<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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 0-6247
---------------------
ARABIAN SHIELD DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10830 NORTH CENTRAL EXPRESSWAY
SUITE 175
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (214) 692-7872
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
(TITLE OF CLASS)
Common Stock, par value $0.10 per share
---------------------
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Number of shares of registrant's Common Stock, par value $0.10 per share,
outstanding as of March 16, 2000: 22,269,994.
The aggregate market value on March 16, 2000 of the registrant's voting
securities held by non-affiliates was $15,550,430.
DOCUMENTS INCORPORATED BY REFERENCE
(a) Selected portions of the registrant's definitive Proxy Statement for
the Annual Meeting to be held May 15, 2000. -- Part III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Arabian Shield Development Company (the "Company") was organized as a
Delaware corporation in 1967. The Company's principal business activities
include refining various specialty petrochemical products and developing mineral
properties in Saudi Arabia and the United States. All of its mineral properties
are presently undeveloped and require significant capital expenditures before
beginning any commercial operations. The Company's undeveloped mineral interests
are primarily located in Saudi Arabia.
On January 25, 2000, Texas Oil & Chemical Co. II, Inc., an indirect, wholly
owned subsidiary of the Company, acquired 92% of the issued and outstanding
shares of common stock of Productos Quimicos Coin, S.A. de. C.V. ("Coin"), a
specialty petrochemical products refining company located in Coatzacoalcos, on
the Yucatan Peninsula near Veracruz, Mexico. The purchase price was
approximately $2.5 million.
United States Activities. The Company's domestic activities are primarily
conducted through a wholly owned subsidiary, American Shield Refining Company
(the "Refining Company"), which owns all of the capital stock of Texas Oil and
Chemical Co. II, Inc. ("TOCCO"). TOCCO owns all of the capital stock of South
Hampton Refining Company ("South Hampton"), and South Hampton owns all of the
capital stock of Gulf State Pipe Line Company, Inc. ("Gulf State"). South
Hampton owns and operates a specialty petrochemical products refinery near
Silsbee, Texas that is one of the largest manufacturers of pentanes consumed
domestically. Gulf State owns and operates three pipelines which connect the
South Hampton refinery to a natural gas line, to South Hampton's truck and rail
loading terminal and to a marine terminal owned by an unaffiliated third party.
The Company also directly owns all of American Shield Coal Company (the "Coal
Company") and approximately 51% of the capital stock of a Nevada mining company,
Pioche-Ely Valley Mines, Inc. ("Pioche"). Neither the Coal Company nor Pioche
conduct any substantial business activities. See Item 2. Properties.
Saudi Arabian Activities. The Company holds a thirty (30) year mining lease
(which commenced on May 22, 1993) covering an approximate 44 square kilometer
area in the Al Masane area in southwestern Saudi Arabia. The Company has the
option to renew or extend the term of the lease for additional periods not to
exceed twenty (20) years. The Company was granted exploration licenses for the
other areas in southwestern Saudi Arabia which have expired.
Mexico Activities. TOCCO acquired 92% of the issued and outstanding shares
of common stock of Coin, a specialty petrochemical products refining company,
from Spechem, S.A. de.C.V. on January 25, 2000 at a purchase price of
approximately $2.5 million. The refinery is located in Coatzacoalcos, on the
Yucatan Peninsula near Veracruz, Mexico. An administrative office is located in
Mexico City.
See Item 2. Properties for additional discussions regarding all of the
Company's properties and financing of the Al Masane project.
Note 12 to the Company's Consolidated Financial Statements contains
information regarding the Company's industry segments for the years ended
December 31, 1999, 1998 and 1997. In addition, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of the Company's liquidity, capital resources and operating results.
FOREIGN OPERATIONS
Since a substantial portion of the Company's mineral properties and related
interests, and its newly acquired petrochemical refinery, are located outside of
the United States, its business and properties are subject to foreign laws and
foreign conditions, with the attendant varying risks and advantages. Foreign
exchange controls, foreign legal and political concepts, foreign government
instability, international economics and other factors create risks not
necessarily comparable with those involved in doing business in the United
States.
1
<PAGE> 3
COMPETITION
The Company competes in both the petrochemical and mining industries.
Accordingly, the Company is subject to intense competition among a large number
of companies, both larger and smaller than the Company, many of which have
financial and other resources (including facilities and personnel) greater than
the Company. In the specialty products and solvents markets, the Refining
Company has one principal and one other competitor. Generally good economic
conditions have meant strong demand for its specialty products and solvents.
Consequently, the Refining Company has not faced any recent significant price
competition in these markets. The acquisition of Coin will strengthen the
Refining Company's position in the market in Mexico and allow it to pursue
increased sales volumes in the United States. All of the Refining Company's raw
materials are purchased on the open market. The cost of these materials is a
function of spot market oil and gas prices, which trended down during 1998,
began rising in mid-1999 and continued to rise dramatically in the first quarter
of 2000. The rise in these feedstock prices has adversely affected the Refining
Company's gross margin.
ENVIRONMENTAL MATTERS
In 1993, while remediating a small spill area, The Texas Natural Resources
Conservation Commission required South Hampton to drill a well to check for
groundwater contamination under the spill area. Two pools of hydrocarbons were
discovered to be floating on the groundwater at a depth of approximately 25
feet. One pool is under the site of a former gas processing plant owned and
operated by Sinclair, Arco and others before its purchase by South Hampton in
1981. The other pool is under the South Hampton facility. Subsequent tests
determined that hydrocarbons are contained on the property and are not moving in
any direction. The recovery process was initiated in June 1998 and approximately
$53,000 was spent setting up the system. The recovery is proceeding as planned
and is expected to continue for several years until the pools are reduced to an
acceptable level. Expenses of recovery and periodic migration testing will be
recorded as normal operating expenses. Expenses for future years recovery are
expected to stabilize and be less per annum than the initial set up cost,
although there can be no assurance of this effect. Consulting engineers estimate
that as much as 20,000 barrels of recoverable material may be available to South
Hampton for use in its refining process, but no reduction has been made in the
accrual for remediation costs due to the uncertainties relating to the recovery
process. Also, see Item 3. Legal Proceedings.
The Clean Air Act Amendments of 1990 have had a positive effect on the
Refining Company's business as plastics manufacturers are searching for ways to
use more environmentally acceptable solvents in their processes. Plastics
manufacturers have historically used C6 hydrocarbons (hexanes) as coolants and
catalyst carrying agents. There is a current trend among plastics manufacturers
toward the use of lighter and more recoverable C5 hydrocarbons (pentanes) which
are a large part of the Refining Company's product line. Management believes its
ability to manufacture high quality solvents in the C5 hydrocarbon market will
provide a basis for growth over the next few years; however, there can be no
assurance that such growth will occur. While the refinery continues to
manufacture C6 solvents, its manufacturing of these solvents is being phased
out. The Aromax(R) unit, which was jointly developed with Chevron Research
Company, has the ability to convert C6 hydrocarbons into benzene and other more
valuable aromatic compounds, which is one of the reasons the Refining Company
initially participated in the Aromax(R) development project. Also, see Item 2.
Properties.
PERSONNEL
The Company's officers who are resident in the United States are Mr. John
A. Crichton, Chairman of the Board, and Mr. Drew Wilson, Jr., Secretary and
Treasurer. Mr. Hatem El-Khalidi, the Company's President and Chief Executive
Officer, supervises the Company's 28 employees in Saudi Arabia, consisting of
the office personnel and field crews who conduct exploration and related
activities. The Refining Company employs 75 persons.
2
<PAGE> 4
ITEM 2. PROPERTIES.
UNITED STATES SPECIALTY PRODUCTS REFINERY
South Hampton owns and operates a specialty products refinery near Silsbee,
Texas. The refinery presently consists of eight operating units which, while
interconnected, make distinct products through differing processes: (i) a
pentane-hexane unit; (ii) a catalytic reformer; (iii) an aromatics fractionation
unit; (iv) a cyclopentane unit; (v) an Aromax(R) unit; (vi) an aromatics
hydrogenation unit; and (vii) two specialty fractionation units. All of these
units are currently in operation.
The pentane-hexane unit's design capacity is approximately 2,500 barrels
per day ("BPD") of feedstock. The unit averaged 2,209 barrels per stream day
during 1999. The unit consists of a series of fractionation towers and
hydrotreaters capable of producing high purity solvents which are sold primarily
to expandable polystyrene and high density polyethylene producers. South Hampton
purchases most of its feedstock for this unit on the spot market.
De-bottlenecking and test runs increased the design capacity by approximately
200 BPD in late 1999.
The catalytic reforming unit is a standard industry design using a
platinum-rhenium catalyst which produces an aromatics concentrate sold as
feedstock for an aromatics extraction unit, as well as hydrogen which is
utilized in other processes. The design capacity of the reformer is 800 BPD. The
unit is operated as a source of hydrogen for the pentane-hexane unit and
operates in tandem with the Aromax(R) unit as feedstock balances dictate. The
unit's average production was 480 barrels per stream day in 1999.
The aromatics fractionation unit consists of two towers and has a design
capacity of 750 BPD. The unit processes an aromatic feedstock stream into three
specialized aromatic solvents used in various applications such as pesticides,
paints and coatings and adhesives. This unit is leased to a customer for its own
use pursuant to a contract providing for the payment of a minimum daily charge.
The cyclopentane unit consists of three specialized fractionation towers
designed to produce a consistently high quality product which is used in the
expandable polystyrene industry. The design capacity of the cyclopentane unit is
400 BPD. The unit operates according to the feedstock supplied by the
pentane-hexane unit and averaged 270 barrels of production per stream day during
1999.
The Aromax(R) unit is the world's first commercial unit using a proprietary
process of Chevron Research Company to produce a high benzene content product
which is sold as feedstock to refiners operating benzene extraction units. The
process converts petroleum naphtha into liquid hydrocarbons having a high
aromatic hydrocarbon content. The Aromax(R) unit's design capacity is 400 BPD
and uses a by-product from the pentane-hexane unit as feedstock. The unit's
average production throughput during 1999 was 145 barrels per stream day.
Chevron Research Company has agreed to continue development of the Aromax(R)
process. The unit continues to successfully operate as designed.
The aromatics hydrogenation unit consists of a hydrotreating reactor and a
single fractionation tower which strips excess gas from the product. The design
capacity of this unit is 500 BPD. This unit converts a high purity aromatic
feedstock into a more environmentally acceptable high purity solvent. This unit
is leased to a customer for its own use pursuant to a contract providing for the
payment of a minimum daily charge. This unit will be decommissioned and
converted to another use during the second quarter of 2000.
The specialty fractionation unit consists of a single fractionation tower
and has a design capacity of 500 BPD. This unit is leased to a customer for its
own use pursuant to a contract providing for the payment of a minimum daily
charge.
The specialty solvents fractionation unit, completed in April 1999,
consists of three fractionation towers, two of which operate under vacuum. The
design capacity of this unit is 1,000 BPD. This unit processes a specialized
high purity feedstock into four high purity white oil solvents. This unit is
leased to a customer for its own use pursuant to a contract providing for the
payment of a minimum daily charge.
South Hampton owns approximately 100 storage tanks with a total capacity of
approximately 320,000 barrels. Two spherical storage tanks were constructed
during the second quarter of 1999 and are
3
<PAGE> 5
utilized in the management of pentane inventory. The refinery is situated on 125
acres of land, approximately 70 acres of which are developed. Approximately 25
additional acres were purchased in 1999 and South Hampton has a contract to
purchase an additional eight acres in 2000. South Hampton also owns a truck and
railroad loading terminal consisting of eight storage tanks, a rail spur and
truck and tank car loading facilities.
As a result of various expansion programs and the toll processing
contracts, essentially all of the standing equipment at South Hampton is
operational. South Hampton has surplus equipment in storage on site with which
to assemble additional processing units, such as a hydrocracking unit with a
2,000 BPD capacity.
Gulf State owns and operates three 8 inch pipelines aggregating
approximately 50 miles in length that connect South Hampton's refinery to a
natural gas line, to South Hampton's truck and rail loading terminal and to a
marine terminal owned by an unaffiliated third party. South Hampton leases
storage facilities at the marine terminal.
MEXICO SPECIALTY PRODUCTS REFINERY
The newly acquired refinery in Mexico is a specialty petrochemical plant,
similar to South Hampton's refinery in Silsbee, Texas, which produces high
purity solvents which are used in the expandable polystyrene and polystyrene
foam industries. These solvents are additionally approved and used by developers
of high-density polyethylene manufacturing processes for use in their licensed
units. Coin markets its products in Mexico, Latin America and the United States.
With this acquisition, the Company believes its refining operations are a
significant supplier of high purity solvents in those markets. Coin employs 40
persons.
SAUDI ARABIA MINING PROPERTIES
Al Masane Project
The Al Masane project, consisting of a mining lease area of approximately
44 square kilometers, contains extensive ancient mineral workings and smelters.
From ancient inscriptions in the area, it is believed that mining activities
went on sporadically from 1000 BC to 700 AD. The ancients are believed to have
extracted mainly gold, silver and copper.
Initial Exploration Work and Prior Feasibility Studies. The Saudi Arabian
government granted the Company exploration licenses for the Al Masane and Wadi
Qatan areas in 1971. Subsequently, the Company conducted substantial geological
and geophysical activities in these areas. Core drilling and studies by
independent consulting firms concluded that Al Masane's copper, zinc, gold and
silver prospects could be put in production sooner than the nickel prospect at
Wadi Qatan. Metallurgical tests also showed difficulty in separating the nickel
at Wadi Qatan. During 1977, a pre-feasibility mining study was conducted at Al
Masane by the mining consulting firm of Watts, Griffis and McOuat Limited of
Toronto, Canada ("WGM"). WGM recommended an extensive development program for
the Al Masane prospect.
Phase I of WGM's recommended Al Masane development program was completed in
April 1981. It involved construction of underground tunnels parallel to the ore
bodies totaling 3.9 kilometers in length from which extensive underground core
drilling was done in order to prove the quantity and quality of the ore
reserves. This work was financed primarily with an $11 million interest-free
loan from the Saudi Arabian Ministry of Finance. As a result of this work, WGM
concluded that sufficient ore reserves had been established to justify
completion of a full bank feasibility study to determine the economic potential
of establishing a commercial mining and ore treatment operation at Al Masane.
WGM and SNC/GECO of Montreal, Canada conducted this study in 1982. They
concluded that the Al Masane deposits would support commercial production of
copper, zinc, gold and silver and recommended implementation of Phase II of the
Al Masane development program, which would involve the construction of mining,
ore treatment and support facilities. WGM's September 1984 reevaluation of the
project resulted in no substantial changes of their initial conclusions and
recommendations.
The Company continued its exploration work at Al Masane after 1984.
Consequently, WGM upwardly revised its reserve estimates in 1989 and again
concluded that a proposed mining operation was economically viable as well as
having high potential for the discovery of additional ore zones.
4
<PAGE> 6
Current Feasibility Studies. The Saudi government granted the Company a
mining lease for the Al Masane area on May 22, 1993. The Company subsequently
commissioned WGM to prepare a new fully bankable feasibility study to be used to
obtain financing for commercial development of the project. The study, which was
completed in 1994, contained specific recommendations to insure that project
construction was accomplished expeditiously and economically. The engineering
design and costing portions of the study were performed by Davy International of
Toronto, Canada ("Davy"). WGM and Davy updated this study in 1996. A summary of
the studies' findings are as follows:
The Al Masane ore is located in three mineralized zones known as Saadah, Al
Houra and Moyeath. The following table sets forth a summary of the diluted
minable, proven and probable ore reserves at the Al Masane project, along with
the estimated average grades of these reserves:
<TABLE>
<CAPTION>
RESERVE COPPER ZINC GOLD SILVER
ZONE (TONNES) (%) (%) (G/T) (G/T)
- ---- --------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C>
Saadah....................................... 3,872,400 1.67 4.73 1.00 28.36
Al Houra..................................... 2,465,230 1.22 4.95 1.46 50.06
Moyeath...................................... 874,370 0.88 8.92 1.29 64.85
--------- ---- ---- ---- -----
Total.............................. 7,212,000 1.42 5.31 1.19 40.20
</TABLE>
For purposes of calculating, proven and probable reserves, a dilution of 5%
at zero grade on the Saadah zone and 15% at zero grade on the Al Houra and
Moyeath zones was assumed. A mining recovery of 80% has been used for the Saadah
zone and 88% for the Al Houra and Moyeath zones. Mining dilution is the amount
of wallrack adjacent to the ore body that is included in the ore extraction
process.
Proven reserves are those mineral deposits for which quantity is computed
from dimensions revealed in outcrops, trenches, workings or drillholes, and
grade is computed from results of detailed sampling. For ore deposits to be
proven, the sites for inspection, sampling and measurement must be spaced so
closely and the geologic character must be so well defined that the size, shape,
depth and mineral content of reserves are well established. Probable reserves
are those for which quantity and grade are computed from information similar to
that used for proven reserves, but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately spaced. However,
the degree of assurance, although lower than that for proven reserves, must be
high enough to assume continuity between points of observation.
The metallurgical studies conducted on the ore samples taken from the zones
indicated that 87.7% of the copper and 82.6% of the zinc could be recovered in
copper and zinc concentrates. Overall, gold and silver recovery from the ore was
estimated to be 77.3% and 81.3%, respectively, partly into copper concentrate
and partly as bullion through cyanide processing of zinc concentrates and mine
tailings. Further studies recommended by consultants may improve those
recoveries and thus the potential profitability of the project, however, there
can be no assurances of this effect.
The mining and milling operation recommended by WGM for Al Masane would
involve the production of 2,000 tonnes of ore per day (700,000 tonnes per year),
with a mine life of over ten years. Annual production is estimated to be 34,900
tonnes of copper concentrate (25% copper per tonne) containing precious metal
and 58,000 tonnes of zinc concentrate (54% zinc per tonne). Total output per
year of gold and silver is estimated to be 22,000 ounces of gold and 800,000
ounces of silver from the copper concentrate and bullion produced. The
construction of mining, milling and infrastructure facilities is estimated to
take 21 months to complete. Construction necessary to bring the Al Masane
project into production includes the construction of a 2,000 tonne per day
concentrator, infrastructure with a 300 man housing facility and the
installation of a cyanidation plant to increase the recovery of precious metals
from the deposit. Project power requirements will be met by diesel generated
power.
WGM recommended that the Al Masane reserves be mined by underground methods
using trackless mining equipment. Once the raw ore is mined, it would be
subjected to a grinding and treating process resulting in three products to be
delivered to smelters for further refining. These products are zinc concentrate,
copper concentrate and dore bullion. The copper and zinc concentrates also
contain valuable amounts of gold
5
<PAGE> 7
and silver. These concentrates and the dore bullion to be produced from the
cynidization plant are estimated to be 22,000 ounces of gold and 800,000 ounces
of silver and will be sold to copper and zinc custom smelters and refineries
worldwide. After the smelter refining process, the metals could be sold by the
Company or the smelter for the Company's account in the open market.
In the feasibility study, WGM states that there is potential to find more
reserves within the lease area, as the ore zones are all open at depth. Further
diamond drilling, which will be undertaken by the Company, is required to
quantify the additional mineralization associated with these zones. A
significant feature of the Al Masane ore zones is that they tend to have a much
greater vertical plunge than strike length; relatively small surface exposures
such as the Moyeath zone are being developed into sizeable ore tonnages by
thorough and systematic exploration. Similarly, systematic prospecting of the
small gossans in the area could yield significant tonnages of new ore.
