Seal: /s/ Linda Daugherty
Notary Public in and for the
State of Texas
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me the 7th day of June,
1996 by Barton D. Schouest, Group Vice President of BANQUE PARIBAS, a bank
organized under the laws of France acting through its Houston, Texas agency, on
behalf of such bank.
/s/ Linda Daugherty
Notary Public in and for the
State of Texas
Seal:
-5-
FIRST AMENDMENT TO MORTGAGE, DEED OF TRUST, ASSIGNMENT
OF PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT
THIS FIRST AMENDMENT TO MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT AND FINANCING STATEMENT (this "Amendment") is entered into as
of the effective time and date hereinafter stated (the "Effective Date") by and
between TESORO E&P COMPANY, L.P., a Delaware limited partnership with an address
for notice hereunder of 8700 Tesoro Drive, San Antonio, Texas 78217
("Mortgagor") and BANQUE PARIBAS, as Administrative Agent for the benefit of the
Issuing Banks and the Lenders, with offices and banking quarters at 1200 Smith,
Suite 3100, Houston, Texas 77002 ("Mortgagee"). Any capitalized term used but
not defined in this Amendment shall have the meaning assigned to such term in
the hereinafter described Credit Agreement.
R E C I T A L S
A. Tesoro Petroleum Corporation (the "Company"), Texas Commerce Bank
National Association, as agent and various lenders (the "Prior Lenders") entered
into a Credit Agreement dated as of April 20, 1994 (as amended from time to
time, the "Prior Credit Agreement"), and Mortgagor and others entered into a
Guaranty Agreement dated of even date therewith guaranteeing the prompt and
complete payment of the indebtedness and obligations of the Company under the
Prior Credit Agreement (the "Prior Guaranty Agreement").
B. The Prior Credit Agreement and the Prior Guaranty Agreement was
secured by, among other things, that certain Mortgage, Deed of Trust, Assignment
of Production, Security Agreement and Financing Statement dated as of even date
therewith from Tesoro Exploration and Production Company ("TEP") to Stephen H.
Field, as Trustee for Texas Commerce Bank National Association, as agent, as
Mortgagee ("Prior Mortgagee") for the benefit of the Prior Lenders (the
"Mortgage").
C. The Mortgage was duly recorded in Starr County, Texas on April 25,
1994 in Volume 692, Page 523 of the Official Public Records and in Zapata
County, Texas on April 15, 1994 in Volume 497, Page 340 of the Official Records.
D. TEP subsequently assigned all of its right, title and interest in the
Mortgaged Property, as defined in the Mortgage, to Mortgagor.
E. Of even date herewith, the Company, Banque Paribas, as Administrative
Agent, The Bank of Nova Scotia, as Documentation Agent and various lenders (the
"Lenders") are entering into an Amended and Restated Credit Agreement (the
"Credit Agreement") amending
and restating the Prior Credit Agreement and carrying forward the indebtedness
thereunder, and Mortgagor and others are entering into an Amended and Restated
Guaranty Agreement amending and restating the Prior Guaranty Agreement.
F. Also of even date herewith, Prior Mortgagee is entering into an
Assignment of Liens assigning all of its right, title and interest under the
Mortgage to Banque Paribas, as Administrative Agent for the benefit of the
Issuing Banks and the Lenders ("Mortgagee").
G. Mortgagor and Mortgagee now desire to amend the Mortgage.
NOW, THEREFORE, in view of the foregoing, Mortgagor and Mortgagee do hereby
agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Mortgage.
2. All references in the Mortgage to "this Mortgage", as defined in
Section 1.02 of the Mortgage shall mean the Mortgage as amended hereby and as
the same may from time to time be further amended or supplemented.
3. All references in the Mortgage to "Mortgagor" shall mean Tesoro E&P
Company, L.P.; all references in the Mortgage to "Mortgagee" shall mean Banque
Paribas, as Administrative Agent for the benefit of the Issuing Banks and the
Lenders; and all references in the Mortgage to "Credit Agreement" shall mean the
above-described Credit Agreement as the same may be amended, supplemented or
restated from time to time.
4. Section 1.03 of the Mortgage is amended in its entirety to hereafter
read as follows:
"Section 1.03 Indebtedness Secured. This Mortgage is executed and
delivered by Mortgagor to secure and enforce the following (the
"Indebtedness"):
(a) Payment of and performance of any and all indebtedness,
obligations and liabilities of Mortgagor pursuant to that certain Amended
and Restated Guaranty Agreement dated June 7, 1996 executed by the
Mortgagor, among others, in favor of BANQUE PARIBAS, as Administrative
Agent for the Issuing Banks and the Lenders (as the same may from time to
time be amended, supplemented or otherwise modified, the "Guaranty
Agreement"), guaranteeing the prompt and complete payment when due (whether
at the stated maturity, by acceleration or otherwise) of the Obligations
(as defined in the Guaranty Agreement) including, without limitation, the
Letters of Credit and the Notes with final maturity on or before April 30,
2000 and any obligations arising under the Hedging Agreements with any
Lender or its Affiliates.
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(b) Any sums which may be advanced or paid by Mortgagee or any Lender
under the terms hereof on account of the failure of Mortgagor to comply
with the covenants of the Mortgagor contained herein or in the Credit
Agreement; and all other indebtedness of Mortgagor arising pursuant to the
provisions of this Mortgage."
5. Mortgagor hereby confirms that it has heretofore granted, bargained,
sold, assigned, mortgaged, warranted, transferred and conveyed to Trustee for
the benefit of Mortgagee, and granted a security interest to Mortgagee in, the
Mortgaged Property, and Mortgagor further grants, bargains, sells, assigns,
mortgages, warrants, transfers and conveys to Trustee for the benefit of
Mortgagee, and grants a security interest to Mortgagee in, the Mortgaged
Property, to Mortgagee on behalf of the Lenders to secure the payment and
performance of the Indebtedness as defined herein.
6. Mortgagor hereby confirms that it has heretofore absolutely and
unconditionally assigned, transferred and conveyed and does hereby absolutely
and unconditionally assign, transfer and convey to Mortgagee, its successors and
assigns, all of the Hydrocarbons and all products obtained or processed
therefrom, and the revenues and proceeds now and hereafter attributable to the
Hydrocarbons and said products and all payments in lieu of the Hydrocarbons such
as "take or pay" payments or settlements.
7. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Mortgage shall remain in
full force and effect in accordance with its terms. None of the rights, titles
and interests existing and to exist under the Mortgage are hereby released,
diminished or impaired, and Mortgagor hereby reaffirms all covenants,
representations and warranties made in the Mortgage.
8. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof.
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EXECUTED the ___ day of June, 1996, to be effective as of the 7th day of
June, 1996 (the "Effective Date").
MORTGAGOR:
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and Production Company,
its general partner
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President and Treasurer
MORTGAGEE:
BANQUE PARIBAS, AS ADMINISTRATIVE AGENT
By: /s/ Brian Malone
Name: Brian Malone
Title: Vice President
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
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STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me the 7th day of June,
1996 by G. A. Wright, Vice President and Treasurer of TESORO EXPLORATION AND
PRODUCTION COMPANY, a Delaware corporation, on behalf of such corporation.
Seal: /s/ Linda Daugherty
Notary Public in and for the
State of Texas
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me the 7th day of June,
1996 by Brian Malone, Vice President of BANQUE PARIBAS, a bank organized under
the laws of France, acting through its Houston, Texas agency, on behalf of such
bank.
/s/ Linda Daugherty
Seal: Notary Public in and for the
State of Texas
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me the 7th day of June,
1996 by Barton D. Schouest, Group Vice President of BANQUE PARIBAS, a bank
organized under the laws of France, acting through its Houston, Texas agency, on
behalf of such bank.
Seal: /s/ Linda Daugherty
Notary Public in and for the
State of Texas
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WHEN RECORDED RETURN TO:
VINSON & ELKINS L.L.P.
First City Tower, Suite 3562
1001 Fannin Street
Houston, TX 77002-6760
Attn: Linda Daugherty
(Texas Oil & Gas Properties)
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT AND FINANCING STATEMENT
FROM
TESORO E&P COMPANY, L.P.
as Mortgagor
TO
BRIAN MALONE, AS TRUSTEE
FOR THE BENEFIT OF
BANQUE PARIBAS, AS ADMINISTRATIVE AGENT,
as Mortgagee
TABLE OF CONTENTS
ARTICLE I
Grant of Lien and Indebtedness Secured
Section 1.01 Grant of Liens. . . . . . . . . . . . . . . .1
Section 1.02 Grant of Security Interest. . . . . . . . . .4
Section 1.03 Indebtedness Secured. . . . . . . . . . . . .4
Section 1.04 Fixture Filing, Etc.. . . . . . . . . . . . .5
Section 1.05 Defined Terms . . . . . . . . . . . . . . . .5
ARTICLE II
Assignment of Production
Section 2.01 Assignment. . . . . . . . . . . . . . . . . .5
Section 2.02 Rights Under Texas Act. . . . . . . . . . . .6
Section 2.03 No Modification of Payment Obligations. . . .6
ARTICLE III
Representations, Warranties and Covenants
Section 3.01 Title . . . . . . . . . . . . . . . . . . . .7
Section 3.02 Defend Title. . . . . . . . . . . . . . . . .7
Section 3.03 Not a Foreign Person. . . . . . . . . . . . .7
Section 3.04 Power to Create Lien and Security . . . . . .7
Section 3.05 Revenue and Cost Bearing Interest . . . . . .8
Section 3.06 Rentals Paid; Leases in Effect. . . . . . . .8
Section 3.07 Operation of Mortgaged Property, Etc. . . . .8
Section 3.08 Operation By Third Parties. . . . . . . . . .9
Section 3.09 Abandon, Sales. . . . . . . . . . . . . . . .9
Section 3.10 Failure to Perform. . . . . . . . . . . . . .9
ARTICLE IV
Rights and Remedies
Section 4.01 Event of Default. . . . . . . . . . . . . . 10
Section 4.02 Foreclosure and Sale. . . . . . . . . . . . 10
Section 4.03 Substitute Trustees and Agents. . . . . . . 11
Section 4.04 Judicial Foreclosure; Receivership. . . . . 11
Section 4.05 Foreclosure for Installments. . . . . . . . 11
Section 4.06 Separate Sales. . . . . . . . . . . . . . . 12
Section 4.07 Possession of Mortgaged Property. . . . . . 12
Section 4.08 Occupancy After Foreclosure . . . . . . . . 12
Section 4.09 Remedies Cumulative, Concurrent and
Nonexclusive . . . . . . . . . . . . . . . 13
Section 4.10 No Release of Obligations . . . . . . . . . 13
Section 4.11 Release of and Resort to Collateral . . . . 13
Section 4.12 Waiver of Redemption, Notice and
Marshalling of Assets, Etc . . . . . . . . 13
Section 4.13 Discontinuance of Proceedings . . . . . . . 14
Section 4.14 Application of Proceeds . . . . . . . . . . 14
Section 4.15 Resignation of Operator . . . . . . . . . . 14
Section 4.16 Indemnity . . . . . . . . . . . . . . . . . 15
ARTICLE V
The Trustee
Section 5.01 Duties, Rights, and Powers of Trustee . . . 15
Section 5.02 Successor Trustee . . . . . . . . . . . . . 16
Section 5.03 Retention of Moneys . . . . . . . . . . . . 16
ARTICLE VI
Miscellaneous
Section 6.01 Instrument Construed as Mortgage, Etc.. . . 16
Section 6.02 Release of Mortgage . . . . . . . . . . . . 17
Section 6.03 Severability. . . . . . . . . . . . . . . . 17
Section 6.04 Successors and Assigns of Parties . . . . . 17
Section 6.05 Satisfaction of Prior Encumbrance . . . . . 17
Section 6.06 Subrogation of Trustee. . . . . . . . . . . 17
Section 6.07 Nature of Covenants . . . . . . . . . . . . 18
Section 6.08 Notices . . . . . . . . . . . . . . . . . . 18
Section 6.09 Counterparts. . . . . . . . . . . . . . . . 18
Section 6.10 Exculpation Provisions. . . . . . . . . . . 18
Exhibit A - Mortgaged Property
-ii-
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT AND FINANCING STATEMENT
This MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT
AND FINANCING STATEMENT (this "Mortgage") is entered into as of the effective
time and date hereinafter stated (the "Effective Date") by TESORO E&P COMPANY,
L.P., a Delaware limited liability company, whose address for notice hereunder
is 8700 Tesoro Drive, San Antonio, Texas 78217 ("Mortgagor"), for the benefit of
BANQUE PARIBAS, as Administrative Agent for the benefit of the Issuing Banks and
the Lenders, with offices and banking quarters at 1200 Smith Street, Suite 3100,
Houston, Texas 77002 ("Mortgagee"). Any capitalized term used but not defined
in this Mortgage shall have the meaning assigned to such term in the hereinafter
defined Credit Agreement.
R E C I T A L S:
A. On even date herewith, Tesoro Petroleum Corporation (the "Company"),
Mortgagee, The Bank of Nova Scotia, individually and as Documentation Agent, and
the other financial institutions parties thereto are executing a Credit
Agreement (as amended from time to time, the "Credit Agreement").
B. The Lenders and Issuing Banks have conditioned their obligations under
the Credit Agreement upon the execution and delivery by Mortgagor of this
Mortgage, and Mortgagor has agreed to enter into this Mortgage.
C. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor hereby agrees with
Mortgagee as follows:
ARTICLE I
Grant of Lien and Indebtedness Secured
Section 1.01 Grant of Liens. To secure payment of the Indebtedness (as
hereinafter defined) and the performance of the covenants and obligations herein
contained, Mortgagor does by these presents hereby GRANT, BARGAIN, SELL, ASSIGN,
MORTGAGE, TRANSFER and CONVEY unto Brian Malone of Houston, Texas, as Trustee,
whose address for notice hereunder is 1200 Smith Street, Suite 3100, Houston,
Texas 77002 ("Trustee") and Trustee's successors and substitutes in trust
hereunder, for the use and benefit of Mortgagee, the real and personal property,
rights, titles, interests and estates described in the following paragraphs (a)
through (g) (collectively called the "Mortgaged Property"):
(a) All rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to the oil and gas leases and/or oil, gas and other
mineral leases and other interests and estates and the lands and premises
covered or affected thereby which are described
on Exhibit A hereto (collectively called the "Hydrocarbon Property") or which
Hydrocarbon Property is otherwise referred to herein, and specifically, but
without limitation, the undivided interests of Mortgagor which are more
particularly described on attached Exhibit A.