The 1996 update shows the estimated capital cost to bring the project into
operation to be $89 million. At a production rate of 700,000 tonnes per year,
the operating cost of the project (excluding concentrate freight, ship loading,
smelter charges, depreciation, interest and taxes) was estimated to be $38.49
per tonne of ore milled.
WGM prepared an economic analysis of the project utilizing cash flow
projections. A base case was prepared that included those project elements which
are most likely to be achieved. WGM believed that a majority of the base case
assumptions used in the 1994 feasibility study remained valid, including the ore
reserves, mill feed grade, production rate, metal recoveries and concentrate
grade and smelter returns. Metal prices, capital costs, operating costs and the
corporate structure were adjusted to reflect more current information. Capital
and operating costs were adjusted in conformity with the updated estimates
prepared by Davy.
The base case assumes the corporate structure of the entity to be formed to
operate the project will be owned 50% by the Company and 50% by Saudi Arabian
investors and that the owners of this entity would contribute an aggregate of
$26 million to the cost of the project. The base case further assumes financing
for the project from commercial loans in the aggregate amount of $25 million
bearing interest at the rate of 8% per year and a loan in the amount of $38
million from the Saudi Industrial Development Fund ("SIDF") repayable in equal
annual installments over the initial life of the mine. Cash generated by the
operation of the project would contribute the remainder of the project
financing. The base case assumes that the $11 million loan outstanding to the
Saudi Arabian government will be paid by the Company in accordance with a
repayment schedule to be agreed upon with the Saudi Arabian government from the
Company's share of the project's cash flows. Based on these assumptions, and
assuming the average prices of metal over the life of the mine to be $1.05 per
pound for copper, $.60 per pound for zinc, $400 per ounce of gold and $6.00 per
ounce of silver, WGM's economic analysis of the base case shows the project will
realize an internal rate of return of 13.1%, the Company's and the Saudi Arabian
investors' internal rates of return would be 27.3% and 12.1%, respectively, and
projected net cash flow (after debt repayment) from the project of $95.1
million. The 1994 feasibility study base case showed the project would realize a
14.05% internal rate of return. Cash flow under the base case is exclusive of
income tax as the base case assumes that any such tax would be paid by
individual investors and not by the project. Assuming a 10% discount rate, the
net present value of the project as shown in the update is $12.16 million
compared to the $15.5 million net present value of the project shown in the 1994
feasibility study. Based on the update, WGM believes that the economic analysis
shows that the project remains viable.
Mining Lease. As the holder of the Al Masane mining lease, the Company is
solely responsible to the Saudi Arabian government for the rental payments and
other obligations provided for by the mining lease and repayment of the
previously discussed $11 million loan. The Company's interpretation of the
mining lease is that repayment of this loan will be made in accordance with a
repayment schedule to be agreed upon with the Saudi Arabian government from the
Company's share of the project's cash flows. The initial term of the lease is
for a period of thirty (30) years from May 22, 1993, with the Company having the
option to renew or extend the term of the lease for additional periods not to
exceed twenty (20) years. Under the lease, the Company is obligated to pay
advance surface rental in the amount of 10,000 Saudi Riyals (approximately
$2,667 at the
6
<PAGE> 8
current exchange rate) per square kilometer per year (approximately $117,300
annually) during the period of the lease. In addition, the Company must pay
income tax in accordance with the income tax laws of Saudi Arabia then in force
and pay all infrastructure costs. The Saudi Arabian Mining Code provides that
income tax will not be due during the first stage of mining operations, which is
the period of five years starting from the earlier of (i) the date of the first
sale of products or (ii) the beginning of the fourth year since the issue of the
mining lease. The lease gives the Saudi Arabian government priority to purchase
any gold production from the project as well as the right to purchase up to 10%
of the annual production of other minerals on the same terms and conditions then
available to other similar buyers and at current prices then prevailing in the
free market. Furthermore, the lease contains provisions requiring that
preferences be given to Saudi Arabian suppliers and contractors, that the
Company employ Saudi Arabian citizens and provide training to Saudi Arabian
personnel.
Reference is made to the map on page 10 of this Report for information
concerning the location of the Al Masane project.
Project Financing. As detailed above, the estimated total capital cost to
bring the Al Masane project into production is $89 million. The Company does not
presently have sufficient funds to bring this project into production. Also, see
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations for a further discussion of these matters.
Pursuant to the mining lease agreement, when the Al Masane project is
profitable the Company is obligated to form a Saudi public stock company with
the Saudi Arabian Mining Company, a corporation wholly owned by the Saudi
Arabian government ("Ma'aden"), as successor to and assignee of the mining
interests formerly held by the Petroleum Mineral Organization ("Petromin").
Ma'aden is the Saudi Arabian government's official mining company. In 1994, the
Company received instructions from the Saudi Ministry of Petroleum and Mineral
Resources stating that it is possible for the Company to form a Saudi company
without Petromin (now Ma'aden), but the sale of stock to the Saudi public could
not occur until the mine's commercial operations were profitable for at least
two years. The instructions added that Petromin (now Ma'aden) still had the
right to purchase shares in the Saudi public stock company any time it desires.
Title to the mining lease and the other obligations specified in the mining
lease would be transferred to the Saudi public stock company. However, the
Company would remain responsible for the repaying the $11 million loan to the
Saudi Arabian government.
In order to commercially develop the Al Masane project, the Company entered
into a joint venture arrangement with Al Mashreq Company for Mining Investments
("Al Mashreq"), a Saudi limited liability company owned by Saudi Arabian
investors (including certain of the Company's shareholders). The partners formed
The Arabian Shield Company for Mining Industries Ltd., a Saudi limited liability
company ("Arabian Mining"), which was officially registered and licensed in
August 1998 to conduct business in Saudi Arabia and authorized to mine and
process minerals from the Al Masane lease area. Arabian Mining received
conditional approval for a $38.1 interest-free loan from SIDF.
Due to the severe decline in the open market prices for the minerals to be
produced by the Al Masane project and the financial crisis affecting Eastern
Asia in 1998, SIDF and other potential lenders required additional guarantees
and other financing conditions which were unacceptable to the Company and Al
Mashreq. As a consequence, Al Mashreq withdrew from the joint venture. By letter
dated May 11, 1999, the Company informed the Ministry of Petroleum and Mineral
Resources that the joint venture was dissolved and that implementation of the
project will be delayed until open market prices for the minerals to be produced
by the Al Masane project improve to the average price levels experienced during
the period from 1988 through 1997. At that time, the Company will attempt to
locate a joint venture partner, form a joint venture and, together with the
joint venture partner, attempt to obtain acceptable financing to commercially
develop the project. There can be no assurances that the Company would be able
to locate a joint venture partner, form a joint venture or obtain financing from
SIDF or any other sources. In the meantime, the Company intends to maintain the
Al Masane mining lease through the payment of the annual advance surface rental,
the implementation of a drilling program to attempt to increase proven and
probable reserves and to attempt to
7
<PAGE> 9
improve the metallurgical recovery rates beyond those stated in the feasibility
study, which may improve the commercial viability of the project at lower metal
prices than those assumed in the feasibility study.
Other Exploration Areas in Saudi Arabia
During the course of its exploration and development work in the Al Masane
area, the Company has carried on exploration work in other areas in Saudi Arabia
and plans to apply for an additional exploration license(s) for these areas.
With respect to these other areas, the Company has an agreement with Petromin
(now Ma'aden) that governs the rights of the parties if the exploration licenses
granted to the Company are converted into a mining lease. Under this agreement,
Petromin (now Ma'aden) is granted an option to acquire, at any time, a 25%
interest in any mineral mining project in Saudi Arabia that is the subject of
the exploration licenses.
In 1971, the Saudi Arabian government awarded the Company exclusive mineral
exploration licenses to explore and develop the Wadi Qatan area in southwestern
Saudi Arabia. The Company was subsequently awarded an additional license in 1977
for an area north of Wadi Qatan at Jebel Harr. These licenses have expired.
In 1999, the Company applied for an exploration license covering an area of
approximately 2,850 square kilometers surrounding the Al Masane mining lease
area, which is referred to as the Greater Al Masane area. The Company previously
has been authorized in writing by the Saudi Arabian government to carry out
exploration work on the area. Previous exploration work has been carried on and
paid for by the Company.
Reference is made to the map on page 10 of this Report for information
concerning the location of the foregoing areas.
Wadi Qatan and Jebel Harr. The Wadi Qatan area is located in southwestern
Saudi Arabia. Jebel Harr is north of Wadi Qatan. Both areas are approximately 30
kilometers east of the Al Masane area. These areas consist of 40 square
kilometers, plus a northern extension of an additional 13 square kilometers. The
Company's geological, geophysical and limited core drilling disclosed the
existence of massive sulfides containing an average of 1.2% nickel. Reserves for
these areas have not yet been classified and additional exploration work is
required. When the Company obtains an exploration license for the Wadi Qatan and
Jebel Harr areas, the Company will continue its exploratory drilling program in
order to prove whether enough ore reserves exist to justify a viable mining
operation. While initial indications are encouraging, there is no assurance that
a viable mining operation could be established.
Greater Al Masane. On June 22, 1999, the Company submitted a formal
application for a five-year exclusive mineral exploration license for the
Greater Al Masane area of approximately 2,850 square kilometers, which surrounds
the Al Masane mining lease area and includes the Wadi Qatan and Jebel Harr
areas. The Company previously worked in the Greater Al Masane area after
obtaining written authorization from the Saudi Ministry of Petroleum and Mineral
Resources and has expended over $3 million on exploration work. Geophysical,
geochemical and geophysical work and diamond core drilling on the Greater Al
Masane area has revealed mineralization similar to that discovered at Al Masane.
A detailed exploration program and expenditures budget accompanied the
application. The Company indicated on its application that it would welcome the
participation of Ma'aden in this license. Ma'aden, which has expressed an
interest in the Greater Al Masane area, also was informed by the Company that
its participation as a joint venture partner in the license would be welcomed.
As previously stated, the Company does not possess current formal
exploration licenses for any of the above areas. The absence of such licenses
creates uncertainty regarding the Company's rights and obligations, if any, in
these areas. The Company believes it has satisfied the Saudi Arabian
government's requirements in these areas and that the government should honor
the Company's claims.
8
<PAGE> 10
U.S. MINERAL INTERESTS
The Company's mineral interests in the United States include its ownership
interests in the Coal Company and Pioche. The Coal Company sole remaining asset
is its net operating loss carryforward of approximately $5.9 million at December
31, 1999 and its future, if any, is uncertain. Pioche also has been inactive for
many years.
Nevada Mining Properties. Pioche's properties include 48 patented and 80
unpatented claims totaling approximately 3,500 acres. All the claims are located
in the Pioche Mining District, Lincoln County, Nevada. There are prospects and
mines on these claims that previously produced silver, gold, lead, zinc and
copper. The ore bodies are both oxidized and sulfide deposits, classified into
three groups: fissure veins in quartzite, mineralized granite porphyry and
replacement deposits in carbonate rocks (limestone and dolomites). There is a
300-ton-a-day processing mill on property owned by Pioche. The mill is not
currently in use and a significant expenditure would be required in order to put
the mill into continuous operation, if commercial mining is to be conducted on
the property.
OFFICES
The Company has a year-to-year lease on space in an office building in
Jeddah, Saudi Arabia, used for office occupancy. The Company also leases a house
in Jeddah that is used as a technical office and for staff housing. The Company
continues to lease office space in Dallas, Texas on a month-to-month basis. It
also owns a base camp and accompanying facilities and equipment at the Al Masane
project site.
9
<PAGE> 11
[GRAPH]
10
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS.
South Hampton, together with several other companies, is a defendant in two
lawsuits brought in Jefferson County, Texas District Court and one lawsuit
brought in the 163rd Judicial District Court of Orange County, Texas. The
lawsuits brought in Jefferson County, Texas were filed in December 1997 and
April 1998 by former employees of the Goodyear Tire & Rubber Company plant
located in Beaumont, Texas. The lawsuit brought in Orange County, Texas was
filed in April 1999 by a former employee of DuPont in Orange, Texas. Each of the
suits claims illnesses and diseases resulting from alleged exposure to
chemicals, including benzene, butadiene and/or isoprene, during the plaintiffs'
employment with Goodyear or DuPont. The plaintiffs claim the defendant companies
engaged in the business of manufacturing, selling and/or distributing these
chemicals in a manner which subjected each and all of them to liability for
unspecified actual and punitive damages. South Hampton intends to vigorously
defend itself against these lawsuits.
South Hampton, together with several other companies, is a defendant in a
lawsuit brought in Jefferson County, Texas District Court. The lawsuit was filed
in December 1999 by a former electrician claiming illness and disease resulting
from alleged exposure to chemical and products while on certain of the
defendants' properties. The plaintiff claims he was exposed to benzene,
butadiene and products containing these chemicals supplied by certain of the
defendants, including South Hampton. The plaintiff asserts claims of strict
liability, gross negligence and negligence against South Hampton for unspecified
actual and punitive damages. South Hampton intends to vigorously defend itself
against this lawsuit.
In August 1997, the Executive Director of the Texas National Resource
Conservation Commission ("TNRCC") filed a preliminary report and petition with
the TNRCC alleging that South Hampton violated various TNRCC rules, TNRCC
permits issued to South Hampton, a TNRCC order issued to South Hampton, the
Texas Water Code, the Texas Clean Air Act and the Texas Solid Waste Disposal
Act. The violations generally relate to the management of volatile organic
compounds in a manner that allegedly violates the TNRCC's air quality rules and
the storage, processing and disposal of hazardous waste in a manner that
allegedly violates the TNRCC's industrial and hazardous waste rules. The TNRCC's
Executive Director recommends the TNRCC enter an order assessing administrative
penalties against South Hampton in the amount of $709,408 and order South
Hampton to undertake such actions as are necessary to bring its operations at
its refinery and its bulk terminal into compliance with Texas Water Code, the
Texas Health and Safety Code, TNRCC rules, permits and orders. South Hampton is,
and intends to continue to, vigorously defending itself against this proceeding.
Appropriate modifications were made by South Hampton where it appeared there
were legitimate concerns. A preliminary hearing was held in November 1997, but
no further action has been taken.
On February 2, 2000, the TNRCC amended its pending administrative
enforcement action against South Hampton to add allegations dating through May
21, 1998 of 35 regulatory violations relating to air quality control and
industrial solid waste requirements. The TNRCC proposes that administrative
penalties be assessed in the amount of approximately $765,000 and that certain
corrective action be taken. South Hampton intends to vigorously defend itself
against these additional allegations, the proposed penalties and proposed
corrective actions.
In May 1991, the Company filed a complaint with the U.S. Department of
Justice ("DOJ") against Hunt Oil Company of Dallas, Texas ("Hunt"). The
Company's complaint alleged various violations of the Foreign Corrupt Practices
Act ("FCPA") by Hunt, at the Company's detriment, in obtaining its 1981
Petroleum Production Sharing Agreement ("PSA") in Yemen. The DOJ requested
additional documentation regarding the Company's allegations in 1995 that the
Company provided in early 1996. In late 1996, the DOJ advised the Company that
the documents presented did not provide sufficient evidence of any criminal
activity and that the DOJ did not intend to pursue the investigation at that
time. In December 1996, after providing the DOJ with additional legal analyses,
the Company's representatives were told that the DOJ would take a more
aggressive stance if additional legal evidence was presented to the DOJ. In an
effort to comply with the DOJ's request, in 1997 the Company requested certain
documents from the Central Intelligence Agency ("CIA") under the Freedom of
Information Act ("FOIA"). The Company believes the requested documents may
contain the evidentiary information that the DOJ needs to properly and
sufficiently evaluate the
11
<PAGE> 13
Company's compliant against Hunt. The CIA refused to either confirm or deny the
existence of the requested information. After exhausting its administrative
appeals, the Company filed suit against the CIA in early 1998 in the U.S.
District Court for the Northern District of Texas seeking a judicial
determination of the Company's FOIA request. The Company argued the FOIA
specifically prohibits any agency from using Executive Order 12958, relating to
classification of documents, and the FOIA to conceal criminal activity, in this
instance Hunt's violation of the FCPA. Following a February 1999 hearing, the
Court rejected the Company's arguments and issued a summary judgement in favor
of the CIA. The Company filed an appeal with the U.S. Court of Appeals for the
Fifth Circuit, which on January 28, 2000 rejected the Company's appeal. The
Company believes that this could be a landmark case and that the Court of
Appeals erred in its judgment and, as a consequence, plans to file a writ of
certiorari with the United States Supreme Court. In addition, the Company has
requested and will continue to request additional documents from both the CIA
and DOJ under appropriate provisions of the FOIA and may seek judicial review in
the event its requests are denied. In the event the Company is able to provide
the DOJ with appropriate legal evidence and the DOJ prevails in any FCPA action
against Hunt regarding the PSA, the Company would then institute an appropriate
action against Hunt in accordance with the provisions of the Victim Restitution
Act. Based on the advice of its counsel, the Company believes that it would be
entitled to restitution of monies lost as a result of the wrongdoing by Hunt, if
Hunt is convicted under the FCPA. The Company further believes, based on such
advice, that the amount of restitution could include all of the profits received
by Hunt from its Yemen operations and also could include proceeds from the sale
of a portion of Hunt's interest in the PSA. However, there can be no assurance
that the DOJ will pursue or obtain a conviction of Hunt regarding the PSA under
the FCPA and no assurance that the Company would receive or be entitled to
receive any restitution as a result of any such conviction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's common stock trades on The Nasdaq National Market under the
symbol: ARSD. The following table sets forth the high and low closing sale
prices for each quarter of 1999 and 1998, respectively, as reported by NASDAQ.
<TABLE>
<CAPTION>
1999 1998
---------------------------- -----------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
---- --- --- --- ---- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High............................ 1 1/2 1 3/16 1 3/16 1 5/16 3 13/16 2 15/16 2 3/4 2 1/16
Low............................. 15/1 3/ 7/ 3/ 2 1/16 2 1 7/8 1 7/32
</TABLE>
At March 16, 2000, there were 780 record holders of the Company's common
stock. The Company has not paid any dividends since its inception and, at this
time, does not have any plans to pay any dividends in the foreseeable future.
On November 15, 1999, the Company issued 500 shares of its common stock to
a long term employee of South Hampton in recognition of his services. In
connection with the acquisition of Coin by TOCCO, on December 23, 1999 the
Company sold 300,000 shares of its common stock to TOCCO at $1.00 per share to
assist TOCCO with the financing of the acquisition. The Company relied upon the
private offering exemption of Section 4(2) of the Securities Act of 1933 in both
of these transactions.