(b) All rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to (i) the properties now or hereafter pooled or
unitized with the Hydrocarbon Property; (ii) all presently existing or future
unitization, communitization, pooling agreements and declarations of pooled
units and the units created thereby (including, without limitation, all units
created under orders, regulations, rules or other official acts of any Federal,
State or other governmental body or agency having jurisdiction and any units
created solely among working interest owners pursuant to operating agreements or
otherwise) which may affect all or any portion of the Hydrocarbon Property
including, without limitation, those units which may be described or referred to
on attached Exhibit A; (iii) all operating agreements, production sales or other
contracts, farmout agreements, farm-in agreements, area of mutual interest
agreements, equipment leases and other agreements described or referred to in
this Mortgage or which relate to any of the Hydrocarbon Property or interests in
the Hydrocarbon Property described or referred to herein or on attached Exhibit
A or to the production, sale, purchase, exchange, processing, handling, storage,
transporting or marketing of the Hydrocarbons (hereinafter defined) from or
attributable to such Hydrocarbon Property or interests; (iv) all geological,
geophysical, engineering, accounting, title, legal, and other technical or
business data concerning the Mortgaged Property, the Hydrocarbons, and all
books, files, records, magnetic media, computer records, and other forms of
recording or obtaining access to such data; and (v) the Hydrocarbon Property
described on attached Exhibit A and covered by this Mortgage even though
Mortgagor's interests therein be incorrectly described or a description of a
part or all of such Hydrocarbon Property or Mortgagor's interests therein be
omitted; it being intended by Mortgagor and Mortgagee herein to cover and affect
hereby all interests which Mortgagor may now own or may hereafter acquire in and
to the Hydrocarbon Property notwithstanding that the interests as specified on
Exhibit A may be limited to particular lands, specified depths or particular
types of property interests, but specifically excluding other Property outside
of those described on Exhibit A hereto and not intended to be part of the
Hydrocarbon Property.
(c) All rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to all oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined
therefrom and all other minerals (collectively called the "Hydrocarbons") in and
under and which may be produced and saved from or attributable to the
Hydrocarbon Property, the lands pooled or unitized therewith and Mortgagor's
interests therein, including all oil in tanks and all rents, issues, profits,
proceeds, products, revenues and other income from or attributable to the
Hydrocarbon Property, the lands pooled or unitized therewith and Mortgagor's
interests therein which are subjected or required to be subjected to the liens
and security interests of this Mortgage and including specifically but without
limitation all liens and security interests in such Hydrocarbons securing
payment of proceeds resulting from the sale of Hydrocarbons.
-2-
(d) All tenements, hereditaments, appurtenances and properties in anywise
appertaining, belonging, affixed or incidental to the Hydrocarbon Property,
rights, titles, interests and estates described or referred to in paragraphs (a)
and (b) above, which are now owned or which may hereafter be acquired by
Mortgagor, including, without limitation, any and all property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use,
or useful in connection with the operating, working or development of any of
such Hydrocarbon Property or the lands pooled or unitized therewith (excluding
drilling rigs, trucks, automotive equipment or other personal property which may
be taken to the premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, field separators, liquid extraction
plants, plant compressors, pumps, pumping units, pipelines, sales and flow
lines, gathering systems, field gathering systems, salt water disposal
facilities, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements, servitudes, licenses and other surface and subsurface
rights together with all additions, substitutions, replacements, accessions and
attachments to any and all of the foregoing properties.
(e) Any property that may from time to time hereafter, by delivery or by
writing of any kind, be subjected to the lien and security interest hereof by
Mortgagor; and the Trustee is hereby authorized to receive the same at any time
as additional security hereunder.
(f) All of the rights, titles and interests of every nature whatsoever now
owned or hereafter acquired by Mortgagor in and to the Hydrocarbon Property
rights, titles, interests and estates and every part and parcel thereof,
including, without limitation, the Hydrocarbon Property rights, titles,
interests and estates as the same may be enlarged by the discharge of any
payments out of production or by the removal of any charges or Permitted
Encumbrances (as hereinafter defined in Section 3.01) to which any of the
Hydrocarbon Property rights, titles, interests or estates are subject, or
otherwise; all rights of Mortgagor to liens and security interests securing
payment of proceeds from the sale of production from the Mortgaged Property,
including, but not limited to, those liens and security interests provided in
Tex. Bus. & Com. Code Ann. 9.319 (Tex. UCC) (Vernon Supp. 1989) ("9.319 Tex.
UCC"), as amended from time to time; together with any and all renewals and
extensions of any of the Hydrocarbon Property rights, titles, interests or
estates; all contracts and agreements supplemental to or amendatory of or in
substitution for the contracts and agreements described or mentioned above; and
any and all additional interests of any kind hereafter acquired by Mortgagor in
and to the Hydrocarbon Property rights, titles, interests or estates.
(g) All accounts, contract rights, inventory, general intangibles,
insurance contracts and insurance proceeds constituting a part of, relating to
or arising out of those portions of the Mortgaged Property which are described
in paragraphs (a) through (f) above and all proceeds and products of all such
portions of the Mortgaged Property and payments in lieu of production (such as
"take or pay" payments), whether such proceeds or payments are goods, money,
-3-
documents, instruments, chattel paper, securities, accounts, general
intangibles, fixtures, real property, or other assets.
Any fractions or percentages specified on attached Exhibit A in referring to
Mortgagor's interests are solely for purposes of the warranties made by
Mortgagor pursuant to Section 3.01 hereof and shall in no manner limit the
quantum of interest affected by this Section 1.01 with respect to any
Hydrocarbon Property or with respect to any unit or well identified on said
Exhibit A.
TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee and to his
successors and assigns forever to secure the payment of the Indebtedness
(hereinafter defined) and to secure the performance of the covenants,
agreements, and obligations of the Mortgagor herein contained.
Section 1.02 Grant of Security Interest. To further secure the
Indebtedness, Mortgagor hereby grants to Mortgagee a security interest in and to
the Mortgaged Property (whether now or hereafter acquired by operation of law or
otherwise) insofar as the Mortgaged Property consists of equipment, accounts,
contract rights, general intangibles, insurance contracts, insurance proceeds,
inventory, Hydrocarbons, fixtures and any and all other personal property of any
kind or character defined in and subject to the provisions of the Texas Business
and Commerce Code, Chapters 1 through 9, as presently in effect (the "Texas
UCC"), including the proceeds and products from any and all of such personal
property. Upon the happening of any of the Events of Default, Mortgagee is and
shall be entitled to all of the rights, powers and remedies afforded a secured
party by the Texas UCC with reference to the personal property and fixtures in
which Mortgagee has been granted a security interest herein, or the Trustee or
Mortgagee may proceed as to both the real and personal property covered hereby
in accordance with the rights and remedies granted under this Mortgage in
respect of the real property covered hereby. Such rights, powers and remedies
shall be cumulative and in addition to those granted to the Trustee or Mortgagee
under any other provision of this Mortgage or under any other Security
Instrument. Written notice mailed to Mortgagor as provided herein at least
fifteen (15) days prior to the date of public sale of any part of the Mortgaged
Property which is personal property subject to the provisions of the Texas UCC,
or prior to the date after which private sale of any such part of the Mortgaged
Property will be made, shall constitute reasonable notice.
Section 1.03 Indebtedness Secured. This Mortgage is executed and
delivered by Mortgagor to secure and enforce the following (the "Indebtedness"):
(a) The payment of and performance of any and all indebtedness, obligations
and liabilities of Mortgagor pursuant to that certain Amended and Restated
Guaranty Agreement of even date herewith executed by the Mortgagor, among
others, in favor of the Mortgagee (as the same may from time to time be amended,
supplemented or otherwise modified, the "Guaranty Agreement"), guaranteeing the
prompt and complete payment when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations (as defined in the Guaranty
Agreement) including, without limitation, the Letter of Credit and the Notes
with final maturity
-4-
on or before April 30, 2000 and any obligations arising under the Hedging
Agreements with any Lender or its Affiliates.
(b) Any sums which may be advanced or paid by Mortgagee or any Lender under
the terms hereof on account of the failure of Mortgagor to comply with the
covenants of the Mortgagor contained herein or in the Credit Agreement; and all
other indebtedness of Mortgagor arising pursuant to the provisions of this
Mortgage.
Section 1.04 Fixture Filing, Etc. Without in any manner limiting the
generality of any of the other provisions of this Mortgage: (i) some portions
of the goods described or to which reference is made herein are or are to become
fixtures on the land described or to which reference is made herein or on
attached Exhibit A; (ii) the security interests created hereby under applicable
provisions of the Texas UCC will attach to Hydrocarbons (minerals including oil
and gas) or the accounts resulting from the sale thereof at the wellhead or
minehead located on the land described or to which reference is made herein;
(iii) this Mortgage is to be filed of record in the real estate records as a
financing statement, and (iv) Mortgagor is the record owner of the real estate
or interests in the real estate comprised of the Mortgaged Property.
Section 1.05 Defined Terms. Any capitalized term used in this Mortgage
and not defined in this Mortgage shall have the meaning assigned to such term in
the Credit Agreement.
ARTICLE II
Assignment of Production
Section 2.01 Assignment. Mortgagor has absolutely and unconditionally
assigned, transferred, and conveyed, and does hereby absolutely and
unconditionally assign, transfer and convey unto Mortgagee, its successors and
assigns, all of the Hydrocarbons and all products obtained or processed
therefrom, and the revenues and proceeds now and hereafter attributable to the
Hydrocarbons and said products and all payments in lieu of the Hydrocarbons such
as "take or pay" payments or settlements. The Hydrocarbons and products are to
be delivered into pipe lines connected with the Mortgaged Property, or to the
purchaser thereof, to the credit of Mortgagee, free and clear of all taxes,
charges, costs, and expenses; and all such revenues and proceeds shall be paid
directly to Mortgagee, at its banking quarters in Houston, Harris County, Texas
with no duty or obligation of any party paying the same to inquire into the
rights of Mortgagee to receive the same, what application is made thereof, or as
to any other matter. Mortgagor agrees to perform all such acts, and to execute
all such further assignments, transfers and division orders, and other
instruments as may be required or desired by Mortgagee or any party in order to
have said proceeds and revenues so paid to Mortgagee. Mortgagee is fully
authorized to receive and receipt for said revenues and proceeds; to endorse and
cash any and all checks and drafts payable to the order of Mortgagor or
Mortgagee for the account of Mortgagor received from or in connection with said
revenues or proceeds and to hold the proceeds thereof in a bank account as
additional collateral securing the Indebtedness; and to execute transfer and
division orders in the name of Mortgagor, or otherwise, with warranties
-5-
binding Mortgagor. All proceeds received by the Mortgagee pursuant to this
assignment shall be applied as provided in the Credit Agreement, or after the
occurrence and during the continuance of an Event of Default, the Mortgagee may
in its sole discretion apply the proceeds as provided in Section 4.13 hereof.
Mortgagee shall not be liable for any delay, neglect, or failure to effect
collection of any proceeds or to take any other action in connection therewith
or hereunder; but Mortgagee shall have the right, at its election, in the name
of Mortgagor or otherwise, to prosecute and defend any and all actions or legal
proceedings deemed advisable by Mortgagee in order to collect such funds and to
protect the interests of Mortgagee, and/or Mortgagor, with all costs, expenses
and attorneys' fees incurred in connection therewith being paid by Mortgagor.
Mortgagor hereby appoints Mortgagee as its attorney-in-fact to pursue any and
all rights of Mortgagor to liens on and security interests in the Hydrocarbons
securing payment of proceeds of runs attributable to the Hydrocarbons. In
addition to the rights granted to Trustee and/or Mortgagee in Section 1.01 (c)
of this Mortgage, Mortgagor hereby further transfers and assigns to Mortgagee
any and all such liens, security interests, financing statements or similar
interests of Mortgagor attributable to its interest in the Hydrocarbons and
proceeds of runs therefrom arising under or created by said statutory provision,
judicial decision or otherwise. The power of attorney granted to Mortgagee in
this paragraph, being coupled with an interest, shall be irrevocable so long as
the Indebtedness or any part thereof remains unpaid.
Section 2.02 Rights Under Texas Act. Mortgagor hereby grants, sells,
assigns, sets over and mortgages unto Mortgagee during the term hereof, all of
Mortgagor's rights and interests pursuant to the provisions of 9.319 Tex. UCC,
hereby vesting in Mortgagee all of Mortgagor's rights as an interest owner to
the continuing security interest in and lien upon the Mortgaged Property.
Section 2.03 No Modification of Payment Obligations. Nothing herein
contained shall modify or otherwise alter the obligation of Mortgagor to make
prompt payment of all principal and interest owing on the Indebtedness when and
as the same become due regardless of whether the proceeds of the Hydrocarbons
are sufficient to pay the same and the rights provided in accordance with the
foregoing assignment provision shall be cumulative of all other security of any
and every character now or hereafter existing to secure payment of the
Indebtedness.
ARTICLE III
Representations, Warranties and Covenants
Mortgagor hereby represents, warrants and covenants as follows:
Section 3.01 Title. To the extent of the undivided interests specified on
attached Exhibit A, Mortgagor has good and indefeasible title to and is
possessed of the Mortgaged Property. The Mortgaged Property is free of any and
all Liens (as defined in the Credit Agreement) except Liens allowed by Section
5.04(b) of the Credit Agreement and Liens described on Exhibit A hereto
(collectively, the "Permitted Encumbrances").
-6-
Section 3.02 Defend Title. This Mortgage is, and always will be kept, a
direct first lien and security interest upon the Mortgaged Property subject only
to the Permitted Encumbrances and Mortgagor will not create or suffer to be
created or permit to exist any lien, security interest or charge prior or junior
to or on a parity with the lien and security interest of this Mortgage upon the
Mortgaged Property or any part thereof or upon the rents, issues, revenues,
profits and other income therefrom. Mortgagor will warrant and defend the title
to the Mortgaged Property against the claims and demands of all other persons
whomsoever and will maintain and preserve the lien created hereby so long as any
of the Indebtedness secured hereby remains unpaid. Should an adverse claim be
made against or a cloud develop upon the title to any part of the Mortgaged
Property, Mortgagor agrees it will immediately defend against such adverse claim
or take appropriate action to remove such cloud at Mortgagor's cost and expense,
and Mortgagor further agrees that the Trustee and/or Mortgagee may take such
other action as they deem advisable to protect and preserve their interests in
the Mortgaged Property, and in such event Mortgagor will indemnify the Trustee
and Mortgagee against any and all cost, attorney's fees and other expenses which
they may incur in defending against any such adverse claim or taking action to
remove any such cloud.
Section 3.03 Not a Foreign Person. Mortgagor is not a "foreign person"
within the meaning of the Internal Revenue Code of 1986, as amended (hereinafter
called the "Code"), Sections 1445 and 7701 (i.e. Mortgagor is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in the Code and any regulations
promulgated thereunder).
Section 3.04 Power to Create Lien and Security. The Mortgagor has full
power and lawful authority to grant, bargain, sell, assign, transfer, mortgage,
and convey a security interest in all of the Mortgaged Property in the manner
and form herein provided and without obtaining the authorization, approval,
consent or waiver of any lessor, sublessor, Governmental Authority or other
party or parties whomsoever.