In March 2000, the Company issued 469,000 shares of its common stock,
valued at $1.00 per share, to Al Mashreq for the cancellation of $469,000 of
indebtedness incurred in connection with the payment of advance surface rentals
on the Al Masane project. The Company relied upon the exemption set forth in
Regulation S under the Securities Act of 1933 in this transaction.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following is a five-year summary of selected financial data of the
Company (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................. $27,791 $25,089 $26,174 $22,014 $18,359
Net Income (Loss).................... $ 2,740 $ 3,442 $ 818 $ (391) $ (369)
Net Income (Loss) Per Share.......... $ .12 $ .16 $ .04 $ (.02) $ (.02)
Total Assets (at December 31)........ $52,848 $46,683 $45,053 $44,096 $40,805
Notes Payable (at December 31)....... $11,874 $11,874 $11,376 $11,376 $15,086
Total Long-Term Obligations (at
December 31)....................... $ 4,314 $ 1,953 $ 4,110 $ 4,293 $ 1,676
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Historically, the Company's cash flows from operating activities have been
insufficient to meet its operating needs, planned capital expenditures and debt
service requirements. The Company has continually sought additional debt and
equity financing in order to fund its mineral development and other investing
activities and experienced serious difficulties obtaining additional financing.
While the Company presently needs additional financing in order to fund its
planned mineral development activities, management believes its ability to
remain a going concern is no longer dependent on obtaining outside financing.
Consequently, management intends to focus additional time and resources on
improving its specialty petrochemical refining operations and reducing the cost
of any required outside financing.
Statements in Items 7 and 7A, as well as elsewhere in, or incorporated by
reference in, this Annual Report on Form 10-K regarding the Company's financial
position, business strategy and plans and objectives of the Company's management
for future operations and other statements that are not historical facts, are
"forward-looking statements" as that term is defined under applicable Federal
securities laws. In some cases, "forward-looking statements" can be identified
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "contemplates," "proposes," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from those
expressed or implied by such statements. Such risks, uncertainties and factors
include, but are not limited to, general economic conditions domestically and
internationally; insufficient cash flows from operating activities; difficulties
in obtaining financing; outstanding debt and other financial and legal
obligations; competition; industry cycles; feedstock, specialty petrochemical
product and mineral prices; feedstock availability; technological developments;
regulatory changes; environmental matters; foreign government instability;
foreign legal and political concepts; and foreign currency fluctuations, as well
as other risks detailed in the Company's filings with the U.S. Securities and
Exchange Commission, including this Annual Report on Form 10-K, all of which are
difficult to predict and many of which are beyond the Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two business segments, specialty petrochemicals
(which is composed of the entities owned by the Refining Company) and mining.
Its corporate overhead needs are minimal. A discussion of each segment's
liquidity and capital resources follows.
Specialty Petrochemicals Segment. This segment contributes substantially
all of the Company's internally generated cash flows from operating activities.
In order to supplement its cash flows from operating activities, this business
segment entered into a $2.25 million credit facility with Southwest Bank of
Texas, N.A., located in Houston, Texas (the "Bank"). The terms and conditions of
this credit facility are discussed in Note 8 to the Company's Consolidated
Financial Statements. As a result of these actions, as well as its recent and
expected near term operating results, this segment's cash flows from operating
activities are
13
<PAGE> 15
expected to be adequate to finance its planned capital expenditures and debt
service requirements. In the event this segment were to undertake a major
capital expenditure, such as construction of a new facility, financing for this
activity would most likely come from some combination of internal resources, a
debt placement with a financial institution or a joint venture partner. Any
major capital expenditure requires the Bank's advance review and approval.
In connection with the acquisition of the common stock of Coin, South
Hampton and Gulf State entered into a $3.5 million credit facility with Heller
Financial Leasing, Inc. The credit facility is evidenced by a 47 month
promissory note bearing interest at the rate of 10.55% per annum. The terms and
conditions of this credit facility are discussed in Note 8 to the Company's
Consolidated Financial Statements. The credit facility is secured by a pledge of
all of the capital stock of South Hampton and Gulf State, a first lien on all of
South Hampton's and Gulf State's present and future machinery and equipment and
a ground lease relating to South Hampton's real property, and is guaranteed by
the Company, the Refining Company and TOCCO.
Mining Segment. This segment is in the development stage. Its most
significant asset is the Al Masane mining project in Saudi Arabia, which is a
net user of the Company's available cash and capital resources. As discussed in
Item 2. Properties, the joint venture formed with Al Mashreq to develop the
project was dissolved and implementation of the project delayed until the open
market prices for the minerals to be produced by the mine improve. At that time,
the Company will attempt to locate a joint venture partner, form a joint venture
and, together with the joint venture partner, attempt to obtain acceptable
financing to commercially develop the project. There is no assurance that a
joint venture partner can be located, a joint venture formed or, if it is
formed, that the joint venture would be able to obtain acceptable financing for
the project.
Management also is addressing two other significant financing issues within
this segment. These issues are the $11.0 million note payable due the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $900,000 due employees working in Saudi Arabia (this amount does
not include any amounts due the Company's President and Chief Executive Officer
who also primarily works in Saudi Arabia and is owed approximately $741,000).
Regarding the note payable, this loan was originally due in ten annual
installments beginning in 1984. The Company has not made any repayments nor has
it received any payment demands or other communications regarding the note
payable from the Saudi government. By memorandum to the King of Saudi Arabia in
1986, the Saudi Ministers of Finance and Petroleum recommended that the $11.0
million note be incorporated into a loan from SIDF to finance 50% of the cost of
the Al Masane project, repayment of the total amount of which would be made
through a mutually agreed upon repayment schedule from the Company's share of
the operating cash flows generated by the project. The Company remains active in
Saudi Arabia and received the Al Masane mineral lease at a time when it had not
made any of the agreed upon repayment installments. Based on its experience to
date, management believes that as long as the Company diligently attempts to
explore and develop the Al Masane project no repayment demand will be made. The
Company recently communicated to the Saudi government that its delay in repaying
the note is a direct result of the government's lengthy delay in granting the Al
Masane lease and requested formal negotiations to restructure this obligation.
Based on its interpretation of the Al Masane mining lease and other documents,
management believes the government is likely to agree to link repayment of this
note to the Company's share of the operating cash flows generated by the
commercial development of the Al Masane project and to a long-term installment
repayment schedule. In the event the Saudi government were to demand immediate
repayment of this obligation, which management considers unlikely, the Company
would be unable to pay the entire amount due. If a satisfactory rescheduling
agreement could be reached, and there are no assurances that one could be, the
Company believes it could obtain the necessary resources to meet the rescheduled
installment payments from the cash flows generated by its two specialty
petrochemical refineries.
With respect to the accrued salaries and termination benefits due employees
working in Saudi Arabia, the Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of gradually
releasing certain employees and paying its obligation as they are released from
the Company's employment.
At this time, the Company has no definitive plans for the development of
its domestic mining assets. It periodically receives proposals from outside
parties who are interested in possibly developing or using certain
14
<PAGE> 16
assets. Management will continue to review these proposals as they are received,
but at this time does not anticipate making any significant domestic mining
capital expenditures or receiving any significant proceeds from the sale or use
of these assets.
If the Company seeks additional outside financing, there is no assurance
that sufficient funds can be obtained. It is also possible that the terms of any
additional financing that the Company would be able to obtain would be
unfavorable to the Company and its existing shareholders.
RESULTS OF OPERATIONS
Comparison of the Years 1999 to 1998
Specialty Petrochemicals Segment. During 1999, total revenues increased
approximately $2.7 million or 10.8% while the cost of sales (excluding
depreciation) increased approximately $3.2 million or 17.4% from 1998.
Consequently, 1999's gross profit margin decreased approximately $.5 million or
6.6% even as sales volume increased by 6.2% and average selling prices increased
slightly by 1.7%. As a result of these changes in sales volume and cost of
sales, the petrochemical segment experienced a decreased in net income of $.6
million due primarily to increased feedstock and operating costs. The price of
its primary feedstock, natural gasoline, remained stable throughout the first
half of 1999, but began a steady increase in the second half of 1999. Natural
gasoline is the heavier liquid produced by natural gas processing plants and by
LPG fractionators. Feedstock prices in the fourth quarter of 1999 were almost
91% higher than those in the first quarter of 1999. The petrochemical segment's
reputation for superior product quality and service reliability in the
petrochemical industry's specialty products segment allowed it to increase sales
volume and prices during 1999. Management expects its feedstock costs to
continue to increase through the first quarter of 2000.
Toll processing continued to be a growing contributor to the segment's
business as fees increased 101.5% to approximately $1.5 million in 1999. The
increase in the toll processing business is indicative of the direction of the
U.S. refining and petrochemical industries. Many larger companies are
outsourcing smaller jobs and processes that were formerly processed internally.
The Refining Company has been in the toll processing business for over 30 years,
enjoys a good reputation within the industry and believes it offers customers
several competitive advantages over other suppliers. Management intends to
expand the segment's involvement in this area as opportunities arise.
Construction began in early 2000 on a hydrogenation unit for a major customer on
a multi-year contract. Production from the unit is scheduled to begin in June
2000.
The decrease in interest income was due to the reduced amount of excess
cash while the decrease in interest expense was due to the reduction in debt.
Miscellaneous income represents various items that individually are not
significant enough to disclose separately. This includes income from tank and
other rentals, dividend income from investments of excess cash and occasional
gains from small asset sales. The increase in 1999 is due primarily to expanded
tank rentals.
Mining Segment and General Corporate Expenses. None of the Company's other
operations generate significant operating or other revenues. Minority interest
amounts represent the Pioche minority shareholders' share of Pioche's losses
that are primarily attributable to the costs of maintaining the Nevada mining
properties.
The Company periodically reviews and evaluates its mineral exploration and
development projects as well as its other mineral properties and related assets.
The recoverability of the Company's carrying values of its development
properties are assessed by comparing the carrying values to estimated future net
cash flows from each property. In 1999, for purposes of estimating future cash
flows, the price assumptions contained in the 1996 update to the Al Masane
project's feasibility study, which was prepared by WGM, were used. See Item 2.
Properties. These price assumptions are averages over the projected life of the
Al Masane mine and are $1.05 per pound for copper, $.60 per pound for zinc, $400
per ounce for gold, and $6.00 per ounce for silver. For its other mineral
properties and related assets, carrying values were compared to estimated net
realizable values on market comparables. Using these price assumptions, no asset
impairments were evident.
15
<PAGE> 17
The Company intends to assess the carrying values of its assets on an
ongoing basis. Factors which may affect carrying values include, but are not
limited to, mineral prices, capital cost estimates, the estimated operating
costs of any mines and related processing, ore grade and related metallurgical
characteristics, the design of any mines and the timing of any mineral
production. There are no assurances that, particularly in the event of a
prolonged period of depressed mineral prices, the Company will not be required
to take a material write-down of its mineral properties.
The Company's income tax expense includes $75,400 for the 1999 payment of
its 1998 federal income tax liability, $60,000 for an estimate of its 1999
federal income tax liability (both of which are due to the alternative minimum
income tax), and $147,700 for its state tax liability. Due primarily to the 1988
write-off of its coal lease investments, the Company had net operating loss
carryforwards of approximately $25.0 million at December 31, 1999, approximately
$5.9 million and $2.8 million of which are limited to the Coal Company's and
Refining Company's, respectively, future taxable income. These loss
carryforwards expire during the years 2000 through 2019.
Comparison of the Years 1998 to 1997
Specialty Petrochemicals Segment. During 1998, total revenues decreased
approximately $1.2 million or 4.1% while the cost of sales decreased
approximately $3.9 million or 17.8% from 1997. Consequently, 1998's gross profit
margin increased approximately $2.8 million or 70.1%. Sales volume decreased
slightly by 2.4%. The average selling price also decreased slightly by 2.5% as a
result of the adverse economic conditions affecting the petroleum refining
industry during much of 1998. As a result of these changes in sales and cost of
sales, the Refining Company significantly increased its gross profit (and net
income) due primarily to lower operating expenses and reduced feedstock costs.
The price of its primary feedstock, natural gasoline, continued to decrease
throughout 1998. Natural gasoline is the heavier liquid produced by natural gas
processing plants and by LPG fractionators. Feedstock prices continued the
decline throughout 1998 that began in the fourth quarter of 1997. Prices in the
fourth quarter of 1998 were almost 25% lower than those experienced in the first
quarter. The Refining Company's reputation for superior product quality and
service reliability in the petrochemical industry's specialty products segment
allowed it to substantially maintain sales volumes and prices during 1998,
thereby permitting it to take advantage of feedstock's reduced cost. Management
expects its feedstock costs to remain near present levels during much of 1999.
Toll processing continued to be a growing contributor to the refinery's
business as fees increased 27% to $.7 million in 1998. The increase in the toll
processing business is indicative of the direction of the U.S. refining and
petrochemical industries. Many larger companies are outsourcing smaller jobs and
processes that were formerly processed internally. The Refining Company has been
in the toll processing business for over 30 years, enjoys a good reputation
within the industry and believes it offers customers several competitive
advantages over other suppliers. Management intends to expand the refinery's
involvement in this area as opportunities arise. Construction has begun on a
unit designed to produce a line of specialty solvents for a major customer on a
multi-year contract. Production is scheduled to begin on April 1, 1999.
The increase in interest income was due to the investment of increased
excess cash while the slight absolute decrease in interest expense was due to
the previously discussed reduction in debt as well as a slight decrease in
interest rates.
Miscellaneous income represents various items that individually are not
significant enough to disclose separately. This includes income from tank and
other rentals, commission income and occasional gains from small asset sales.
The $.2 million decrease in 1998 is due to reduced tank rentals and no rental
income from a building that was sold in 1997.
Mining Segment and General Corporate Expenses. None of the Company's other
operations generate significant operating or other revenues. Minority interest
amounts represent the Pioche minority shareholders' share of Pioche's losses
that are primarily attributable to the costs of maintaining the Nevada mining
properties.
16
<PAGE> 18
The Company periodically reviews and evaluates its mineral exploration and
development projects as well as its other mineral properties and related assets.
The recoverability of the Company's carrying values of its development
properties are assessed by comparing the carrying values to estimated future net
cash flows from each property. In 1998, for purposes of estimating future cash
flows, the price assumptions contained in the 1996 update to the Al Masane
project's feasibility study, which was prepared by WGM, were used. See Item 2.
Properties. These price assumptions are averages over the projected life of the
Al Masane mine and are $1.05 per pound for copper, $.60 per pound for zinc, $400
per ounce for gold, and $6.00 per ounce for silver. For its other mineral
properties and related assets, carrying values were compared to estimated net
realizable values based on market comparables. Using these price assumptions, no
asset impairments were evident.
The Company intends to assess the carrying values of its assets on an
ongoing basis. Factors which may affect carrying values include, but are not
limited to, mineral prices, capital cost estimates, the estimated operating
costs of any mines and related processing, ore grade and related metallurgical
characteristics, the design of any mines and the timing of any mineral
production. There are no assurances that, particularly in the event of a
prolonged period of depressed mineral prices, the Company will not be required
to take a material write-down of its mineral properties.
The Company's income tax expense includes $24,800 for the 1998 payment of
its 1997 federal income tax liability (which was due to the alternative minimum
income tax) and $231,000 for its state tax liability. Due primarily to the 1988
write-off of its coal lease investments, the Company had net operating loss
carryforwards of approximately $28.0 million at December 31, 1998, approximately
$5.9 million and $2.5 million of which are limited to the Coal Company's and
Refining Company's, respectively, future taxable income. These loss
carryforwards expire during the years 1999 through 2011.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The market risk inherent in the Company's financial instruments represents
the potential loss resulting from adverse changes in interest rates, foreign
currency rates and commodity prices. The Company's exposure to interest rate
changes results from its variable rate debt instruments which are vulnerable to
changes in short term United States prime interest rates. At December 31, 1999,
the Company had $4.7 million in variable rate debt outstanding. A hypothetical
10% change in interest rates underlying these borrowings would result in
approximately a $43,000 annual change in the Company's earnings and cash flows.
At December 31, 1998, the Company had $1.7 million in variable rate debt
outstanding and a hypothetical 10% change in interest rates underlying these
borrowings would have resulted in approximately a $16,000 annual change in the
Company's earnings and cash flows.
The Company is also exposed to market risk in the exchange rate of the
Saudi Arabian riyal as measured against the United States dollar. The Company
does not view this exposure as significant and has not acquired or issued any
foreign currency derivative financial instruments. The Company's strategy in
managing its exposure to commodity prices is to purchase options on commodity
based derivative futures contracts when available. At December 31, 1999 and
1998, the Company's investment in such instruments was insignificant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company, including the independent
auditor's report thereon, and the financial statement schedules, including the
independent auditor's report thereon, are included elsewhere in this document.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
17
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This information is set forth under the captions "Nominees for Election as
Directors", "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's Proxy Statement for the Company's Annual
Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
This information is set forth under the caption "Executive Compensation" of
the Company's Proxy Statement for the Company's Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This information is set forth under the caption "Outstanding Capital Stock"
of the Company's Proxy Statement for the Company's Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is set forth under the caption "Other Matters" of the
Company's Proxy Statement for the Company's Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. The following financial statements are filed with this Report:
Reports of Independent Accountants.
Consolidated Balance Sheets dated December 31, 1999 and 1998.
Consolidated Statements of Income for the three years ended December 31, 1999.
Consolidated Statement of Stockholders' Equity for the three years ended
December 31, 1999.
Consolidated Statements of Cash Flows for the three years ended December 31,
1999.
Notes to Consolidated Financial Statements.
2. The following financial statement schedules are filed with this
Report:
Schedule II -- Valuation and Qualifying Accounts for the three years ended
December 31, 1999.
3. The following documents are filed or incorporated by reference as
exhibits to this Report. Exhibits marked with an asterisk (*) are
management contracts or a compensatory plan, contract or arrangement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(a) -- Certificate of Incorporation of the Company as amended
through the Certificate of Amendment filed with the
Delaware Secretary of State on January 29, 1993.
3(b) -- Bylaws of the Company, as amended through March 4, 1998.
10(a) -- Contract dated July 29, 1971 between the Company,
National Mining Company and Petromin.
10(b) -- Loan Agreement dated January 24, 1979 between the
Company, National Mining Company and the Government of
Saudi Arabia.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(c) -- Mining Lease Agreement effective May 22, 1993 by and
between the Ministry of Petroleum and Mineral Resources
and the Company.
10(d) -- Stock Option Plan of the Company, as amended.*
10(e) -- 1987 Non-Employee Director Stock Plan.*
10(f) -- Phantom Stock Plan of Texas Oil & Chemical Co. II, Inc.*
10(g) -- Agreement dated March 10, 1988 between Chevron Research
Company and South Hampton Refining Company, together with
related form of proposed Contract of Sale by and between
Chevron Chemical Company and South Hampton Refining
Company.
10(h) -- Addendum to the Agreement Relating to AROMAX(R)
Process -- Second Commercial Demonstration dated June 13,
1989 by and between Chevron Research Company and South
Hampton Refining Company.
10(i) -- Vehicle Lease Service Agreement dated September 28, 1989
by and between Silsbee Trading and Transportation Corp.
and South Hampton Refining Company.*
10(j) -- Letter Agreement dated May 3, 1991 between Sheikh Kamal
Adham and the Company.
10(k) -- Promissory Note dated February 17, 1994 from Hatem
El-Khalidi to the Company.*
10(l) -- Letter Agreement dated August 15, 1995 between Hatem
El-Khalidi and the Company.*
10(m) -- Letter Agreement dated August 24, 1995 between Sheikh
Kamal Adham and the Company.
10(n) -- Letter Agreement dated October 23, 1995 between Sheikh
Fahad Al-Athel and the Company.
10(o) -- Letter Agreement dated November 30, 1996 between Sheikh
Fahad Al-Athel and the Company (incorporated by reference
to Exhibit 10(bb) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (File No.