Section 3.05 Revenue and Cost Bearing Interest. Mortgagor's ownership of
the Hydrocarbon Property and the undivided interests therein as specified on
attached Exhibit A will, after giving full effect to all Permitted Encumbrances,
afford Mortgagor not less than those net interests in the production from or
which is allocated to such Hydrocarbon Property specified as "Net Revenue
Interest" on attached Exhibit A (expressed as a fraction, percentage or decimal)
and will cause Mortgagor to bear not more than that portion, specified as
"Working Interest" on attached Exhibit A (expressed as a fraction, percentage or
decimal), of the costs of drilling, developing and operating the wells
identified on Exhibit A.
Section 3.06 Rentals Paid; Leases in Effect. All rentals and royalties
due and payable in accordance with the terms of any leases or subleases
comprising a part of the Hydrocarbon Property have been duly paid or provided
for and all leases or subleases comprising a part of the Hydrocarbon Property
are in full force and effect.
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Section 3.07 Operation of Mortgaged Property, Etc. Except as provided in
Section 3.08 Mortgagor will promptly pay and discharge all rentals, delay
rentals, royalties and indebtedness accruing under, and perform or cause to be
performed each and every act, matter or thing required by, each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements described or
referred to herein or affecting Mortgagor's interests in the Mortgaged Property,
and will do all other things necessary to keep unimpaired Mortgagor's rights
with respect thereto and prevent any forfeiture thereof or default thereunder.
The Mortgaged Property (and properties unitized therewith) has been maintained,
operated and developed in a good and workmanlike manner and in conformity with
all applicable laws and all rules, regulations and orders of all duly
constituted authorities having jurisdiction and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Property and other contracts and agreements forming a part of the
Mortgaged Property; specifically in this connection, (i) after the Effective
Date no Mortgaged Property is subject to having allowable production reduced
below the full and regular allowable (including the maximum permissible
tolerance) because of any overproduction (whether or not the same was
permissible at the time) prior to the Effective Date and (ii) none of the wells
comprising a part of the Mortgaged Property (or properties unitized therewith)
are deviated from the vertical more than the maximum permitted by applicable
laws, regulations, rules and orders, and such wells are, in fact, bottomed under
and are producing from, and the well bores are wholly within, the Mortgaged
Property (or, in the case of wells located on properties unitized therewith,
such unitized properties). Mortgagor will operate the Mortgaged Property in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all applicable proration and conservation laws of the jurisdiction in which
the Mortgaged Property is situated, and all applicable laws, rules and
regulations of every other agency and authority from time to time constituted to
regulate the development and operation of the Mortgaged Property and the
production and sale of Hydrocarbons and other minerals therefrom. Mortgagor
will do or cause to be done such development work as may be reasonably necessary
to the prudent and economical operation of the Mortgaged Property in accordance
with the most approved practices of operators in the industry, including all to
be done that may be appropriate to protect from diminution the productive
capacity of the Mortgaged Property and each producing well thereon including,
without limitation, cleaning out and reconditioning each well from time to time,
plugging and completing at a different level each such well, drilling a
substitute well to conform to changed spacing regulations and to protect the
Mortgaged Property against drainage whenever and as often as is necessary.
Section 3.08 Operation By Third Parties. All or portions of the Mortgaged
Property may be comprised of interests in the Hydrocarbon Property which are
other than working interests or which may be operated by a party or parties
other than Mortgagor and with respect to all or any such interests and
properties as may be comprised of interests other than working interests or
which may be operated by parties other than Mortgagor, Mortgagor's covenants as
expressed in this Article III are modified to require that Mortgagor use its
best efforts to obtain compliance with such covenants by the working interest
owners or the operator or operators of such leases or properties.
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Section 3.09 Abandon, Sales. The Mortgagor will not sell, lease, assign,
transfer or otherwise dispose or abandon any of the Mortgaged Property except as
permitted by the Credit Agreement.
Section 3.10 Failure to Perform. The Mortgagor agrees that if the
Mortgagor fails to perform any act or to take any action which the Mortgagor is
required to perform or take hereunder or pay any money which the Mortgagor is
required to pay hereunder, each of the Mortgagee and the Trustee in the
Mortgagor's name or its or their own name may, but shall not be obligated to,
perform or cause to perform such act or take such action or pay such money, and
any expenses so incurred by either of them and any money so paid by either of
them shall be a demand obligation owing by the Mortgagor to the Mortgagee or the
Trustee, as the case may be, and each of the Mortgagee and the Trustee, upon
making such payment, shall be subrogated to all of the rights of the Person
receiving such payment. Each amount due and owing by Mortgagor to each of the
Mortgagee and the Trustee pursuant to this Mortgage shall bear interest from the
date of such expenditure or payment or other occurrence which gives rise to such
amount being owed to such Person until paid at the rate for overdue principal
and interest set forth in Section 2.06(c) of the Credit Agreement (the
"Post-Default Rate"), and all such amounts together with such interest thereon
shall be a part of the Indebtedness described in Section 1.03 hereof.
ARTICLE IV
Rights and Remedies
Section 4.01 Event of Default. An "Event of Default" under the Credit
Agreement shall be an Event of Default under this Mortgage.
Section 4.02 Foreclosure and Sale. If an Event of Default shall occur and
be continuing after any applicable notice and cure period provided for in the
Credit Agreement, Mortgagee shall have the right and option to proceed with
foreclosure by directing the Trustee, or his successors or substitutes in trust,
to proceed with foreclosure and to sell, to the extent permitted by law, all or
any portion of the Mortgaged Property at one or more sales, as an entirety or in
parcels, at such place or places in otherwise such manner and upon such notice
as may be required by law, or, in the absence of any such requirement, as the
Mortgagee may deem appropriate, and to make conveyance to the purchaser or
purchasers. Where the Mortgaged Property is situated in more than one county,
notice as above provided shall be posted and filed in all such counties (if such
notices are required by law), and all such Mortgaged Property may be sold in any
such county and any such notice shall designate the county where such Mortgaged
Property is to be sold. Nothing contained in this Section 4.02 shall be
construed so as to limit in any way the Trustee's rights to sell the Mortgaged
Property, or any portion thereof, by private sale if, and to the extent that,
such private sale is permitted under the laws of the applicable jurisdiction or
by public or private sale after entry of a judgment by any court of competent
jurisdiction so ordering. Mortgagor hereby irrevocably appoints the Trustee to
be the attorney
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of Mortgagor and in the name and on behalf of Mortgagor to execute and deliver
any deeds, transfers, conveyances, assignments, assurances and notices which
Mortgagor ought to execute and deliver and do and perform any and all such acts
and things which Mortgagor ought to do and perform under the covenants herein
contained and generally, to use the name of Mortgagor in the exercise of all or
any of the powers hereby conferred on the Trustee. At any such sale: (i)
whether made under the power herein contained or any other legal enactment, or
by virtue of any judicial proceedings or any other legal right, remedy or
recourse, it shall not be necessary for Trustee to have physically present, or
to have constructive possession of, the Mortgaged Property (Mortgagor hereby
covenanting and agreeing to deliver to Trustee any portion of the Mortgaged
Property not actually or constructively possessed by Trustee immediately upon
demand by Trustee) and the title to and right of possession of any such property
shall pass to the purchaser thereof as completely as if the same had been
actually present and delivered to purchaser at such sale, (ii) each instrument
of conveyance executed by Trustee shall contain a general warranty of title,
binding upon Mortgagor and its successors and assigns, (iii) each and every
recital contained in any instrument of convey- ance made by Trustee shall
conclusively establish the truth and accuracy of the matters recited therein,
including, without limitation, nonpayment of the Indebtedness, advertisement and
conduct of such sale in the manner provided herein and otherwise by law and
appointment of any successor Trustee hereunder, (iv) any and all prerequisites
to the validity thereof shall be con- clusively presumed to have been performed,
(v) the receipt of Trustee or of such other party or officer making the sale
shall be a sufficient discharge to the purchaser or purchasers for its purchase
money and no such purchaser or purchasers, or its assigns or personal
representatives, shall thereafter be obligated to see to the application of such
purchase money, or be in any way answerable for any loss, misapplication or
nonapplication thereof, (vi) to the fullest extent permitted by law, Mortgagor
shall be completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in and to the
property sold and such sale shall be a perpetual bar both at law and in equity
against Mortgagor, and against any and all other persons claiming or to claim
the property sold or any part thereof, by, through or under Mortgagor, and (vii)
to the extent and under such circumstances as are permitted by law, Mortgagee
may be a purchaser at any such sale, and shall have the right, after paying or
accounting for all costs of said sale or sales, to credit the amount of the bid
upon the amount of the Indebtedness (in the order of priority set forth in
Section 4.13 hereof) in lieu of cash payment.
Section 4.03 Substitute Trustees and Agents. The Trustee or his successor
or substitute may appoint or delegate any one or more persons as agent to
perform any act or acts necessary or incident to any sale held by Trustee,
including the posting of notices and the conduct of sale, but in the name and on
behalf of Trustee, his successor or substitute. If Trustee or his successor or
substitute shall have given notice of sale hereunder, any successor or
substitute trustee thereafter appointed may complete the sale and the conveyance
of the property pursuant thereto as if such notice had been given by the
successor or substitute trustee conducting the sale.
Section 4.04 Judicial Foreclosure; Receivership. If any of the
Indebtedness shall become due and payable and shall not be promptly paid, the
Trustee or Mortgagee shall have the right and power to proceed by a suit or
suits in equity or at law, whether for the specific
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performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Mortgaged Property under the judgment or decree of any court or
courts of competent jurisdiction, or for the appointment of a receiver pending
any foreclosure hereunder or the sale of the Mortgaged Property under the order
of a court or courts of competent jurisdiction or under executory or other legal
process, or for the enforcement of any other appropriate legal or equitable
remedy. Any money advanced by the Trustee and/or Mortgagee in connection with
any such receivership shall be a demand obligation (which obligation Mortgagor
hereby expressly promises to pay) owing by Mortgagor to the Trustee and/or
Mortgagee and shall bear interest from the date of making such advance by the
Trustee and/or Mortgagee until paid at the Post Default Rate.
Section 4.05 Foreclosure for Installments. Mortgagee shall also have the
option to proceed with foreclosure in satisfaction of any installments of the
Indebtedness which have not been paid when due either through the courts or by
directing the Trustee or his successors in trust to proceed with foreclosure in
satisfaction of the matured but unpaid portion of the Indebtedness as if under a
full foreclosure, conducting the sale as herein provided and without declaring
the entire principal balance and accrued interest due; such sale may be made
subject to the unmatured portion of the Indebtedness, and any such sale shall
not in any manner affect the unmatured portion of the Indebtedness, but as to
such unmatured portion of the Indebtedness this Mortgage shall remain in full
force and effect just as though no sale had been made hereunder. It is further
agreed that several sales may be made hereunder without exhausting the right of
sale for any unmatured part of the Indebtedness, it being the purpose hereof to
provide for a foreclosure and sale of the security for any matured portion of
the Indebtedness without exhausting the power to foreclose and sell the
Mortgaged Property for any subsequently maturing portion of the Indebtedness.
Section 4.06 Separate Sales The Mortgaged Property may be sold in one or
more parcels and in such manner and order as Mortgagee, in its sole discretion,
may elect, it being expressly understood and agreed that the right of sale
arising out of any Event of Default shall not be exhausted by any one or more
sales.
Section 4.07 Possession of Mortgaged Property. Mortgagor agrees to the
full extent that it lawfully may, that, in case one or more of the Events of
Default shall have occurred and shall not have been remedied, then, and in every
such case, the Trustee or Mortgagee shall have the right and power to enter into
and upon and take possession of all or any part of the Mortgaged Property in the
possession of Mortgagor, its successors or assigns, or its or their agents or
servants, and may exclude Mortgagor, its successors or assigns, and all persons
claiming under Mortgagor, and its or their agents or servants wholly or partly
therefrom; and, holding the same, the Trustee may use, administer, manage,
operate and control the Mortgaged Property and conduct the business thereof to
the same extent as Mortgagor, its successors or assigns, might at the time do
and may exercise all rights and powers of Mortgagor, in the name, place and
stead of Mortgagor, or otherwise as the Trustee shall deem best. All costs,
expenses and liabilities of every character incurred by the Trustee and/or
Mortgagee in administering, managing, operating, and controlling the Mortgaged
Property shall constitute a demand obligation (which obligation
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Mortgagor hereby expressly promises to pay) owing by Mortgagor to the Trustee
and/or Mortgagee and shall bear interest from date of expenditure until paid at
the Post Default Rate, all of which shall constitute a portion of the
Indebtedness and shall be secured by this Mortgage and all other Security
Instruments.
Section 4.08 Occupancy After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's
heirs, devisees, representatives, successors or assigns or any other person
claiming any interest in the Mortgaged Property by, through or under Mortgagor,
are occupying or using the Mortgaged Property or any part thereof, each and all
shall immediately become the tenant of the purchaser at such sale, which tenancy
shall be a tenancy from day to day, terminable at the will of either the
landlord or tenant, or at a reasonable rental per day based upon the value of
the property occupied, such rental to be due daily to the purchaser; to the
extent permitted by applicable law, the purchaser at such sale shall,
notwithstanding any language herein apparently to the contrary, have the sole
option to demand immediate possession following the sale or to permit the
occupants to remain as tenants at will. In the event the tenant fails to
surrender possession of said property upon demand, the purchaser shall be
entitled to institute and maintain a summary action for possession of the
Mortgaged Property (such as an action for forcible entry and detainer) in any
court having jurisdiction.
Section 4.09 Remedies Cumulative, Concurrent and Nonexclusive. Every
right, power and remedy herein given to the Trustee or Mortgagee shall be
cumulative and in addition to every other right, power and remedy herein
specifically given or now or hereafter existing in equity, at law or by statute
(including specifically those granted by the Texas UCC and applicable to the
Mortgage Property or any portion thereof) each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and so often and in such order as may be deemed expedient by the
Trustee or Mortgagee, and the exercise, or the beginning of the exercise, of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter any other right, power or remedy. No
delay or omission by the Trustee or Mortgagee in the exercise of any right,
power or remedy shall impair any such right, power or remedy or operate as a
waiver thereof or of any other right, power or remedy then or thereafter
existing.
Section 4.10 No Release of Obligations. Neither Mortgagor, any guarantor
nor any other person hereafter obligated for payment of all or any part of the
Indebtedness shall be relieved of such obligation by reason of (a) the failure
of Trustee to comply with any request of Mortgagor, or any guarantor or any
other person so obligated to foreclose the lien of this Mortgage or to enforce
any provision hereunder or under the Credit Agreement; (b) the release,
regardless of consideration, of the Mortgaged Property or any portion thereof or
interest therein or the addition of any other property to the Mortgaged
Property; (c) any agreement or stipulation between any subsequent owner of the
Mortgaged Property and Mortgagee extending, renewing, rearranging or in any
other way modifying the terms of this Mortgage without first having obtained the
consent of, given notice to or paid any consideration to Mortgagor, any
guarantor or such other person, and in such event Mortgagor, guarantor and all
such other persons shall continue to be liable to make payment according to the
terms of any such extension or
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modification agreement unless expressly released and discharged in writing by
Mortgagee; or (d) by any other act or occurrence save and except the complete
payment of the Indebtedness and the complete fulfillment of all obligations
hereunder or under the Credit Agreement.