0-6247)).
10(p) -- Stock Purchase Agreement dated as of January 25, 2000
between Spechem, S.A. de. C.V. and Texas Oil and Chemical
Co. II, Inc.
10(q) -- Loan and Security Agreement dated as of December 30, 1999
by and among Heller Financial Leasing, Inc., South
Hampton Refining Company and Gulf State Pipe Line
Company, Inc., together with related Promissory Note,
Guaranty made by the Company, Guaranty made by American
Shield Refining Company, Guaranty made by Texas Oil and
Chemical Co. II, Inc., Pledge Agreement made by Texas Oil
and Chemical Co. II, Inc., Pledge Agreement made by South
Hampton Refining Company, Ground Lease, Sub-Ground Lease
and Hazardous Materials Indemnity Agreement.
10(r) -- Loan Agreement dated as of September 30, 1999 between
South Hampton Refining Company and Southwest Bank of
Texas, N.A., together with related Promissory Note,
Security Agreement, Arbitration Agreement and Guaranty
Agreement made by Texas Oil and Chemical Co. II, Inc.
21 -- Subsidiaries.
27 -- Financial Data Schedule.
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
19
<PAGE> 21
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Arabian Shield Development
Company, a Delaware corporation, and the undersigned directors and officers of
Arabian Shield Development Company, hereby constitutes and appoints John A.
Crichton its or his true and lawful attorney-in-fact and agent, for it or him
and in its or his name, place and stead, in any and all capacities, with full
power to act alone, to sign any and all amendments to this Report, and to file
each such amendment to the Report, with all exhibits thereto, and any and all
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorney-in-fact and agent full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as it
or he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARABIAN SHIELD DEVELOPMENT COMPANY
By: /s/ HATEM EL-KHALIDI
-------------------------------------
Hatem El-Khalidi
President and Chief Executive Officer
Dated: March 21, 2000
20
<PAGE> 22
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
in the capacities indicated on March 21, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ HATEM EL-KHALIDI President, Chief Executive Officer and
- ----------------------------------------------------- Director (principal executive officer)
Hatem El-Khalidi
/s/ DREW WILSON, JR. Secretary and Treasurer (principal financial
- ----------------------------------------------------- and accounting officer)
Drew Wilson, Jr.
/s/ JOHN A. CRICHTON Chairman of the Board and Director
- -----------------------------------------------------
John A. Crichton
/s/ MOHAMMED O. AL-OMAIR Director
- -----------------------------------------------------
Mohammed O. Al-Omair
/s/ GHAZI SULTAN Director
- -----------------------------------------------------
Ghazi Sultan
</TABLE>
21
<PAGE> 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Arabian Shield Development Company
We have audited the accompanying consolidated balance sheets of Arabian
Shield Development Company and Subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Arabian Shield
Development Company and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
GRANT THORNTON LLP
Dallas, Texas
March 10, 2000
F-1
<PAGE> 24
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 434,313 $ 1,907,242
Short-term investments.................................... 20,597 30,636
Trade receivables......................................... 4,308,085 2,779,964
Inventories............................................... 745,396 178,714
----------- -----------
Total current assets.............................. 5,508,391 4,896,556
REFINERY PLANT, PIPELINE AND EQUIPMENT -- AT COST........... 9,357,956 7,151,134
LESS ACCUMULATED DEPRECIATION............................... (4,330,856) (3,651,626)
----------- -----------
REFINERY PLANT, PIPELINE AND EQUIPMENT, NET................. 5,027,100 3,499,508
AL MASANE PROJECT........................................... 34,621,335 34,121,501
OTHER INTERESTS IN SAUDI ARABIA............................. 2,431,248 2,431,248
MINERAL PROPERTIES IN THE UNITED STATES..................... 1,299,008 1,280,656
RESTRICTED CASH............................................. 3,500,000 --
OTHER ASSETS................................................ 461,127 453,854
----------- -----------
TOTAL ASSETS...................................... $52,848,209 $46,683,323
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- trade................................. $ 1,129,926 $ 668,683
Accrued liabilities....................................... 1,005,110 1,027,809
Accrued liabilities in Saudi Arabia....................... 1,326,823 1,444,156
Notes payable............................................. 11,873,780 11,873,780
Current portion of long-term debt......................... 677,439 --
----------- -----------
Total current liabilities......................... 16,013,078 15,014,428
LONG-TERM DEBT.............................................. 3,572,561 1,250,000
ACCRUED LIABILITIES IN SAUDI ARABIA, NET.................... 741,218 703,214
DEFERRED REVENUE............................................ 165,835 98,677
COMMITMENTS AND CONTINGENCIES............................... -- --
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY................ 907,354 909,600
STOCKHOLDERS' EQUITY
Common stock -- authorized 40,000,000 shares of $.10 par
value; issued and outstanding, 22,019,994 shares in
1999 and 22,019,494 shares in 1998..................... 2,201,999 2,201,949
Additional paid-in capital................................ 36,101,506 36,101,150
Accumulated deficit....................................... (6,855,342) (9,595,695)
----------- -----------
Total stockholders' equity........................ 31,448,163 28,707,404
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $52,848,209 $46,683,323
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 25
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Refined product sales............................... $26,302,862 $24,350,938 $25,591,600
Processing fees..................................... 1,487,804 738,237 582,519
----------- ----------- -----------
27,790,666 25,089,175 26,174,119
Operating costs and expenses
Cost of refined product sales and processing........ 21,352,555 18,192,488 22,119,668
General and administrative.......................... 2,933,616 2,669,088 2,695,043
Depreciation and amortization....................... 719,793 428,743 538,240
----------- ----------- -----------
25,005,964 21,290,319 25,352,951
----------- ----------- -----------
Operating income............................ 2,784,702 3,798,856 821,168
Other income (expense)
Interest income..................................... 65,052 112,129 51,062
Interest expense.................................... (155,829) (346,117) (405,270)
Minority interest................................... 2,245 7,905 19,282
Miscellaneous income................................ 327,297 124,650 332,122
----------- ----------- -----------
238,765 (101,433) (2,804)
----------- ----------- -----------
Net income before income taxes.............. 3,023,467 3,697,423 818,364
Income tax expense.................................... 283,114 255,777 --
----------- ----------- -----------
Net income.................................. $ 2,740,353 $ 3,441,646 $ 818,364
=========== =========== ===========
Net income per common share:
Basic............................................... $ 0.12 $ 0.16 $ 0.04
=========== =========== ===========
Diluted............................................. $ 0.12 $ 0.14 $ 0.04
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................... 22,026,114 21,995,735 21,306,040
=========== =========== ===========
Diluted............................................. 22,604,240 25,649,695 22,017,652
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 26
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLE
----------------------- PAID-IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDER DEFICIT TOTAL
---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1997............. 20,956,494 $2,095,649 $34,932,700 $(126,000) $(13,855,705) $23,046,644
Common stock sold......... 500,000 50,000 450,000 -- -- 500,000
Common stock issued for
services............... 50,000 5,000 45,000 -- -- 50,000
Common stock issued on
debt conversion........ 345,000 34,500 310,500 -- -- 345,000
Stock options exercised... 10,000 1,000 12,750 -- -- 13,750
Stock options issued for
services............... -- -- 125,000 -- -- 125,000
Net income................ -- -- -- -- 818,364 818,364
---------- ---------- ----------- --------- ------------ -----------
December 31, 1997........... 21,861,494 2,186,149 35,875,950 (126,000) (13,037,341) 24,898,758
Common stock sold......... 100,000 10,000 140,000 -- -- 150,000
Stock options exercised... 58,000 5,800 85,200 -- -- 91,000
Offset of receivable
against related
payables............... -- -- -- 126,000 -- 126,000
Net income................ -- -- -- -- 3,441,646 3,441,646
---------- ---------- ----------- --------- ------------ -----------
December 31, 1998........... 22,019,494 2,201,949 36,101,150 -- (9,595,695) 28,707,404
Common stock sold......... 500 50 356 -- -- 406
Net income................ -- -- -- -- 2,740,353 2,740,353
---------- ---------- ----------- --------- ------------ -----------
December 31, 1999........... 22,019,994 $2,201,999 $36,101,506 $ -- $ (6,855,342) $31,448,163
========== ========== =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 27
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Operating activities
Net income........................................... $ 2,740,353 $ 3,441,646 $ 818,364
Adjustments for non-cash transactions
Depreciation and amortization..................... 719,793 428,743 538,240
Common stock and stock options issued for
services........................................ -- -- 175,000
(Decrease) increase in deferred revenue........... 67,158 (15,504) (15,504)
Effects of changes in operating assets and
liabilities
Decrease (increase) in trade receivables.......... (1,528,121) 267,347 (403,620)
Decrease (increase) in inventories................ (566,682) 369,606 17,026
Decrease (increase) in other assets............... (7,273) 9,376 42,336
(Decrease) increase in accounts payable and
accrued liabilities............................. 438,544 232,222 (464,852)
Other................................................ (42,809) (150,627) (7,945)
----------- ----------- ---------
Net cash provided by operating activities.... 1,820,963 4,582,809 699,045
----------- ----------- ---------
Investing activities
Additions to short-term investments.................. -- (14,387) (108,816)
Proceeds from sale of short-term investments......... 10,039 391,293 --
Additions to Al Masane Project....................... (499,834) (599,074) (639,589)
Additions to refinery plant, pipeline and
equipment......................................... (2,206,822) (1,224,946) (167,336)
(Additions to) reduction in mineral properties in the
United States..................................... (18,352) 130,534 7,425
Increase (decrease) in accrued liabilities in Saudi
Arabia............................................ (79,329) 210,820 174,178
----------- ----------- ---------
Net cash used in investing activities........ (2,794,298) (1,105,760) (734,138)
----------- ----------- ---------
Financing activities
Common stock sold.................................... 406 241,000 513,750
Additions to notes payable and long-term
obligations....................................... 4,250,000 1,985,000 200,000
Reduction of notes payable and long-term
obligations....................................... (1,250,000) (4,329,893) (529,861)
----------- ----------- ---------
Net cash provided by (used in) financing
activities................................. 3,000,406 (2,103,893) 183,889
----------- ----------- ---------
Net increase in cash................................... 2,027,071 1,373,156 148,796
Cash and cash equivalents at beginning of year......... 1,907,242 534,086 385,290
----------- ----------- ---------
Cash and cash equivalents at end of year............... $ 3,934,313 $ 1,907,242 $ 534,086
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 28
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND OPERATIONS OF THE COMPANY
Arabian Shield Development Company (the "Company") was organized as a
Delaware corporation in 1967. The Company's principal business activities
include refining various specialty petrochemical products (also referred to as
the "Refining Segment") and developing mineral properties in Saudi Arabia and
the United States (also referred to as the "Mining Segment"). All of its mineral
properties are presently undeveloped and require significant capital
expenditures before beginning any commercial operations (see Notes 2, 6 and 7).
The Company's Refining Segment activities are primarily conducted through a
wholly-owned subsidiary, American Shield Refining Company (the "Refining
Company"), which owns all of the capital stock of Texas Oil and Chemical Co. II,
Inc. ("TOCCO"). TOCCO owns all of the capital stock of South Hampton Refining
Company ("South Hampton"), and South Hampton owns all of the capital stock of
Gulf State Pipe Line Company, Inc. ("Gulf State"). South Hampton owns and
operates a specialty petrochemical products refinery near Silsbee, Texas that is
one of the largest domestic manufacturers of pentanes. Gulf State owns and
operates three pipelines which connect the South Hampton refinery to a natural
gas line, to South Hampton's truck and rail loading terminal and to a marine
terminal owned by an unaffiliated third party. The Company also directly owns
all of American Shield Coal Company (the "Coal Company") and approximately 51%
of the capital stock of a Nevada mining company, Pioche-Ely Valley Mines, Inc.
("Pioche"). Neither the Coal Company nor Pioche conduct any substantial business
activities. The Coal Company, Pioche and the Company's mineral properties in
Saudi Arabia constitute its Mining Segment.
The Company consolidates all subsidiaries for which it has majority
ownership or voting control that is other than temporary. All material
intercompany accounts and transactions are eliminated.
NOTE 2 -- BUSINESS RISKS
Historically, the Company's cash flows from operating activities have been
insufficient to meet its operating needs, planned capital expenditures and debt
service requirements. The Company has continually sought additional debt and
equity financing in order to fund its mineral development and other investing
activities and experienced difficulties obtaining additional financing. While
the Company presently needs additional financing in order to fund its planned
mineral development activities, management believes its ability to remain a
going concern is no longer dependent on obtaining outside financing.
Consequently, management intends to focus additional time and resources on
improving its specialty petrochemical refining operations and reducing the cost
of any required outside financing.
The Company's mining segment is in the development stage. Its most
significant asset is the Al Masane mining project in Saudi Arabia, which is a
net user of the Company's available cash and capital resources. As discussed in
Note 6, the Company intends to take steps to finance commercial development of
the Al Masane mining project. However, there is no assurance the Company will be
able to arrange financing.
Management also is addressing two other significant financing issues within
this segment. These issues are the $11.0 million note payable due the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $900,000 due employees working in Saudi Arabia (this amount does
not include any amounts due the Company's President and Chief Executive Officer
who also primarily works in Saudi Arabia and is owed approximately $741,000).
The note payable was originally due in ten annual installments beginning in
1984. While the Company has not made any repayments, it has not received any
payment demands or other communications from the Saudi government regarding the
note payable. This is despite the fact the Company remains active in Saudi
Arabia and received the Al Masane mineral lease at a time when it had not made
any of the agreed upon repayment installments. Based on its experience to date,
management believes as long as the Company diligently attempts to explore and
develop the Al Masane project that no repayment demand will be made. The Company
recently communicated to the Saudi government that its
F-6
<PAGE> 29
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
delay in repaying the note is a direct result of the government's lengthy delay
in granting the Al Masane lease and requested formal negotiations to restructure
this obligation. Based on its interpretation of the Al Masane mining lease and
other documents, management believes the government is likely to agree to link
repayment of this note to the operating cash flows generated by the commercial
development of the Al Masane project which would result in a long-term
installment repayment schedule. In the event the Saudi government were to demand
immediate repayment of this obligation, which management considers unlikely, the
Company would be unable to pay the entire amount due. If a satisfactory
rescheduling agreement could be reached, and there are no assurances that one
could be, the Company believes it could obtain the necessary resources to meet
the rescheduled installment payments by making certain changes at the Refining
Company.
The second issue is the accrued salaries and termination benefits due
employees working in Saudi Arabia. The Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of gradually
releasing certain employees and paying its obligation as they are released from
the Company's employment.
A significant component of the Company's assets consists of undeveloped
mineral deposits. There is no assurance that the Company will ultimately
successfully develop either the Al Masane project or any of the other properties
discussed in Notes 6 and 7, and if, developed, whether the mineral acquisition,
development and development costs incurred will be recovered. The recovery of
these costs is dependent upon a number of factors and future events, many of
which are beyond the Company's control. Furthermore, the Company's ability to
develop and realize its investment in these properties is dependent upon (i)
obtaining significant additional financing and (ii) attaining successful
operations from one or more of these projects.
The Company periodically reviews and evaluates its mineral exploration and
development projects as well as its other mineral properties and related assets.
The recoverability of the Company's carrying values of its development
properties are assessed by comparing the carrying values to estimated future net
cash flows from each property. Based upon an updated feasibility study by Watts,
Griffis and McQuat Ltd. updated in 1996, projected positive cash flows, net of
repayment of debt, are $95.1 million over the life of the project. Prices used
in the feasibility study were $1.05 per pound for copper, $.60 per pound for
zinc, $400 per ounce for gold and $6.00 per ounce for silver. Although present
mineral prices are less than those used in the feasibility study, the Company
believes that these price declines are not permanent and that the prior
assumptions used in the study are still appropriate.
The Company assesses the carrying values of its assets on an ongoing basis.
Factors which may affect carrying values include, but are not limited to,
mineral prices, capital cost estimates, the estimated operating costs of any
mines and related processing, ore grade and related metallurgical
characteristics, the design of any mines and the timing of any mineral
production. There are no assurances that, particularly in the event of a
prolonged period of depressed mineral prices, the Company will not be required
to take a material write-down of its mineral properties.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash, Cash Equivalents and Short-Term Investments -- The Company's
principal bank and short-term investing activities are with local and national
financial institutions. Short-term investments with an original maturity of
three months or less are classified as cash equivalents. At December 31, 1999
and 1998, the Company held certificates of deposit and mutual funds with
original maturities of less than one year that the Company intends to hold until
maturity. At December 31, 1999, the fair value of these items approximated their
carrying values. Cash balances may at times exceed federally insured limits. The
Company has not experienced any losses in its cash and short-term investment
accounts and does not believe it is exposed to any significant such risks.
F-7
<PAGE> 30
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Refined products and feedstock are recorded at the lower of
cost, determined on the last-in, first-out method (LIFO), or market.
Mineral Exploration and Development Costs -- All costs related to the
acquisition, exploration, and development of mineral deposits are capitalized
until such time as (1) the Company commences commercial exploitation of the
related mineral deposits at which time the costs will be amortized, (2) the
related project is abandoned and the capitalized costs are charged to
operations, or (3) when any or all deferred costs are permanently impaired. At
December 31, 1999, none of the projects described in Notes 6 and 7 had reached
the commercial exploration stage. No indirect overhead or general and
administrative costs have been allocated to any of the projects.
Refinery Plant, Pipeline and Equipment -- Refinery plant, pipeline and
equipment are stated at cost. Depreciation is provided over the estimated
service lives using the straight-line method. Gains and losses from disposition
are included in operations in the period incurred.
Other Assets -- Other assets include catalysts used in refinery operations,
prepaid expenses, a note receivable and certain refinery assets which are being
leased to a third party.
Environmental Liabilities -- Remediation costs are accrued based on
estimates of known environmental remediation exposure. Such accruals are
recorded even if uncertainties exist over the ultimate cost of the remediation.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.
Deferred Revenue -- Deferred revenue represents funds advanced by two
suppliers and customers to defray development and processing costs and are being
amortized over five year and 15 year periods.
Statements of Cash Flows -- In the statements of cash flows, cash includes
cash held in the United States and Saudi Arabia. Significant noncash changes in
financial position in 1997 include the issuance of 345,000 shares of common
stock at $1.00 per share for the conversion of $345,000 of indebtedness (Note 9)
as well as the issuance of stock and options for services, valued at a total of
$175,000, which is included in general and administrative expenses (Note 10).
Net Income Per Share -- The Company computes basic income per common share
based on the weighted-average number of common shares outstanding. Diluted
income per common share is computed based on the weighted-average number of
common shares outstanding plus the number of additional common shares that would
have been outstanding if dilutive potential common shares, consisting of stock
options and shares issuable upon conversion of debt, had been issued (Note 13).
Foreign Currency and Operations -- Assets and liabilities denominated in
foreign currencies, principally Saudi Riyals, are translated at rates in effect
at the time the transaction occurs. There has been no significant change in the
exchange rate for Saudi Riyals to the United States dollar during the period
covered by these financial statements. Due to the stability of the Saudi Riyals,
the Company feels it has no material exposure to foreign currency risks and does
not employ any practices to minimize any such risks. It is anticipated that its
products in Saudi Arabia will be sold in United States dollars.