Section 4.11 Release of and Resort to Collateral. Mortgagee may release,
regardless of consideration, any part of the Mortgaged Property without, as to
the remainder, in any way impairing, affecting, subordinating or releasing the
lien or security interest created in or evidenced by this Mortgage or its
stature as a first and prior lien and security interest in and to the Mortgaged
Property, and without in any way releasing or diminishing the liability of any
person or entity liable for the repayment of the Indebtedness. For payment of
the Indebtedness, Mortgagee may resort to any other security therefor held by
Mortgagee or Trustee in such order and manner as Mortgagee may elect.
Section 4.12 Waiver of Redemption, Notice and Marshalling of Assets, Etc.
To the fullest extent permitted by law, Mortgagor hereby irrevocably and
unconditionally waives and releases (a) all benefits that might accrue to
Mortgagor by virtue of any present or future moratorium law or other law
exempting the Mortgaged Property from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution, exemption from
civil process, redemption or extension of time for payment; (b) except as
provided in the Credit Agreement, all notices of any Event of Default or of
Mortgagee's intention to accelerate maturity of the Indebtedness or of Trustee's
election to exercise or his actual exercise of any right, remedy or recourse
provided for hereunder or under the Credit Agreement; and (c) any right to a
marshalling of assets or a sale in inverse order of alienation. If any law
referred to in this Mortgage and now in force, of which Mortgagor or its
successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall thereafter
be deemed not to constitute any part of the contract herein contained or to
preclude the operation or application of the provisions hereof.
Section 4.13 Discontinuance of Proceedings In case Mortgagee shall have
proceeded to invoke any right, remedy or recourse permitted hereunder or under
the Credit Agreement and shall thereafter elect to discontinue or abandon same
for any reason, Mortgagee shall have the unqualified right so to do and, in such
an event, Mortgagor and Mortgagee shall be restored to their former positions
with respect to the Indebtedness this Mortgage, the Credit Agreement, the
Mortgaged Property and otherwise, and the rights, remedies, recourses and powers
of Mortgagee shall continue as if same had never been invoked.
Section 4.14 Application of Proceeds. The proceeds of any sale of the
Mortgaged Property or any part thereof and all other monies received by the
Trustee in any proceedings for the enforcement hereof, whose application has not
elsewhere herein been specifically provided for, shall be applied:
(a) first, to the payment of all expenses incurred by the Trustee or
Mortgagee incident to the enforcement of this Mortgage, the Credit Agreement or
any of the Indebtedness (including, without limiting the generality of the
foregoing, expenses of any entry or taking of
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possession, of any sale, of advertisement thereof, and of conveyances, and court
costs, compensation of agents and employees, and legal fees), and to the payment
of all other charges, expenses, liabilities and advances incurred or made by the
Trustee or Mortgagee under this Mortgage or in executing any trust or power
hereunder;
(b) second to payment of the Indebtedness in such order and manner as
Mortgagee may elect; and
(c) third, to Mortgagor; or as otherwise required by any Governmental
Requirement.
Section 4.15 Resignation of Operator. In addition to all rights and
remedies under this Mortgage, at law and in equity, if any Event of Default
shall occur and Trustee or the Mortgagee shall exercise any remedies under this
Mortgage with respect to any portion of the Mortgaged Property (or Mortgagor
shall transfer any Mortgaged Property "in lieu of" foreclosure), the Mortgagee
or the Trustee shall have the right to request that any operator of any
Mortgaged Property, to the extent such operator is either Mortgagor or any
Affiliate of Mortgagor, resign as operator under the joint operating agreement
applicable thereto, and no later than 60 days after receipt by Mortgagor of any
such request, Mortgagor shall resign (or cause such other party to resign) as
operator of such Mortgaged Property.
Section 4.16 Indemnity. In connection with any action taken by the
Trustee and/or Mortgagee pursuant to this Mortgage, the Trustee and/or Mortgagee
and their officers, directors, employees, representatives, agents, attorneys,
accountants and experts ("Indemnified Parties") shall not be liable for any loss
sustained by Mortgagor resulting from an assertion that Mortgagee has received
funds from the production of Hydrocarbons claimed by third persons or any act or
omission of any Indemnified Party in administering, managing, operating or
controlling the Mortgaged Property including such loss which may result from the
ordinary negligence of an Indemnified Party unless such loss is caused by the
willful misconduct or bad faith of an Indemnified Party, nor shall the Trustee
and/or Mortgagee be obligated to perform or discharge any obligation, duty or
liability of Mortgagor. Mortgagor shall and does hereby agree to indemnify each
Indemnified Party for, and to hold each Indemnified Party harmless from, any and
all liability, loss or damage which may or might be incurred by any Indemnified
Party by reason of this Mortgage or the exercise of rights or remedies
hereunder; should the Trustee and/or Mortgagee make any expenditure on account
of any such liability, loss or damage, the amount thereof, including costs,
expenses and reasonable attorneys' fees, shall be a demand obligation (which
obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to the
Trustee and/or Mortgagee and shall bear interest from the date expended until
paid at the Post-Default Rate, shall be a part of the Indebtedness and shall be
secured by this Mortgage and any other Security Instrument. The liabilities of
the
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Mortgagor as set forth in this Section 4.15 shall survive the termination of
this Mortgage.
ARTICLE V
The Trustee
Section 5.01 Duties, Rights, and Powers of Trustee. It shall be no part
of the duty of the Trustee to see to any recording, filing or registration of
this Mortgage or any other instrument in addition or supplemental thereto, or to
give any notice thereof, or to see to the payment of or be under any duty in
respect of any tax or assessment or other governmental charge which may be
levied or assessed on the Mortgaged Property, or any part thereof, or against
Mortgagor, or to see to the performance or observance by Mortgagor of any of the
covenants and agreements contained herein. The Trustee shall not be responsible
for the execution, acknowledgment or validity of this Mortgage or of any
instrument in addition or supplemental hereto or for the sufficiency of the
security purported to be created hereby, and makes no representation in respect
thereof or in respect of the rights of Mortgagee. The Trustee shall have the
right to advise with counsel upon any matters arising hereunder and shall be
fully protected in relying as to legal matters on the advice of counsel. The
Trustee shall not incur any personal liability hereunder except for Trustee's
own willful misconduct; and the Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by him hereunder, believed by him in good faith to be
genuine.
Section 5.02 Successor Trustee. The Trustee may resign by written notice
addressed to Mortgagee or be removed at any time with or without cause by an
instrument in writing duly executed on behalf of Mortgagee. In case of the
death, resignation or removal of the Trustee, a successor trustee may be
appointed by Mortgagee by instrument of substitution complying with any
applicable requirements of law, or, in the absence of any such requirement,
without other formality than appointment and designation in writing. Written
notice of such appointment and designation shall be given by Mortgagee to
Mortgagor, but the validity of any such appointment shall not be impaired or
affected by failure to give such notice or by any defect therein. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all the facts therein recited, and, upon the making of any
such appointment and designation, this Mortgage shall vest in the successor
trustee all the estate and title in and to all of the Mortgaged Property, and
the successor trustee shall thereupon succeed to all of the rights, powers,
privileges, immunities and duties hereby conferred upon the Trustee named
herein, and one such appointment and designation shall not exhaust the right to
appoint and designate a successor trustee hereunder but such right may be
exercised repeatedly as long as any Indebtedness remains unpaid hereunder. To
facilitate the administration of the duties hereunder, Mortgagee may appoint
multiple trustees to serve in such capacity or in such jurisdictions as
Mortgagee may designate.