The Company's foreign operations have been, and will continue to be,
affected by periodic changes or developments in Saudi Arabia's political and
economic conditions as well as changes in their laws and regulations. Any such
changes could have a material adverse effect on the Company's financial
condition, operating results or cash flows.
Saudi Arabian investors, including certain members of the Company's board
of directors, own approximately 62% of the Company's outstanding common stock at
December 31, 1999.
Management Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported
F-8
<PAGE> 31
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Stock-Based Compensation -- The Company accounts for employee stock options
under the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 and has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 (Statement No. 123). Accordingly, the
compensation expense of employee stock options is the excess, if any, of the
quoted market price of the Company's common stock at the grant date over the
amount the employee must pay to acquire the stock. Note 10 includes pro forma
disclosures of net income and income per share as if the Company had adopted the
fair value based method of accounting set forth in Statement No. 123.
Hedging Program -- The Company's refining segment uses a hedging program to
decrease the price volatility of its natural gas fuel requirements. For each of
the years ended December 31, 1999, 1998 and 1997 the net recognized gain (loss)
from hedging transactions was $28,244, ($74,500), and $46,000, respectively. At
December 31, 1999, the Company had pledged a $100,000 bank letter of credit as
collateral for its unpaid natural gas purchases.
Accounting Standards Not Adopted -- During the second quarter of 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133 (Statement No. 133), Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting
standards requiring that derivative instruments, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. The Company will adopt
Statement No. 133 no later than the first quarter of fiscal year 2001. Statement
No. 133 is not expected to have a material impact on the consolidated financial
statements.
NOTE 4 -- CONCENTRATIONS OF CREDIT RISK
The refining segment sells its products and services to companies in the
chemical and plastics industries. It performs periodic credit evaluations of its
customers and does not require collateral from its customers. The Company's
largest customer accounted for 11% of its total product sales in 1999, and 10%
in 1998 and 1997. It has incurred minimal credit losses. The carrying amount of
accounts receivable approximates fair value at December 31, 1999.
NOTE 5 -- INVENTORIES
Inventories include the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Refinery feedstock.......................................... $ -- $ --
Refined products............................................ 745,396 178,714
-------- --------
Total inventories................................. $745,396 $178,714
======== ========
</TABLE>
At December 31, 1999, current cost exceeded LIFO value by approximately
$142,000. In 1998, the LIFO inventory value approximated current cost.
NOTE 6 -- MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA
In the accompanying consolidated financial statements, the deferred
development costs have been presented based on the related projects' geographic
location within Saudi Arabia. This includes the
F-9
<PAGE> 32
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Al Masane Project" (the "Project") and "Other Interests in Saudi Arabia" which
primarily pertains to the costs of rentals, field offices and camps, core
drilling and labor incurred at the Wadi Qatan and Jebel Harr properties.
In 1971, the Saudi Arabian government awarded the Company exclusive mineral
exploration licenses to explore and develop the Wadi Qatan area in southwestern
Saudi Arabia. The Company was subsequently awarded an additional license in 1977
for an area north of Wadi Qatan at Jebel Harr. These licenses have expired. On
June 22, 1999, the Company filed a formal application for a five year
exploration license covering an area of 2,850 square kilometers that includes
Wadi Qatan and Jebel Harr and an area surrounding the Al Masane mining lease
area, which is referred to as the Greater Al Masane area. Although a license has
not been formally granted for the Greater Al Masane area, the Company has been
authorized in writing by the Saudi Arabian government to carry out exploration
work on the area. The Company has incurred mineral exploration costs in each of
these areas and intends to formalize its claims.
The Al Masane project, consisting of a mining lease area of approximately
44 square kilometers, contains extensive ancient mineral workings and smelters.
From ancient inscriptions in the area, it is believed that mining activities
went on sporadically from 1000 BC to 700 AD. The ancients are believed to have
extracted mainly gold, silver and copper. The Project includes various
quantities of proved zinc, copper, gold and silver reserves.
As the holder of the Al Masane mining lease, the Company is solely
responsible to the Saudi Arabian government for the rental payments and other
obligations provided for by the mining lease and repayment of the previously
discussed $11 million loan. The Company's interpretation of the mining lease is
that repayment of this loan will be made in accordance with a repayment schedule
to be agreed upon with the Saudi Arabian government from the Company's share of
the project's cash flows. The initial term of the lease is for a period of
thirty (30) years from May 22, 1993, with the Company having the option to renew
or extend the term of the lease for additional periods not to exceed twenty (20)
years. Under the lease, the Company is obligated to pay advance surface rental
in the amount of 10,000 Saudi Riyals (approximately $2,667 at the current
exchange rate) per square kilometer per year (approximately $117,300 annually)
during the period of the lease. In addition, the Company must pay income tax in
accordance with the income tax laws of Saudi Arabia then in force and pay all
infrastructure costs. The Saudi Arabian Mining Code provides that income tax
will not be due during the first stage of mining operations, which is the period
of five years starting from the earlier of (i) the date of the first sale of
products or (ii) the beginning of the fourth year since the issue of the mining
lease. The lease gives the Saudi Arabian government priority to purchase any
gold production from the project as well as the right to purchase up to 10% of
the annual production of other minerals on the same terms and conditions then
available to other similar buyers and at current prices then prevailing in the
free market. Furthermore, the lease contains provisions requiring that
preferences be given to Saudi Arabian suppliers and contractors, that the
Company employ Saudi Arabian citizens and provide training to Saudi Arabian
personnel.
Pursuant to the mining lease agreement, when the Al Masane project is
profitable the Company is obligated to form a Saudi public stock company with
the Saudi Arabian Mining Company, a corporation wholly owned by the Saudi
Arabian government (Ma'aden), as successor to and assignee of the mining
interests formerly held by the Petroleum Mineral Organization ("Petromin").
Ma'aden is the Saudi Arabian government's official mining company. In 1994, the
Company received instructions from the Saudi Ministry of Petroleum and Mineral
Resources stating that it is possible for the Company to form a Saudi company
without Petromin (now Ma'aden), but the sale of stock to the Saudi public could
not occur until the mine's commercial operations were profitable for at least
two years. The instructions added that Petromin (now Ma'aden) still had the
right to purchase shares in the Saudi public stock company any time it desires.
Title to the mining lease and the other obligations specified in the mining
lease will be transferred to the Saudi public
F-10
<PAGE> 33
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock company. However, the Company would remain responsible for the repaying
the $11 million loan to the Saudi Arabian government.
In order to commercially develop the Al Masane project, the Company entered
into a joint venture arrangement with Al Mashreq Company for Mining Investments
("Al Mashreq"), a Saudi limited liability company owned by Saudi Arabian
investors (including certain of the Company's shareholders). The partners formed
The Arabian Shield Company for Mining Industries Ltd., a Saudi limited liability
company ("Arabian Mining"), which was officially registered and licensed in
August 1998 to conduct business in Saudi Arabia and authorized to mine and
process minerals from the Al Masane lease area.
Due to the severe decline in the open market prices for the minerals to be
produced by the Al Masane project and the financial crisis affecting Eastern
Asia in 1998, the Saudi Industrial Development Fund (SIDF) and other potential
lenders required additional guarantees and other financing conditions which were
unacceptable to the Company and Al Mashreq. As a consequence, Al Mashreq
withdrew from the joint venture. By letter dated May 11, 1999, the Company
informed the Ministry of Petroleum and Mineral Resources that the joint venture
was dissolved and that implementation of the project will be delayed until open
market prices for the minerals to be produced by the Al Masane project improve
to the average price levels experienced during the period from 1988 through
1997. At that time, the Company will attempt to locate a joint venture partner,
form a joint venture and, together with the joint venture partner, attempt to
obtain acceptable financing to commercially develop the project. There can be no
assurances that the Company would be able to locate a joint venture partner,
form a joint venture or obtain financing from SIDF or any other sources. In the
meantime, the Company intends to maintain the Al Masane mining lease through the
payment of the annual advance surface rental, the implementation of a drilling
program to attempt to increase proven and probable reserves and to attempt to
improve the metallurgical recovery rates beyond those stated in the feasibility
study, which may improve the commercial viability of the project at lower metal
prices than those assumed in the feasibility study.
Deferred development costs of the Al Masane Project at December 31, 1999,
1998 and 1997, and the changes in these amounts for each of the three years then
ended are detailed below:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, ACTIVITY DECEMBER 31, ACTIVITY DECEMBER 31, ACTIVITY
1999 FOR 1999 1998 FOR 1998 1997 FOR 1997
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Property and equipment:
Mining equipment.......... $ 2,160,206 $ 2,160,206 $ 2,160,206
Construction costs........ 3,140,493 3,140,493 3,140,493
----------- ----------- -----------
Total............. 5,300,699 5,300,699 5,300,699
Other costs:
Labor, consulting services
and project
administration costs... 20,240,984 $496,832 19,744,152 $598,856 19,145,296 $562,523
Materials and
maintenance............ 6,171,881 3,002 6,168,879 218 6,168,661 737
Feasibility study......... 2,907,771 -- 2,907,771 -- 2,907,771 76,329
----------- -------- ----------- -------- ----------- --------
Total............. 29,320,636 499,834 28,820,802 599,074 28,221,728 639,589
----------- -------- ----------- -------- ----------- --------
$34,621,335 $499,834 $34,121,501 $599,074 $33,522,427 $639,589
=========== ======== =========== ======== =========== ========
</TABLE>
The deferred development costs of the "Other Interests in Saudi Arabia", in
the total amount of approximately $2.4 million, consist of approximately $1.5
million associated with the Greater Al Masane area and the balance of
approximately $900,000 is associated primarily with the Wadi Qatan and Jebel
Harr areas.
F-11
<PAGE> 34
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the event exploration licenses for these areas are not granted, then all or a
significant amount of deferred development costs relating thereto would be
written off.
NOTE 7 -- MINERAL PROPERTIES IN THE UNITED STATES
The principal assets of Pioche are an undivided interest in 48 patented and
80 unpatented mining claims and a 300 ton-per-day mill located on the
aforementioned properties in the Pioche Mining District in southeastern Nevada.
Due to the lack of capital , the properties held by Pioche have not been
commercially operated for approximately 35 years. However, in 1997 Pioche and a
prominent mining company entered into an agreement regarding certain claims. As
a result of this agreement, which was terminated in November 1998, Pioche
received $50,000.
The Company has an option (which expires in 2002) to buy 720,000 shares
(approximately 10% of the outstanding shares) of Pioche common stock at $0.20
per share.
NOTE 8 -- NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS
Notes payable, long-term debt and long-term obligations at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Notes payable:
Secured note to Saudi Arabian government. See (A)........ $11,000,000 $11,000,000
Unsecured demand notes payable to Saudi investors........ 363,280 363,280
Unsecured notes to foreign investors. See (B)............ 498,000 498,000
Other.................................................... 12,500 12,500
----------- -----------
Total............................................ $11,873,780 $11,873,780
=========== ===========
Long-term debt:
Revolving bank note. See (C)............................. $ -- $ 1,250,000
Revolving bank note. (See (D)............................ 750,000 --
Secured note with commercial lender. (See (E)............ 3,500,000 --
----------- -----------
Total............................................ 4,250,000 1,250,000
Less current portion..................................... (677,439) --
----------- -----------
Total............................................ $ 3,572,561 $ 1,250,000
=========== ===========
</TABLE>
- ---------------
(A) The Company has an interest-free loan of $11,000,000 from the Saudi Arabia
Ministry of Finance and National Economy, the proceeds of which were used
to finance the development phase of the Al Masane Project. The loan was
repayable in ten equal annual installments of $1,100,000, with the initial
installment payable on December 31, 1984. None of the ten scheduled
payments have been made. Pursuant to the mining lease agreement covering
the Al Masane Project, the Company intends to repay the loan in accordance
with a repayment schedule to be agreed upon with the Saudi Arabian
government from its share of cash flows. An agreement has not yet been
reached regarding either the rescheduling or source of these payments. The
loan is collateralized by all of the Company's "movable and immovable"
assets in Saudi Arabia.
(B) Represents loans payable to a shareholder of the Company for $445,000, and
the Company's president for $53,000. The loans are due on demand with
interest payable at the LIBOR rate plus 2%. Each loan provides for an
option to convert the loan amount to shares of the Company's common stock
at $1.00 per share anytime within five years from the date of the loan.
(C) The Refining Segment had a $2.25 million revolving credit facility with the
U.S. office of a multinational bank that was collateralized by a first
security interest in all of its assets. Interest (at the
F-12
<PAGE> 35
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bank's prime rate plus 1%) was payable monthly. The bank's loan commitment
was to be reduced by at least $105,000 per calendar quarter beginning March
31, 1999. In addition, the agreement for this credit facility contained
various restrictive covenants including the maintenance of various
financial ratios, net worth and parent company distribution limitations.
The credit facility balance was paid off on September 30, 1999.
(D) The Refining Segment entered into a $2.25 million revolving credit facility
with a Houston, Texas bank in September 1999 that is collateralized by a
first security interest in certain of its assets. Interest (at the bank's
prime rate plus .5%) is payable monthly. The agreement contains various
restrictive covenants including the maintenance of various financial
ratios, net worth and parent company distribution limitations. The credit
agreement expires on May 31, 2001.
(E) The Refining Segment entered into a loan agreement with a commercial
lending company in December 1999 that is collateralized by a first security
interest in all of its assets, except those dedicated to the bank mentioned
in Note (D) above. Interest is at 10.55% per annum with principal and
interest payable in 47 consecutive monthly installments of $89,696 each
commencing February 1, 2000. The agreement for this loan contains various
restrictive covenants including the maintenance of a working capital credit
facility in an amount not less than $2 million and parent company
distribution limitations.
Scheduled maturities of long-term debt, which exclude current notes payable
balances aggregating $11,873,780, are as follows:
<TABLE>
<S> <C>
2001.................................................... $1,567,349
2002.................................................... 907,874
2003.................................................... 1,008,424
2004.................................................... 88,915
----------
Total......................................... $3,572,562
==========
</TABLE>
Interest of $118,145, $418,403 and $305,007 was paid in 1999, 1998, and
1997, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company's Refining Segment leases various vehicles and equipment from a
related party on a month to month basis at a monthly cost of approximate
$30,000. The Company's total rental costs were approximately $373,000 in 1999
and $361,000 in 1998 and 1997.
The Refining Segment has guaranteed a note payable of $160,000 of a limited
partnership in which South Hampton has a 19% interest.
South Hampton, together with several other companies, is a defendant in two
lawsuits brought in Jefferson County, Texas District Court and one lawsuit
brought in the 163rd Judicial District Court of Orange County, Texas. The
lawsuits brought in Jefferson County, Texas were filed in December 1997 and
April 1998 by former employees of the Goodyear Tire & Rubber Company plant
located in Beaumont, Texas. The lawsuit brought in Orange County, Texas was
filed in April 1999 by a former employee of DuPont in Orange, Texas. Each of the
suits claims illness and diseases resulting from alleged exposure to chemicals,
including benzene, butadiene and/or isoprene, during the plaintiffs' employment
with Goodyear or DuPont. The plaintiffs claim the defendant companies engaged in
the business of manufacturing, selling and/or distributing these chemicals in a
manner which subjected each and all of them to liability for unspecified actual
and punitive damages. South Hampton intends to vigorously defend itself against
those lawsuits.
South Hampton, together with several other companies, is a defendant in a
lawsuit brought in Jefferson County, Texas District Court in December 1999 by a
former electrician claiming illness and disease resulting
F-13
<PAGE> 36
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from alleged exposure to chemical and products while on certain of the
defendants' properties. The plaintiff claims he was exposed to benzene,
butadiene and products containing these chemicals supplied by certain of the
defendants, including South Hampton. The plaintiff asserts claims of strict
liability, gross negligence and negligence against South Hampton for unspecified
actual and punitive damages. South Hampton intends to vigorously defend itself
against this lawsuit.
South Hampton spends a considerable amount of time and expense on
environmental and regulatory functions and compliance. It is South Hampton's
policy to accrue costs associated with regulatory compliance when those costs
are reasonably determinable. Amounts accrued at December 31, 1999 and 1998 were
$250,000 each. Amounts charged to expense were approximately $186,000 in 1999,
$430,000 in 1998 and $220,000 in 1997.
In 1993, while remediating a small spill area, the Texas Natural Resources
Conservation Commission ("TNRCC") requested South Hampton to drill a well to
check for groundwater contamination under the spill area. Based on the results,
two pools of hydrocarbons were discovered in the groundwater. The recovery
process was initiated in June 1998, and is expected to continue for several
years until the pools are reduced to an acceptable level. In August 1997, the
TNRCC notified South Hampton that it had violated various rules and procedures.
It proposed administrative penalties totaling $709,408 and recommended the South
Hampton undertake certain actions necessary to bring its refinery operations
into compliance. The violations generally relate to various air and water
quality issues. Appropriate modifications have been made by South Hampton where
it appeared there were legitimate concerns. South Hampton feels the penalty is
greatly overstated and intends to vigorously defend itself against it. A
preliminary hearing was held in November 1997, but no further action has been
taken.
On February 2, 2000, the TNRCC amended its pending administrative action
against South Hampton to add allegations dating through May 21, 1998 of 35
regulatory violations relating to air quality control and industrial solid waste
requirements. The TNRCC proposes that administrative penalties be assessed in he
amount of approximately $765,000 and that certain corrective action be taken.
South Hampton intends to vigorously defend itself against these additional
allegations, the proposed penalties and proposed corrective actions.
NOTE 10 -- STOCK OPTIONS
Stock Options -- The Company's Employee Stock Option Plan (the "Employee
Plan") provides for the grant of incentive options at the market price of the
stock on the date of grant and non-incentive options at a price not less than
85% of the market price of the stock on the date of grant. The Company has
reserved up to 500,000 shares of common stock for grant pursuant to the Employee
Plan. At December 31, 1999, 335,000 shares were reserved for grant. The options
vest at such times and in such amounts as is determined by the Compensation
Committee of the Board of Directors at the date of grant. The Employee Plan is
registered with the Securities and Exchange Commission and expires May 16, 2003.
The 1987 Non-Employee Director Stock Option Plan (the "Non-Employee
Director Plan") provided for non-employee directors to receive an option for
10,000 shares of common stock upon election to the board of directors with the
exercise price equal to the fair market value of the stock at the date of grant.
The Non-Employee Director Plan expired in 1997.
The Company periodically grants stock options to various parties, including
certain officers and directors, who have made loans to or performed critical
services for the Company. Most of these options allow the parties to purchase
common share for $1.00 per share. The Company recorded $175,000 of compensation
expense in 1997 with respect to below market grants to directors of 100,000
options and the issuance of 50,000 shares of stock for services to two
directors.
F-14
<PAGE> 37
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company recognized compensation expense based upon the fair value at
the grant date for options granted to employees, the Company's net income and
income per share for 1998 and 1997 (there was no effect of fair value accounting
in 1999) would be the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Net income
As reported............................................... $3,441,646 $818,364
Pro forma................................................. $3,429,996 $635,714
Net income per common share -- basic and diluted
As reported............................................... $ .16 $ .04
Pro forma................................................. $ .16 $ .03
</TABLE>
The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 85 percent; risk-free interest rate of 6
percent; no dividend yield; and expected lives of 3 to 10 years.
Additional information with respect to all options outstanding at December
31, 1999, and changes for the three years then ended was as follows:
<TABLE>
<CAPTION>
1997
----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of year........................... 1,558,000 $1.11
Granted.................................................. 110,000 1.14
Forfeited................................................ (10,000) 3.50
Exercised................................................ (10,000) 1.38
---------
Outstanding at end of year................................. 1,648,000 $1.10
========= =====
Options exercisable at December 31, 1997................... 1,639,000 $1.09
========= =====
</TABLE>
Weighted average fair value per share of options granted in 1997 was $1.77.
<TABLE>
<CAPTION>
1998
----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of year........................... 1,648,000 $1.10
Forfeited................................................ (10,000) 2.25
Exercised................................................ (58,000) 1.57
---------
Outstanding at end of year................................. 1,580,000 $1.08
========= =====
Options exercisable at December 31, 1998................... 1,580,000 $1.08
========= =====
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of year........................... 1,580,000 $1.08
Forfeited................................................ (10,000) 2.50
---------
Outstanding at end of year................................. 1,570,000 $1.07
========= =====
Options exercisable at December 31, 1999................... 1,570,000 $1.07
========= =====
</TABLE>
F-15
<PAGE> 38
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about stock options outstanding at December 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
---------------------------------------
WEIGHTED AVERAGE
---------------------------
REMAINING EXERCISE
RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL LIFE PRICE
- ------------------------ --------- ---------------- --------
<C> <S> <C> <C> <C>
- -- to$ 1.00........ ................................... 1,443,000 4.1 years $1.00
1.00 $to $2.00...... ................................... 107,000 3.4 years 1.54
2.00 $to $3.75...... ................................... 20,000 3.6 years 3.32
---------
1,570,000 $1.07
========= =====
</TABLE>
NOTE 11 -- INCOME TAXES
Income tax expense for the years ended December 31, 1999, 1998, and 1997
differs from the amount computed by applying the applicable U.S. corporate
income tax rate of 34% to net income before income taxes. The reasons for this
difference are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ---------
<S> <C> <C> <C>
Income taxes at U.S. statutory rate............. $1,027,979 $ 1,257,124 $ 278,244
State taxes..................................... 147,700 231,019 --
Goodwill amortization........................... -- 6,461 39,252
Net operating losses utilized................... (929,278) (1,255,792) (326,839)
Other items..................................... 36,713 16,965 9,343
---------- ----------- ---------
Total tax expense..................... $ 283,114 $ 255,777 $ --
========== =========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Refinery plant, pipeline and equipment..... $ (355,978) $ (331,263) $ (323,513)
Deferred tax assets:
Accounts receivable........................ 50,985 49,761 45,967
Mineral interests.......................... 196,446 196,446 196,446
Accrued liabilities........................ 118,749 93,137 49,341
Net operating loss and contribution
carryforwards........................... 8,525,532 9,594,376 10,943,970
Tax credit carryforwards................... 325,789 197,397 147,501
Deferred gain on sale of property.......... 99,570 107,853 --
----------- ----------- ------------
Gross deferred tax assets.................... 9,317,071 10,238,970 11,383,225
Valuation allowance.......................... (8,961,093) (9,907,707) (11,059,712)
----------- ----------- ------------
Net deferred tax assets.................... 355,978 331,263 323,513
----------- ----------- ------------
Net deferred taxes......................... $ -- $ -- $ --
=========== =========== ============
</TABLE>
The Company has provided a valuation allowance against the deferred tax
assets because of uncertainties regarding their realization.
At December 31, 1999, the Company had approximately $25,000,000 of net
operating loss carryforwards and approximately $58,000 of general business
credit carryforwards. These carryforwards expire during the
F-16
<PAGE> 39
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years 2000 through 2019. In addition, the Company has minimum tax credit
carryforwards of approximately $205,000 that may be carried over indefinitely.
Approximately $2,800,000 of the net operating loss carryforwards and $57,000 of
the general business credit carryforwards are limited to the net income of
TOCCO. Approximately $5,900,000 of the net operating loss carryforwards are
limited to the net income of the Coal Company.
The Company has no Saudi Arabian tax liability.
NOTE 12 -- SEGMENT INFORMATION
As discussed in Note 1, the Company has two business segments. The Company
measures segment profit or loss as operating income (loss) which represents
income (loss) before interest, miscellaneous income and minority interest.
Information on segments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
REFINING MINING TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Revenue from external customers............... $27,790,666 $ -- $27,790,666
Depreciation and amortization................. 717,705 2,088 719,793
Operating income (loss)....................... 3,135,730 (351,028) 2,784,702
Total assets........................ $11,640,497 $41,207,712 $52,848,209
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
REFINING MINING TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Revenue from external customers............... $25,089,175 $ -- $25,089,175
Depreciation and amortization................. 428,452 291 428,743
Operating income (loss)....................... 4,160,786 (361,930) 3,798,856
Total assets........................ $ 8,566,887 $38,116,436 $46,683,323
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
REFINING MINING TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Revenue from external customers............... $26,174,119 $ -- $26,174,119
Depreciation and amortization................. 537,949 291 538,240
Operating income (loss)....................... 1,277,704 (456,536) 821,168
Total assets........................ $ 7,505,075 $37,547,844 $45,052,919
</TABLE>
F-17
<PAGE> 40
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- NET INCOME PER COMMON SHARE
Net income per share has been calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic
Net income.................................. $ 2,740,353 $ 3,441,646 $ 818,364
Weighted average shares outstanding......... 22,026,114 21,995,735 21,306,040
Per share................................ $ .12 $ .16 $ .04
Diluted
Net income.................................. $ 2,740,353 $ 3,441,646 $ 818,364
Add interest on convertible debt............ 36,434 218,228 --
----------- ----------- -----------
Net income -- diluted....................... $ 2,776,787 $ 3,659,874 $ 818,364
Weighted shares outstanding................. 22,026,114 21,995,735 21,306,040
Dilutive effect of convertible debt......... 511,280 2,818,138 --
Dilutive effect of stock options............ 66,846 835,822 711,612
----------- ----------- -----------
Weighted shares outstanding -- diluted...... 22,604,240 25,649,695 22,017,652
Per share................................ $ .12 $ .14 $ .04
</TABLE>
In 1997, the effect of assumed debt conversions was antidilutive. In 1999,
options for 1,180,000 shares were excluded from diluted shares outstanding
because their effect was antidilutive.
NOTE 14 -- SUBSEQUENT EVENTS
On January 25, 2000, TOCCO purchased 92% of the issued and outstanding
shares of the common stock of Productos Quimicos Coin, S.A. de. C.V. ("Coin")
from Spechem, S.A. de. D.V. for $2.5 million in cash. Coin is a specialty
petrochemical products refining company located in Coatzacoalcos, Mexico
Financing was provided by a loan from Heller Financial Leasing, Inc. The loan
had been funded at December 31, 1999, and total proceeds of $3,500,000 are
reflected on the balance sheet as restricted cash.
F-18
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
Board of Directors and Stockholders
Arabian Shield Development Company
In connection with our audit of the consolidated financial statements of
Arabian Shield Development Company and Subsidiaries referred to in our report
dated March 10, 2000, which is included in the annual report to stockholders in
Part II of this Form 10-K, we have also audited Schedule II at December 31,
1999, 1998, and 1997 and for the years then ended. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
GRANT THORNTON LLP
Dallas, Texas
March 10, 2000
F-19
<PAGE> 42
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CHARGED
BEGINNING (CREDITED) ENDING
DESCRIPTION BALANCE TO EARNINGS DEDUCTIONS BALANCE
- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DEFERRED TAX ASSET
December 31, 1997....................... $11,553,118 $--(b) $ (326,839) $11,059,712
(a) (166,567)
December 31, 1998....................... 11,059,712 --(b) (1,017,340) 9,907,707
(a) (134,665)
December 31, 1999....................... 9,907,707 --(b) (946,610) 8,961,093
</TABLE>
- ---------------
(a) Expiration of carryforwards
(b) Utilization of carryforwards
F-20
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(a) -- Certificate of Incorporation of the Company as amended
through the Certificate of Amendment filed with the
Delaware Secretary of State on January 29, 1993.
3(b) -- Bylaws of the Company, as amended through March 4, 1998.
10(a) -- Contract dated July 29, 1971 between the Company,
National Mining Company and Petromin.
10(b) -- Loan Agreement dated January 24, 1979 between the
Company, National Mining Company and the Government of
Saudi Arabia.
10(c) -- Mining Lease Agreement effective May 22, 1993 by and
between the Ministry of Petroleum and Mineral Resources
and the Company.
10(d) -- Stock Option Plan of the Company, as amended.*
10(e) -- 1987 Non-Employee Director Stock Plan.*
10(f) -- Phantom Stock Plan of Texas Oil & Chemical Co. II, Inc.*
10(g) -- Agreement dated March 10, 1988 between Chevron Research
Company and South Hampton Refining Company, together with
related form of proposed Contract of Sale by and between
Chevron Chemical Company and South Hampton Refining
Company.
10(h) -- Addendum to the Agreement Relating to AROMAX(R)
Process -- Second Commercial Demonstration dated June 13,
1989 by and between Chevron Research Company and South
Hampton Refining Company.
10(i) -- Vehicle Lease Service Agreement dated September 28, 1989
by and between Silsbee Trading and Transportation Corp.
and South Hampton Refining Company.*
10(j) -- Letter Agreement dated May 3, 1991 between Sheikh Kamal
Adham and the Company.
10(k) -- Promissory Note dated February 17, 1994 from Hatem
El-Khalidi to the Company.*
10(l) -- Letter Agreement dated August 15, 1995 between Hatem
El-Khalidi and the Company.*
10(m) -- Letter Agreement dated August 24, 1995 between Sheikh
Kamal Adham and the Company.
10(n) -- Letter Agreement dated October 23, 1995 between Sheikh
Fahad Al-Athel and the Company.
10(o) -- Letter Agreement dated November 30, 1996 between Sheikh
Fahad Al-Athel and the Company (incorporated by reference
to Exhibit 10(bb) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (File No.
0-6247)).
10(p) -- Stock Purchase Agreement dated as of January 25, 2000
between Spechem, S.A. de. C.V. and Texas Oil and Chemical
Co. II, Inc.
10(q) -- Loan and Security Agreement dated as of December 30, 1999
by and among Heller Financial Leasing, Inc., South
Hampton Refining Company and Gulf State Pipe Line
Company, Inc., together with related Promissory Note,
Guaranty made by the Company, Guaranty made by American
Shield Refining Company, Guaranty made by Texas Oil and
Chemical Co. II, Inc., Pledge Agreement made by Texas Oil
and Chemical Co. II, Inc., Pledge Agreement made by South
Hampton Refining Company, Ground Lease, Sub-Ground Lease
and Hazardous Materials Indemnity Agreement.
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(r) -- Loan Agreement dated as of September 30, 1999 between
South Hampton Refining Company and Southwest Bank of
Texas, N.A., together with related Promissory Note,
Security Agreement, Arbitration Agreement and Guaranty
Agreement made by Texas Oil and Chemical Co. II, Inc.
21 -- Subsidiaries.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3(a)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY "ARABIAN SHIELD DEVELOPMENT COMPANY" IS DULY INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE
EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE SIXTH DAY OF
JANUARY, A.D. 2000.
AND I DO HEREBY FURTHER CERTIFY THAT THE SAID "ARABIAN SHIELD DEVELOPMENT
COMPANY" WAS INCORPORATED ON THE FOURTH DAY OF MAY, A.D. 1967.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8300 AUTHENTICATION: 0183558
001007798 DATE: 01-06-00
<PAGE> 2
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "ARABIAN SHIELD DEVELOPMENT COMPANY", FILED IN THIS OFFICE ON
THE FOURTH DAY OF MAY, A.D. 1967, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8100 AUTHENTICATION: 0184313
001007802 DATE: 01-06-00
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
* * * * * * * *
FIRST. The name of the corporation is
ARABIAN SHIELD DEVELOPMENT COMPANY
SECOND. Its principal office in the State of Delaware is located at No. 100
West Tenth Street, in the City of Wilmington, County of New Castle. The name and
address of its resident agent is The Corporation Trust Company, No. 100 West
Tenth Street, Wilmington, Delaware.
THIRD. The nature of the business, or objects or purposes to be transacted,
promoted or carried on are:
To carry on the business of purchasing or otherwise acquiring, owning,
holding, investing or dealing in, administering, managing, operating, and
selling, mortgaging, pledging, hypothecating or otherwise disposing of,
petroleum, oil, gas, or mineral lands, properties, rights, royalties, or leases,
or fractional interests therein.
To buy, exchange, contract for, lease and in any and all other ways,
acquire, take, hold, and own, and to deal in, sell, mortgage, lease or otherwise
dispose of lands, claims, mineral rights, oil wells, gas wells, oil lands, gas
lands and other real and personal property, and rights and interests therein and
thereto and in and to other real and personal properties, both for its own
account and as agent, operator or manager for the account of others, and to
manage, operate, maintain, improve, and develop the said properties, and each
and all of them.
<PAGE> 4
To enter into, maintain, operate or carry on in all its branches the
business of exploring, drilling and mining for, extracting, producing, refining,
treating, distilling, manufacturing, handling and dealing in, and buying and
selling, petroleum, oil, gas, coal and any and all other mineral and hydrocarbon
substances, and any and all products or by-products which may be derived from
said substances or any of them; and for such or any of such purposes to buy,
exchange, contract for, lease and in any and all other ways acquire, take, hold
and own, and to sell, mortgage, lease and otherwise dispose of, and to
construct, manage, maintain, deal in and operate plants, refineries, pipelines,
gathering systems, tanks, tank cars, trucks, machinery and equipment of every
kind, character and description and otherwise to deal in, operate, establish,
promote, carry on, conduct and manage any and all other property and appliances
that may in any wise be deemed advisable in connection with the business of the
corporation or any branch thereof, or that may be deemed convenient at any time
by the Board of Directors of the corporation.
To enter into, maintain, operate or carry on in all of its branches
anywhere in the world the business of exploring, drilling and mining for,
extracting, producing, refining, treating, processing and distilling ores,
metals and other minerals, liquid, gaseous, or solid, and manufacturing,
handling and dealing in, and buying and selling, such ores, metals and minerals,
and any and all mineral substances, and any and all products or by-products
which may be derived from such substances; to buy, lease or in any way acquire,
take, hold, own, develop, exploit and deal in lands, concessions, franchises and
mineral rights anywhere in the world.
-2-
<PAGE> 5
To manufacture, purchase or otherwise acquire, invest in, own, mortgage,
pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and
deal with goods, wares and merchandise and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trade-marks and trade names, relating to
or useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and to receive, hold,
own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any of the shares of the capital stock, or any
voting trust certificates in respect of the shares of capital stock, scrip,
warrants, rights, bonds, debentures, notes, trust receipts, and other
securities, obligations, choses in action and evidences or indebtedness or
interest issued or created by any corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or private, or by the
government of the United States of America, or by any foreign government, or by
any state, territory, province, municipality or other political subdivision or
by any governmental agency, and as owner thereof
-3-
<PAGE> 6
to possess and exercise all the rights, powers and privileges of ownership,
including the right to execute consents and vote thereon, and to do any and all
acts and things necessary or advisable for the preservation, protection,
improvement and enhancement in value thereof.
To enter into, make and perform contracts of every kind and description
with any person, firm, association, corporation, municipality, county, state,
body politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the corporation and,
from time to time without limit as to amount, to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance or assignment in trust of the
whole or any part of the property of the corporation, whether at the tine owned
or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds
or other obligations of the corporation for its corporate purposes.
To loan to any person, firm or corporation any or its surplus funds, either
with or without security.
To purchase, hold, sell and transfer the shares of its own capital stock;
provided it shall not use its funds or property for the purchase of its own
shares of capital stock when such use would cause any impairment of its capital
except as otherwise permitted by law, and provided further that shares of its
own capital stock belonging to it shall not be voted upon directly or
indirectly.
-4-
<PAGE> 7
To have one or more offices, to carry on all or any of its operations and
business and without restriction or limit as to amount to purchase or otherwise
acquire, hold, own, mortgage, sell, convey or otherwise dispose of, real and
personal property of every class and description in any of the states,
districts, territories or colonies of the United States, and in any and all
foreign countries, subject to the laws of such state, district, territory,
colony or country.
In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the laws of
Delaware upon corporations formed under the General Corporation Law of the State
of Delaware, and to do any or all of the things hereinbefore set forth to the
same extent as natural persons might or could do.
The objects and purposes specified in the foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other clause in this certificate of
incorporation, but the objects and purposes specified in each of the foregoing
clauses of this article shall be regarded as independent objects and purposes.
-5-
<PAGE> 8
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is five million (5,000,000) and the par value of each
of such shares is Ten Cents ($0.10) amounting in the aggregate to Five Hundred
Thousand Dollars ($500,000.00).
Unless otherwise determined by the board of directors, no holder of stock
of the corporation shall, as such holder, have any right to purchase or
subscribe for any stock of any class which the corporation may issue or sell,
whether or not exchangeable for any stock of the corporation or any class or
classes and whether out of unissued shares authorized by the certificate of
incorporation as originally filed or by any amendment thereof or out of shares
of stock of the corporation acquired by it after the issue thereof; nor, unless
otherwise determined by the board of directors, shall any holder of any shares
of the capital stock of the corporation, as such holder, have any right to
purchase or subscribe for any obligation which the corporation may issue or sell
that shall be convertible into, or exchangeable for, any shares of the stock of
the corporation of any class or classes, or to which shall be attached or
appurtenant any warrant or warrants or other instrument or instruments that
shall confer upon the holder or holders of such obligation the right to
subscribe for or purchase from the corporation any shares of its capital stock
of any class or classes.
-6-
<PAGE> 9
FIFTH. The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH. The names and places of residence of the incorporators are as
follows:
<TABLE>
<CAPTION>
NAMES RESIDENCES
----- ----------
<S> <C>
B. J. Consono Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
</TABLE>
SEVENTH. The corporation is to have perpetual existence.
EIGHTH. The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
NINTH. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By resolution passed by a majority of the whole board, to designate one or
more committees, each committee to consist of two or more of the directors of
the corporation which, to the extent provided in the resolution or in the
-7-
<PAGE> 10
by-laws of the corporation, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be stated in the by-laws of the corporation or as may be determined from
time to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting power given at a stockholders'
meeting duly called for that purpose, or when authorized by the written consent
of the holders or a majority of the voting stock issued and outstanding, to
sell, lease or exchange all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may be in whole or in part shares
of stock in, and/or other securities of, any other corporation or corporations,
as its board of directors shall deem expedient and for the best interests of the
corporation.
TENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any
-8-
<PAGE> 11
receiver or receivers appointed for this corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
ELEVENTH. Meetings of stockholders may be held outside the State of
Delaware, if the by-laws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation. Elections of directors
need not be by ballot unless the by-laws of the corporation shall so provide.
TWELFTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-9-
<PAGE> 12
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set our hands and seals this 4th day of May, A.D. 1967.
/s/ B. J. CONSONO (SEAL)
------------------------------
/s/ F. J. OBARA, JR. (SEAL)
------------------------------
/s/ A. D. GRIER (SEAL)
------------------------------
STATE OF DELAWARE )
) ss:
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 4th day of May, A.D. 1967, personally came
before me, a Notary Public for the State of Delaware, B. J. Consono, P. J.