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Section 5.03 Retention of Moneys. All moneys received by Trustee shall,
until used or applied as herein provided, be held in trust for the purposes for
which they were received, but need not be segregated in any manner from any
other moneys (except to the extent required by law), and Trustee shall be under
no liability for interest on any moneys received by him hereunder.
ARTICLE VI
Miscellaneous
Section 6.01 Instrument Construed as Mortgage, Etc. With respect to any
portions of the Mortgaged Property located in any state or other jurisdiction
the laws of which do not provide for the use or enforcement of a deed of trust
or the office, rights and authority of the Trustee as herein provided, the
general language of conveyance hereof to the Trustee is intended and the same
shall be construed as words of mortgage unto and in favor of Mortgagee and the
rights and authority granted to the Trustee herein may be enforced and asserted
by Mortgagee in accordance with the laws of the jurisdiction in which such
portion of the Mortgaged Property is located and the same may be foreclosed at
the option of Mortgagee as to any or all such portions of the Mortgaged Property
in any manner permitted by the laws of the jurisdiction in which such portions
of the Mortgaged Property is situated. This Mortgage may be construed as a
mortgage, deed of trust, chattel mortgage, conveyance, assignment, security
agreement, pledge, financing statement, hypothecation or contract, or any one or
more of them, in order fully to effectuate the lien hereof and the purposes and
agreements herein set forth.
Section 6.02 Release of Mortgage. If all Indebtedness secured hereby
shall be paid and the Credit Agreement terminated, Mortgagee shall forthwith
cause satisfaction and discharge of this Mortgage to be entered upon the record
at the expense of Mortgagor and shall execute and deliver or cause to be
executed and delivered such instruments of satisfaction and reassignment as may
be appropriate. Otherwise, this Mortgage shall remain and continue in full
force and effect.
Section 6.03 Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions hereof
shall be liberally construed in favor of the Trustee and Mortgagee in order to
effectuate the provisions hereof, and the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction.
Section 6.04 Successors and Assigns of Parties. The term "Mortgagee" as
used herein shall mean and include any legal owner, holder, assignee or pledgee
of any of the Indebtedness secured hereby. The terms used to designate Trustee,
Mortgagee and Mortgagor shall be deemed to include the respective heirs, legal
representatives, successors and assigns of such parties.
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Section 6.05 Satisfaction of Prior Encumbrance. To the extent that
proceeds of the Credit Agreement are used to pay indebtedness secured by any
outstanding lien, security interest, charge or prior encumbrance against the
Mortgaged Property, such proceeds have been advanced by Mortgagee at Mortgagor's
request, and Mortgagee shall be subrogated to any and all rights, security
interests and liens owned by any owner or holder of such outstanding liens,
security interests, charges or encumbrances, irrespective of whether said liens,
security interests, charges or encumbrances are released, and it is expressly
understood that, in consideration of the payment of such other indebtedness by
Mortgagee, Mortgagor hereby waives and releases all demands and causes of action
for offsets and payments to, upon and in connection with the said indebtedness.
Section 6.06 Subrogation of Trustee. This Mortgage is made with full
substitution and subrogation of the Trustee and his successors in this trust and
his and their assigns in and to all covenants and warranties by others
heretofore given or made in respect of the Mortgaged Property or any part
thereof.
Section 6.07 Nature of Covenants. The covenants and agreements herein
contained shall constitute covenants running with the land and interests covered
or affected hereby and shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.
Section 6.08 Notices. All notices, requests, consents, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed sufficiently given or furnished if delivered by registered or certified
United States mail, postage prepaid, or by personal service (including express
or courier service) at the addresses specified at the end of this Mortgage
(unless changed by similar notice in writing given by the particular party whose
address is to be changed). Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in the case of
delivery at the address and in the manner provided herein, upon receipt;
provided that, service of notice as required by the laws of any state in which
portions of the Mortgaged Property may be situated shall for all purposes be
deemed appropriate and sufficient with the giving of such notice.
Section 6.09 Counterparts. This Mortgage is being executed in several
counterparts, all of which are identical, except that to facilitate recordation,
if the Mortgaged Property is situated in more than one county, only those
portions of the description of the Mortgaged Property attached hereto as Exhibit
A located in the county in which a particular counterpart is recorded shall be
attached hereto. A complete Exhibit A will be attached to that certain
counterpart to be attached to a Financing Statement and filed with the Secretary
of State of Texas in the Uniform Commercial Code Records. Each of such
counterparts shall for all purposes be deemed to be an original and all such
counterparts shall together constitute but one and the same instrument.
Section 6.10 Exculpation Provisions. Each of the parties hereto
specifically agrees that it has a duty to read this Mortgage; and agrees that it
is charged with notice and knowledge of the terms of this Mortgage; that it
-17-
has in fact read this Mortgage and is fully informed and has full notice and
knowledge of the terms, conditions and effects of this Mortgage; that it has
been represented by legal counsel of its choice throughout the negotiations
preceding its execution of this Mortgage; and has received the advice of its
attorney in entering into this Mortgage; and that it recognizes that certain of
the terms of this Mortgage result in one party assuming the liability inherent
in some aspects of the transaction and relieving the other party of its
responsibility for such liability. Each party hereto agrees and covenants that
it will not contest the validity or enforceability of any exculpatory provision
of this Mortgage on the basis that the party had no notice or knowledge of such
provision or that the provision is not "conspicuous."
[SIGNATURE BEGINS NEXT PAGE]
-18-
WITNESS THE EXECUTION HEREOF, this 7th day of June, 1996, to be effective as
of the 7th day of June, 1996 (the "Effective Date").
MORTGAGOR:
TESORO E&P COMPANY, L.P.
By: Tesoro Exploration and Production
Company, its general partner
By: /s/ G. A. Wright
Name: G. A. Wright
Title: Vice President and Treasurer
The name and address of the Debtor/Mortgagor is:
TESORO E&P COMPANY, L.P.
8700 Tesoro Drive
San Antonio, Texas 78217
The name and address of the Secured Party/Mortgagee is:
BANQUE PARIBAS, AS ADMINISTRATIVE AGENT
1200 Smith Street, Suite 3100
Houston, Texas 77002
-19-
THE STATE OF TEXAS
COUNTY OF HARRIS
THIS INSTRUMENT was acknowledged before me on June 7th, 1996 by G. A.
Wright, Vice President and Treasurer of Tesoro Exploration and Production
Company, a Delaware corporation, general partner of Tesoro E&P Company, L.P., a
Delaware limited liability company, on behalf of such corporation.
/s/ Linda Daugherty
Notary Public in and for the
State of TEXAS
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TESORO
PETROLEUM CORPORATION'S FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,494
<SECURITIES> 0
<RECEIVABLES> 163,552
<ALLOWANCES> 2,156
<INVENTORY> 82,796
<CURRENT-ASSETS> 259,289
<PP&E> 522,265
<DEPRECIATION> 237,396
<TOTAL-ASSETS> 572,810
<CURRENT-LIABILITIES> 107,649
<BONDS> 168,599
<COMMON> 4,382
0
0
<OTHER-SE> 242,070
<TOTAL-LIABILITY-AND-EQUITY> 572,810
<SALES> 472,370
<TOTAL-REVENUES> 477,473
<CGS> 409,378
<TOTAL-COSTS> 409,378
<OTHER-EXPENSES> 20,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 27,453
<INCOME-TAX> 9,473
<INCOME-CONTINUING> 17,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,980
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