Obara, Jr. and A. D. Grier, all, of the parties to the foregoing certificate of
incorporation, known to me personally to be such, and severally acknowledged the
said certificate to be the act and deed of the signers respectively and that the
facts therein stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ [ILLEGIBLE]
------------------------------
Notary Public
[SEAL]
<PAGE> 13
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARABIAN SHIELD DEVELOPMENT COMPANY", FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF SEPTEMBER, A.D. 1980, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8100 AUTHENTICATION: 0184312
001007802 DATE: 01-06-00
<PAGE> 14
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
ARABIAN SHIELD DEVELOPMENT COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST. That the Board of Directors of said corporation duly adopted on June
23, 1980 resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said corporation, deeming and declaring said amendment to be
advisable and directing that the amendment proposed be considered at the next
annual meeting of the stockholders of said corporation, scheduled to be held on
August 12, 1980. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Board of Directors deems and declares to be advisable
and proposes and recommends to the stockholders that the first paragraph of
Article Fourth of the Certificate of Incorporation of the corporation be amended
so that, as amended, said first paragraph shall read in its entirety as follows:
"FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is seven million (7,000,000) and the par
value of each of such shares is Ten Cents ($0.10) amounting in the
aggregate to Seven Hundred Thousand Dollars ($700,000.00)."
SECOND. That, thereafter, pursuant to the resolutions of the Board of
Directors, the proposed amendment was presented to the stockholders of said
corporation at the annual meeting thereof, duly held on August 12, 1980, and was
duly adopted by a favorable vote of the holders of a majority of the outstanding
shares of stock of said corporation entitled to vote thereon.
<PAGE> 15
THIRD. That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation law of the
State of Delaware.
FOURTH. That the capital of said corporation shall not be reduced under or
by reason of the foregoing amendment.
IN WITNESS WHEREOF, ARABIAN SHIELD DEVELOPMENT COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by John
A. Crichton, its Chairman of the Board, and attested by Sam R. Parker, its
Secretary, this 19th day of September, 1980.
ARABIAN SHIELD DEVELOPMENT COMPANY
By /s/ JOHN A. CRICHTON
-------------------------------------
[CORPORATE SEAL] John A. Crichton, Chairman
of the Board
ATTEST:
/s/ SAM R. PARKER
- --------------------------------
Sam R. Parker, Secretary
<PAGE> 16
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARABIAN SHIELD DEVELOPMENT COMPANY", FILED IN THIS OFFICE ON THE NINETEENTH
DAY OF AUGUST, A.D. 1982, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8100 AUTHENTICATION: 0184311
001007802 DATE: 01-06-00
<PAGE> 17
[STAMP]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
ARABIAN SHIELD DEVELOPMENT COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST. That the Board of Directors of said corporation duly adopted on May
3, 1982 resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said corporation, deeming and declaring said amendment to be
advisable and directing that the amendment proposed be considered at the next
annual meeting of the stockholders of said corporation, scheduled to be held on
June 30, 1982. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Board of Directors deems and declares to be advisable
and proposes and recommends to the stockholders that the first paragraph of
Article Fourth of the Certificate of Incorporation of the corporation be amended
so that, as amended, said first paragraph shall read in its entirety as follows:
"FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is ten million (10,000,000) and the par value
of each of such shares is Ten Cents ($0.10) amounting in the aggregate to
One Million Dollars ($1,000,000.00)."
SECOND. That, thereafter, pursuant to the resolutions of the Board of
Directors, the proposed amendment was presented to the stockholders of said
corporation at the annual meeting thereof, duly held on June 30, 1982, and was
duly adopted by a favorable vote of the holders of a majority of the outstanding
shares of stock of said corporation entitled to vote thereon.
<PAGE> 18
THIRD. That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation law of the State
of Delaware.
FOURTH. That the capital of said corporation shall not be reduced under or
by reason of the foregoing amendment.
IN WITNESS WHEREOF, ARABIAN SHIELD DEVELOPMENT COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by John
A. Crichton, its Chairman of the Board, and attested by Sam R. Parker, its
Secretary, this 15th day of July, 1982.
ARABIAN SHIELD DEVELOPMENT COMPANY
By /s/ JOHN A. CRICHTON
-------------------------------------
[CORPORATE SEAL] John A. Crichton, Chairman
of the Board
ATTEST:
/s/ SAM R. PARKER
- --------------------------------
Sam R. Parker, Secretary
<PAGE> 19
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARABIAN SHIELD DEVELOPMENT COMPANY", FILED IN THIS OFFICE ON THE EIGHTEENTH
DAY OF MARCH, A.D. 1985, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8100 AUTHENTICATION: 0184310
001007802 DATE: 01-06-00
<PAGE> 20
CERTIFICATE OF AMENDMENT
[STAMP]
OF
CERTIFICATE OF INCORPORATION
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
ARABIAN SHIELD DEVELOPMENT COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST. That the Board of Directors of said corporation duly adopted on
August 28, 1984 resolutions setting forth a proposed amendment to the
Certificate of Incorporation of said corporation, deeming and declaring said
amendment to be advisable and directing that the amendment proposed be
considered at the next annual meeting of the stockholders of said corporation,
scheduled to be held on November 16, 1984. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Board of Directors deems and declares to be advisable
and proposes and recommends to the stockholders that the first paragraph of
Article Fourth of the Certificate of Incorporation of the Company be amended so
that, as amended, said first paragraph shall read in its entirety as follows:
"FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is twenty million (20,000,000) and the par
value of each of such shares is Ten Cents ($.10) amounting in the aggregate
to Two Million Dollars ($2,000,000)."
SECOND. That, thereafter, pursuant to the resolutions of the Board of
Directors, the proposed amendment was presented to the stockholders of said
corporation at the annual meeting thereof, duly held on November 16, 1984, and
as duly adopted by a favorable vote of the holders of a majority of the
outstanding shares of stock of said corporation entitled to vote thereon.
THIRD. That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
<PAGE> 21
FOURTH. That the capital of said corporation shall not be reduced under or
by reason of the foregoing amendment.
IN WITNESS WHEREOF, ARABIAN SHIELD DEVELOPMENT COMPANY has caused its
Corporate seal to be hereunto affixed and this Certificate to be signed by John
A. Crichton, its Chairman of the Board, and attested by Sam R. Parker, its
Secretary, this 26th Day of December, 1984.
ARABIAN SHIELD DEVELOPMENT COMPANY
By /s/ JOHN A. CRICHTON
-------------------------------------
[CORPORATE SEAL] John A. Crichton, Chairman
of the Board
ATTEST:
/s/ SAM R. PARKER
- --------------------------------
Sam R. Parker, Secretary
<PAGE> 22
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARABIAN SHIELD DEVELOPMENT COMPANY", FILED IN THIS OFFICE ON THE TWELFTH DAY
OF JANUARY, A.D. 1987, AT 10 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8100 AUTHENTICATION: 0184309
001007802 DATE: 01-06-00
<PAGE> 23
[STAMP]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
ARABIAN SHIELD DEVELOPMENT COMPANY, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST. That the Board of Directors of said corporation duly adopted on
October 1, 1986 resolutions setting forth a proposed amendment to the
Certificate of Incorporation of said corporation, deeming and declaring said
amendment to be advisable and directing that the amendment proposed be
considered at the next annual meeting of the stockholders of said corporation,
scheduled to be held on November 25, 1986. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Board of Directors deems and declares to be
advisable and proposes and recommends to the stockholders that the
Certificate of Incorporation of the Company be amended by adding a new
Article Thirteenth that shall read in its entirety as follows:
"THIRTEENTH. To the full extent permitted by the General Corporation
Law of the State of Delaware as the same exists or may hereafter be
amended, a director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. No repeal, amendment or modification of
this article, whether direct or indirect, shall eliminate or reduce
its effect with respect to any act or omission of a director of the
corporation occurring prior to such repeal, amendment or
modification."
<PAGE> 24
SECOND. That, thereafter, pursuant to the resolutions of the Board of
Directors, the proposed amendment was presented to the stochholders of said
corporation at the annual meeting thereof, duly held on November 25, 1986, and
was duly adopted by a favorable vote of the holders of a majority of the
outstanding shares of stock of said corporation entitled to vote thereon.
THIRD. That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
FOURTH. That the capital of said corporation shall not be reduced under or
by reason of the foregoing amendment.
IN WITNESS WHEREOF, ARABIAN SHIELD DEVELOPMENT COMPANY has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by John
A. Crichton, its Chairman of the Board, and attested by Drew Wilson, its
Assistant Secretary, this 3Oth day of December, 1986.
ARABIAN SHIELD DEVELOPMENT COMPANY
By /s/ JOHN A. CRICHTON
-------------------------------------
[CORPORATE SEAL] John A. Crichton, Chairman
of the Board
ATTEST:
/s/ DREW WILSON
- --------------------------------
Drew Wilson, Assistant Secretary
<PAGE> 25
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARABIAN SHIELD DEVELOPMENT COMPANY", FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF JANUARY, A.D. 1993, AT 9 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
0657007 8100 AUTHENTICATION: 0184308
001007802 DATE: 01-06-00
<PAGE> 26
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/29/1993
930335108 - 652007
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
Arabian Shield Development Company (the "Corporation"), a Corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of the corporation for
consideration thereof. The text of the proposed amendment is as follows:
RESOLVED, that the first paragraph of Article Fourth of the Certificate of
Incorporation be amended to read in its entirety as follows:
"FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is forty million (40,000,000) and the
par value of each of such shares is Ten cents ($.lO) amounting in the
aggregate to Four Million Dollars ($4,000,000)."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the annual meeting of the stockholders of the corporation was duly called and
held on December 29, 1992, upon notice in accordance with Section 222 of the
General Corporation law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned does hereby execute this Certificate
for and on behalf of the Corporation, and does hereby acknowledge that this
Certificate is the act and deed of the Corporation and that the facts stated
herein are true.
DATED: January 15, 1993
By /s/ JACK CRICHTON
-------------------------------------
[CORPORATE SEAL] Jack Crichton, Chairman
of the Board
ATTEST:
/s/ DREW WILSON
- --------------------------------
Drew Wilson, Secretary
<PAGE> 1
EXHIBIT 3(b)
<PAGE> 2
BY-LAWS
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
As Amended through March 4, 1998
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Wilmington,
County of New Castle, State of Delaware, and the name of the resident agent
in charge thereof is The Corporation Trust Company.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City
<PAGE> 3
of Dallas, State of Texas, at such place within such City as may be fixed by
the Board of Directors; at least ten days' notice shall be given to the
stockholders of the place so fixed. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
Waiver of Notice thereof.
Section 2. An annual meeting of stockholders, commencing with the year
1968, shall be held on the third Wednesday of April in each year if not a
legal holiday, and if a legal holiday, then on the next secular day following,
at 3:00 P.M., at which they shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting shall be served upon
or mailed to each stockholder entitled to vote thereat at such address as
appears on the books of the Corporation, at least ten days prior to the meeting.
Section 4. At least ten days before every election of Directors, a
complete list of the stockholders
<PAGE> 4
entitled to vote at said election, arranged in alphabetical order, with the
residence of each and the number of voting shares held by each, shall be
prepared by the Secretary. Such list shall be open at the place where the
election is to be held for said ten days, to the examination of any stockholder,
and shall be produced and kept at the time and place of election during the
whole time thereof, and subject to the inspection of any stockholder who may be
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of stockholders,
stating the time and place and object thereof, shall be served upon or mailed
to each
<PAGE> 5
stockholder entitled to vote thereat at such address as appears on the books of
the Corporation, at least five days before such meeting.
Section 7. Business transacted at all special meetings shall be
confined to the objects stated in the call.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, by the Certificate of Incorporation or by these By-Laws. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
<PAGE> 6
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes or
of the Certificate of Incorporation or of these By-Laws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
Section 10. At any meeting of the stockholders every stockholder
having the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder and bearing
a date not more than three years prior to said meeting, unless said instrument
provides for a longer period. Each stockholder shall have one vote for each
share of stock having voting power, registered in his name on the books of the
Corporation. Except where the transfer books of the Corporation shall have been
closed or a date shall have been fixed as a record date for the determination of
its stockholders entitled to vote, no share of stock shall be voted on
<PAGE> 7
at any election of Directors which shall have been transferred on the books of
the Corporation within twenty days next preceding such election of Directors.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the Certificate of Incorporation or of
these By-Laws, the meeting and vote of stockholders may be dispensed with, if
all the stockholders who would have been entitled to vote upon the action if
such meeting were held, shall consent in writing to such corporate action being
taken.
ARTICLE III
DIRECTORS
Section 1. The number of Directors which shall constitute the whole
Board shall be four. The Directors shall be elected at the annual meeting of
the stockholders, except as provided in Section 2 of this Article, and each
Director elected shall hold office until his successor shall be elected and
shall qualify. Directors need not be stockholders.
Section 2. If any vacancies occur in the Board of Directors caused by
death, resignation,
<PAGE> 8
retirement, disqualification or removal from office of any Directors or
otherwise, or any new directorship is created by any increase in the authorized
number of Directors, a majority of the Directors then in office, though less
than a quorum, may choose a successor or successors, or fill the newly created
directorship and the Directors so chosen shall hold office until the next annual
election of Directors and until their successors shall be duly elected and
qualified, unless sooner displaced.
Section 3. The property and business of the Corporation shall be
managed by its Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 4. Any Director may be removed at any time, with or without
cause, by the affirmative vote of the holders of a majority of the stock having
voting power.
<PAGE> 9
MEETINGS OF THE BOARD
Section 5. The Directors of the Corporation may hold their meetings,
both regular and special, either within or without the State of Delaware.
Section 6. The first meeting of each newly elected Board shall be held
at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected Directors in order legally to constitute the meeting provided a quorum
shall be present, or they may meet at such place and time as shall be fixed by
the consent in writing of all the Directors.
Section 7. Regular meetings of the Board may be held without notice at
such time and place as shall from time to time be determined by the Board.
Section 8. Special meetings of the Board may be called by the President
on two days' notice to each Director, either personally or by mail or by
telegram; special meetings shall be called by the President or Secretary in like
manner and on like notice on the written request of two Directors.
<PAGE> 10
Section 9. At all meetings of the Board the presence of not less than
one-third of the total number of the Board nor less than two Directors shall be
necessary and sufficient to constitute a quorum for the transaction of business
and the act of a majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation or by these By-Laws. If a quorum shall not be present at any
meeting of Directors the Directors present thereat any adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of two or more of the Directors of the Corporation, which, to the extent
provided in said resolution, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may have power to
<PAGE> 11
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 11. Unless the Chairman of the Corporation directs otherwise,
the committees shall not be required to keep minutes of their discussions except
on matters which said committees refer to the Board of Directors for action.
COMPENSATION OF DIRECTORS
Section 12. Directors, as such, shall not receive any stated salary for
their services, but, by resolution of the Board a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided that nothing herein contained shall be construed
to preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
<PAGE> 12
ARTICLE IV
NOTICES
Section 1. Whenever under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any Director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be thus mailed.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation, or of these
By-Laws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Directors and shall be chairman
<PAGE> 13
of the board, chairman of the executive committee, president, a vice-president,
a secretary and a treasurer. The Board of Directors may also choose additional
vice-presidents and one or more assistant secretaries and assistant treasurers.
Two or more offices may be held by the same person, except that where the
offices of president and secretary are held by the same person, such person
shall not hold any other office.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president from its members, and
shall choose one or more vice-presidents, a secretary and a treasurer, none of
whom need be a member of the Board.
Section 3. The Board may appoint such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms and shall
exercise such power and perform such duties as shall be determined from time to
time by the Board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and
<PAGE> 14
qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the whole Board of Directors. If the office of any officer becomes vacant for
any reason, the vacancy shall be filled by the Board of Directors.
Section 6. The officers of the Corporation shall have such powers and
duties in the management of the business and affairs of the Corporation, subject
to the control of the Board of Directors, as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be prescribed by the Board of Directors.
Section 7. In the absence of any officer or for any other reason which
may seem sufficient to them, the Board of Directors may delegate all or any of
the powers and duties of any officer to any other officer.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. The certificates of stock of the Corporation shall be
numbered and shall be entered in the books of the Corporation as they are
issued. They
<PAGE> 15
shall exhibit the holder's name and number of shares and shall be signed by the
President or a Vice-President and the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary.
LOST CERTIFICATES
Section 2. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
<PAGE> 16
TRANSFERS OF STOCK
Section 3. Upon surrender to the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 4. The Board of Directors may close the stock transfer books of
the Corporation for a period not exceeding sixty days preceding the date of any
meeting of stockholders or the date for payment of any dividend or the date for
the allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect or for a period of not exceeding sixty days
in connection with obtaining the consent of stockholders for any purpose. In
lieu of closing the stock transfer books as aforesaid, the Board of Directors
may fix in advance a date, not exceeding sixty days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the
<PAGE> 17
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any such meeting, and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, or to
give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, or to give such consent, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 5. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other
<PAGE> 18
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
CHECKS
Section 1. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 2. The fiscal year of the Corporation shall begin on the first
day of January in each year.
SEAL
Section 3. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a
<PAGE> 19
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Each director, officer and employee of the Corporation and any person
serving at its request as director, officer or employee of another corporation
in which it owns shares of capital stock or of which it is a creditor shall be
indemnified by the Corporation against all expenses (including costs and
attorneys' fees) which may reasonably be incurred or paid by him in connection
with any action, suit or proceeding, civil or criminal, to which he may be made
a party by reason of his being or having been such director, officer or
employee, or by reason of any action or omission or alleged action or omission
by him in such capacity, and against any amount or amounts which may be paid by
him (other than to the Corporation) in reasonable settlement of any such action,
suit or proceeding, where it is in the interest of the Corporation that such
settlement be made. In cases where such action, suit or proceeding shall proceed
to final adjudication, such indemnification shall not extend to matters as to
which it shall
<PAGE> 20
be adjudged that such director, officer or employee is liable for negligence or
misconduct in the performance of his duties to the Corporation. The right of
indemnification herein provided for shall not be exclusive of other rights to
which any director, officer or employee may now or hereafter be entitled, shall
continue as to a person who has ceased to be such director, officer or
employee, and shall inure to the benefit of the heirs, executors and
administrators of a director, officer or employee. The Board of Directors shall
determine the propriety of the expenses (including attorneys' fees) incurred by
any person who claims indemnity hereunder, and such determination shall be final
and conclusive. None of the provisions hereof shall be construed as a
limitation upon the right of the Corporation to exercise its general power to
enter into a contract or undertaking of indemnity with any director, officer or
employee in any proper case not provided for herein.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered or repealed at any regular meeting of the
stockholders or at any special
<PAGE> 21
meeting of the stockholders at which a quorum is present or represented,
provided notice of the proposed alteration or repeal be contained in the notice
of such special meeting, by the affirmative vote of a majority of the stock
entitled to vote at such meeting and present or represented thereat, or by the
affirmative vote of a majority of the Board of Directors at any regular meeting
of the Board or at any special meeting of the Board if notice of the proposed
alteration or repeal be contained in the notice of such special meeting;
provided, however, that no change of the time or place of the meeting for the
election of directors shall be made within sixty days next before the day on
which such meeting is to be held, and that in case of any change of such time or
place, notice thereof shall be given to each stockholder in person or by letter
mailed to his last known post office address at least twenty days before the
meeting is held.
<PAGE> 1
EXHIBIT 10(a)
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
CONTRACT
Between
PETROMIN
AND
NATIONAL AND ARABIAN SHIELD
DATE AND PARTIES:
This Contract, entered into in JEDDAH, SAUDI ARABIA, on 6th
day of the month of JUMADA II, 1391 H., corresponding to the 29th day
of the month of July, 1971, between GENERAL PETROLEUM AND MINERAL
ORGANIZATION, a public or organization under the laws of the Kingdom of
Saudi Arabia, (hereinafter referred to as "PETROMIN"), represented by
H.E. SHEIKH AHMED ZAKI YAMANI, Chairman of its Board of Directors,
First Party,
and
NATIONAL MINING COMPANY, a Saudi Arabian company under the laws of
the Kingdom of Saudi Arabia, having its principal place of business in
the city of Jeddah, Saudi Arabia, (hereinafter called "NATIONAL"),
represented by His Highness Prince Khalid bin Abdallah bin Abdal
Rahman, Chairman of its Board of Directors and ARABIAN SHIELD
DEVELOPMENT COMPANY, a Delaware, U.S.A. corporation (hereinafter
referred to as "ARABIAN SHIELD") represented by Mr. Hatem El
Khalidi, its Vice President, both NATIONAL and ARABIAN SHIELD being
hereinafter referred to collectively as Second Party.
RECITALS:
WHEREAS, PETROMIN is entrusted by the laws of the Kingdom of
Saudi Arabia, inter alia, with the promotion and achievement of
development projects related to mining endeavours with the view to
enhance the industrial wealth and the national welfare in Saudi Arabia.
<PAGE> 2
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-2-
WHEREAS, Second Party has represented to the Ministry of
Petroleum and Mineral Resources that it has the necessary technical
competence, financial resources and marketing skills and outlets to
undertake and perform, in accordance with the best accepted practice
in the mining industry, exploration, prospecting development,
exploitation, production, treatment, processing and marketing of
minerals in shape of ore and/or as finished product in world market;
and
WHEREAS Second Party submitted an application to the Ministry
of Petroleum and Mineral Resources for the grant of an exploration
licence for minerals over certain areas (Licence Area), and PETROMIN is
agreeable to accept the terms and conditions of the Exploration Licence
when granted; and
WHEREAS, Second Party, undertake to renounce their
preferential and exclusive rights, under Article 11 of the Saudi Mining
Code, to an Exploitation Concession for the benefit of PETROMIN and to
the extent set forth in this document, hereinafter called this
"Contract"; and
WHEREAS, PETROMIN and Second Party therefore, agree that all
the rights and claims Second Party may assume according to the
Exploration Licence and the Saudi Mining Code, are conditioned and
limited by the terms and provisions of this Contract, which Contract
Second Party undertake to append to their Application for an
Exploration Licence; and
WHEREAS, Second Party shall perform all obligations under the
Exploration Licence, make all payments required to be made to the
Government, the College of Petroleum and Minerals and/or as requested
by the Government, and shall be responsible to attain and prove a
discovery of minerals which can be commercially exploited; and
WHEREAS, upon proving a discovery by Second Party of a
commercially exploitable deposit of minerals, Second Party are willing
and prepared to form in accordance with the provisions of this
Contract a joint venture with PETROMIN for the exploitation of the
discovered mineral or minerals and PETROMIN is agreeable to this; and
<PAGE> 3
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-3-.
WHEREAS, Second Party shall forthwith notify PETROMIN of
the discovery to enable PETROMIN to exercise, at its own discretion,
its right of option to acquire a share in the Exploitation Concession,
which notification shall be served before application for an
Exploitation Concession; end
WHEREAS, in the event PETROMIN elects to participate in
exploitation the Exploitation Concession shall be issued, pro rata, in
the name of both PETROMIN end Second Party, failing which the
Concession shall be issued in the name of Second Party; and
WHEREAS, the Parties desire to set forth in this Contract,
the terms and conditions that shall govern their association and
relationship.
NOW, THEREFORE, THE PARTIES AGREE
AS FOLLOWS:
ARTICLE 1 - DEFINITIONS:
In this Contract the following words and expressions shall
(unless repugnant to the context) have the meanings hereby respectively
assigned to them, that is to say:-
(a) "this Contract" means this Contract between the Parties
hereto.
(b) "Licence" means the Exploration Licence granted in the name of
Second Party.
(c) "the Concession" means the Exploitation Concession granted or
to be granted in the name of the Parties hereto, in the event
PETROMIN elects to acquire a share in the Concession and in
default of which shall be granted in the name of Second Party.
(d) "Government" means the government of the Kingdom of Saudi
Arabia.
(e) "Ministry" means the Ministry of Petroleum and Mineral
Resources, Government of the Kingdom of Saudi Arabia.
(f) "Company" means the company formed by PETROMIN and Second
Party under Article 6 of this Contract.
<PAGE> 4
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-4-
(g) "Exploitable Discovery" means such a discovery of mineral
deposits in the License Area which shall be considered to be
found if it is calculated that it will bring annually from its
exploitation, and for the life of the proven ore reserves, a
reasonable percentage of the capital investment, above
provision for capital return, which percentage shall be set by
ARABIAN SHIELD after the amount, type, average grade, and
amenability to treatment of the ore becomes known, and
considering the then prevailing rates of return in the mining
industry in comparable situations.
(h) "Treatment Plant" or "Plant" means any or all of the
facilities to be constructed in accordance with this Contract
together with the necessary off-sites and such
transportation, if any, as shall be required to service such
Plant and any extensions thereof.
(i) "the Site" means the PETROMIN Industrial Areas at Jeddah/
Dammam or such other area in Saudi Arabia as may be mutually
selected by the Parties for the location of Treatment Plant.
(j) "the product" means any product or by-product manufactured by
Treatment Plant or Plant.
(k) "Year" and "Month" shall mean a calendar year and a calendar
month of the Gregorian Calendar.
(1) Words importing persons include corporations.
(m) Words importing the singular include the plural and
vice-versa where the context so permits.
(n) "Minerals" means the minerals with respect to which rights
are granted by the Licence and Concession.
ARTICLE 2 - OBJECTS OF THIS CONTRACT:
2.1 The immediate object of this Contract is two-fold:-
(a) The regulation of the relationship of the Parties
with respect to the acquisition by PETROMIN of 25%
of the Concession.
<PAGE> 5
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-5-.
(b) The formation of a company by PETROMIN and Second
Party or, in the event PETROMIN does not acquire a
share, by ARABIAN SHIELD and NATIONAL, for the
purpose of undertaking exploration, prospecting,
development and production operations for winning and
obtaining minerals from the area covered by the
Exploitation Concession (the Concession Area) and
such other operations as nay be necessary to
transport and market minerals ore.
2.2 The long-term objective of this Contract is the treatment,
processing, upgrading and/or manufacture of the recovered
minerals ore by the Parties or by agreement of Parties any
other mineral or minerals Exploitation Concession whereof has
been duly granted by the Government, with, where appropriate,
participation by the Saudi public, and for such operations,
provided the same are agreed or determined to be commercially
feasible, as set forth in Article 1 hereof, to set up the
necessary Treatment Plant and or obtain Transportation
Concession so that Operator shall undertake and hereby
undertakes to arrange that the products of such Plant, which
shall be available for export, shall be sold in world market
by Second Party on sell or take basis.
ARTICLE 3 - PERFORMANCE DURING THE PERIOD OF LICENCE
3.1 Second Party shall during the period of the Exploration
License have the exclusive management and control of all
operations authorized by the License, and accordingly hereby
agrees to make all payments, conduct all operations and
promptly and properly carry out all obligations which are
required under the License until such time as commercially
exploitable discovery of minerals shall have been made and
proved and the Exploitation Concession shall have been
granted by the Government.
3.2 Second Party shall furnish evidence to PETROMIN as to the
faithful performance by Second Party of all the obligations to
be performed under the terms of the License on a reasonably
current basis.
3.3 Promptly after the discovery of minerals in commercially
exploitable quantities, Second Party shall give written notice
thereof to PETROMIN. PETROMIN hereby agrees that when after
it has been so notified to inform Second Party of its stand as
to the acquisition by it of a share in the
<PAGE> 6
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-6-
Concession. Such option shall be made by PETROMIN within two
months after the receipt of said request from Second Party.
Second Party, promptly after the receipt of an answer from
PETROMIN, shall apply for the grant of an Exploitation
Concession in accordance with Article II of the Mining Code.
ARTICLE 4 - ACQUISITION OF INTEREST IN THE CONCESSION:
4.1 If PETROMIN does not elect to exercise its right to acquire in
accordance with Articles 2 and 3 of this Contract or if
PETROMIN elects to acquire a percentage less than 25% in the
Concession, then PETROMIN may establish a Saudi Arabian
Company which shall acquire all or part of that right.
Participation of shares in such Company may be offered to the
Government, any of its agencies or organizations, or Saudi
Arabian persons or any of these, either alone or in
conjunction with any of the others, but ARABIAN SHIELD shall
not acquire directly or indirectly, any of such shares. In
this case the Saudi Arabian Company shall replace PETROMIN in
this Contract and shall have the same rights and obligations
under the Contract that it would have had had it been one of
the original parties to the Contract.
4.2 If the 25% of the Concession earmarked for PETROMIN or any
part of that percentage is not used up by PETROMIN in the
manner set out in Article 4.1, Second Party shall acquire such
unused percentage of the Concession. PETROMIN shall
however retain the right to acquire at any time during the
currency of the Concession all or any part of the 25% of the
Concession earmarked for it upon giving written notice to
Second Party of its intention to do so. In that event Second
Party shall promptly take all due legal measures to secure
for PETROMIN the acquisition of the requested share with
retroactive effect as from the date PETROMIN served such
written notice.
4.3 In the event that PETROMIN elects to resume twenty-five
percent (25%) interest in the Concession by so notifying in
writing to Second Party, at a later stage during the life of
the Concession, all the relevant Articles of this
<PAGE> 7
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-7-
Contract shall immediately come into force and effect and
PETROMIN shall make payment to Second Party in the following
amounts:-
(i) an amount equal to twenty-five percent of "the
Exploration Expenses" as defined in Article 5
hereof at the rate of one-thirtieth thereof per year
from the date of the granting of the Concession to
the date of such election by PETROMIN, which rate is
calculated on the basis of a thirty year period
Concession.
(ii) an amount equal to twenty-five percent (25%) of the
total costs and expenses incurred in further
exploration and prospecting operations carried out
from the date of coming into force of the Concession
to the date of such election by PETROMIN, after
writing down such total costs and expenses on a
straight line basis to extend from the year in which
they were incurred to the end of the initial 30 year
period of the Concession.
(iii) an amount equal to twenty-five percent of sums
expended on assets after depreciating such sums on a
straight line basis over the expected useful life of
the assets concerned.
All such amounts shall be audited and certified by an
internationally recognized auditing firm as being consistent
with the above-mentioned provisions and in case of doubt as
to whether any sum falls within paragraph (ii) or paragraph
(iii) hereinabove the decision of such firm shall be final
and binding. Such amounts shall be paid to Second Party in the
same manner as provided in Article 5.4.
4.4 In the event that the right of conversion of the Licence to an
Exploitation Concession is lost on account of non-
performance of obligations or any default done by Second
Party, or non-discovery of the mineral in exploitable
quantities by Second Party, as laid down in Article 11 of the
Mining Code, this Contract shall thereupon automatically
terminate and PETROMIN shall not be liable for the
reimbursement of any expenses whatsoever of Second Party
incurred pursuant to this Contract and the Licence and all
<PAGE> 8
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-8-
rights and obligations of the Parties under this Contract
shall cease and be of no further effect provided that Second
Party shall be bound to meet and clear all obligations and
liabilities up to and including such date of termination. This
clause, however, does not impede the right of PETROMIN, if
circumstances so justify, to hold Second Party responsible for
compensation and/or damages.
4.5 Second Party shall, severally and jointly, be strictly bound
by and duly to perform all the terms, covenants, conditions
and obligations of the Concession to the extent of the
interest held by them and shall always act in the best
interest of the Kingdom of Saudi Arabia and the welfare of
the Saudi people.
ARTICLE 5 - PAYMENT BY PETROMIN AND/OR NATIONAL:
5.1 PETROMIN and/or NATIONAL depending on their relative
participation in the Concession, shall, severally, pay to
ARABIAN SHIELD a total sum equal to fifty percent (50%) of the
Exploration Expenses, as defined hereinafter. Thus if PETROMIN
retains 25% and NATIONAL has 25% participation interest in the
Concession each shall pay 25% of such expenses to ARABIAN
SHIELD, while if PETROMIN does not acquire an interest and
NATIONAL has 50% interest in the Concession then NATIONAL
shall pay the entire 50% of the Exploration Expenses.
5.2 The Exploration Expenses shall be those costs and expenses
falling within sub-paragraphs 5.2-1, 5.2-2, 5.2-3, 5.2-4
and 5.2-5, and paragraph 5.3 wholly reasonably and
necessarily incurred by Second Party in discharging
obligations expressed under the License to be carried out
until the date of the granting of the Concession. Such costs
and expenses shall be calculated on the basis of actual
expenditure with no element of profit to be included insofar
as the work has been carried out by the Second Party.
Exploration and prospecting expenses and costs wherever
incurred in connection with the operations under the License
shall be determined under the following classifications and
according to the following conditions:-
<PAGE> 9
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-9-
5.2-1 Costs end expenses for exploration and prospecting activities
carried out by Second Party inside Saudi Arabia shall be
calculated on the basis of their original book value provided
that they are directly or indirectly identifiable with the
aforesaid activities and provided also that such costs shall
not exceed normal commercial rates for such works.
5.2-2 Costs and expenses for exploration and prospecting activities
carried out by third parties inside or outside Saudi Arabia in
connection with Second Party's exploration and prospecting
activities in Saudi Arabia and incurred by Second Party shall
be calculated on the basic of the cost to Second Party of such
work, which costs shall not exceed the normal commercial rates
for such work.
5.2-3 Costs and expenses incurred by Second Party and/or its
affiliates outside Saudi Arabia in connection with exploration
and prospecting activities of Second Party in Saudi Arabia
shall be calculated on the basis of their original book value
based on normal accounting practices consistently followed in
previous years, provided that they do not include any profit
elements and further provided that they are directly or
indirectly identifiable with the afore-mentioned activities.
5.2-4 Any bonus paid or payable to the Government as provided for in
the Mining Code or the License shall not be considered as
part of such exploration expenses.
5.2-5 Rentals, paid or payable to the Government and contributions
made or to be made to the College of Petroleum and Minerals
prior to the grant of the Concession shall not be considered
as part of such exploration expenses.
5.3 All such costs rind expenses shall be audited and certified by
an internationally recognized auditing firm to be nominated by
PETROMIN as being consistent with the above-mentioned
provisions and the cost of this audit shall be considered to
be an Exploration Expense.
<PAGE> 10
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-10-
5.4 PETROMIN and/or NATIONAL, severally, shall effect such payment
under Sub-paragraphs 5.2-1, 5.2-2, 5.2-3, 5.2-4 and 5.2-5 and
paragraph 5.3 hereof to ARABIAN SHIELD in the shortest
possible time and, if PETROMIN shall so elect, by quarterly
installments each amounting to not less than twenty-five
percent (25%) of the total amount payable. Any payments in
quarterly installments shall be made by PETROMIN to Second
Party on the first day of January, April, July and October of
each calendar year. If both PETROMIN and NATIONAL hold an
interest then they and ARABIAN SHIELD shall join in the
formation of the Company, hereinafter provided for, while if
PETROMIN does not acquire an interest then only NATIONAL and
ARABIAN SHIELD form such Company. The Parties to the Company
shall be referred to hereafter as "the Parties concerned".
ARTICLE 6 - NON-PROFIT JOINT COMPANY:
6.1 For the purpose of operating the Exploitation Concession, the
Parties having an interest therein, shall form nonprofit Saudi
Arabian Joint Company (hereinafter referred to as "the
Company"), the charter of which shall be laid down in Annex
"A" hereof as an integral part of this joint venture Contract
and shall function as herein provided to explore, develop and
operate the said Exploitation Concession and the Treatment
Plants, if any, for the joint account of the Parties concerned
in accordance with the terms of the Contract and in conformity
with provisions of the said Concession.
6.2 The duration of the Company shall be the duration of the
Exploitation Concession, including any extensions thereof. The
Company shall be wound up and put in liquidation if said
Concession is terminated.
6.3 The function of the Company shall be to carry out in Saudi
Arabia, as agent for the Parties concerned, the Mining
Operations as defined hereunder in paragraph 6.8.
6.4 The authorized capital of the Company shall be nominal and
arrived by mutual agreement of the Parties concerned and the
stock shall be transferred only with the interest in the
Concession. Each party shall subscribe and pay up its
appropriate percentage of such authorized share capital.
<PAGE> 11
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-11-
6.5 The Parties concerned shall share, in proportion to their
interest, the cost and expenses in connection with the
creation of the Company. The costs and expenses required for
equipping, staffing, maintaining and operating the office or
offices of the Company shall also be shared equally between
said Parties.
6.6 The Company shall not own any right, title, interest or
estate in the Exploitation Concession or in any of the mineral
ores produced from the Concession Area, or in the proceeds
from the sale thereof, or any of the assets, equipment or
other property obtained or used in connection therewith, and
shall not be obliged for the financing or performance of any
of the duties or obligations of any party under the Contract
or the Concession. The Company, as agent only, shall receive
and disburse only the moneys received by it and on behalf of
the Parties concerned contributed or advanced to it, including
payments for its capital stock, by the Parties concerned for
and in connection with obligations under this Contract and the
Concession.
6.7 The Company shall have the physical custody of all equipment,
material and supplies used, acquired or obtained to carry out
its duties as Operator of the Concession.
6.8 Mining Operations shall mean:-
(i) the exploration, prospecting, development and
production operation/operations to win and obtain
Minerals by geological and related methods including
drilling, excavating and extracting by mechanical or
other means;
(ii) the transportation of Mineral from Concession Area
to stock depots, rail road, ports, or other
facilities; and
(iii) treatment and processing of minerals and/or other
related operations.
<PAGE> 12
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-12-
ARTICLE 7 - DESIGNATION OF THE COMPANY AS COMMISSION OPERATOR:
7.1 The Company is hereby designated from and after its formation
for and during the balance of the period covered by the
Concession as the operator of the Concession with physical
custody of all the equipment and other property used, had or
obtained in connection therewith for the joint account of the
Parties concerned to the extent that such operations are made
the obligations of the Parties concerned and to the extent
that said equipment and other movable property are purchased
or obtained by or for the joint account. It shall have the
usual and customary duties of an operator of mining
properties, except as elsewhere herein adversely provided, and
shall pursue all its duties in a good and workmanlike manner
pursuant to modern and prudent practice.
ARTICLE 8 ANNUAL WORK PROGRAM AND BUDGET:
8.1 On or before October 1st of each year the Company shall
prepare and submit to its Board of Directors a proposed work
program and annual budget for the ensuing calendar year. A
work program and annual budget shall, after due consideration
of the recommendations of the share-holders in relation
thereto, be settled by the Board of the Company by December
15th.
8.2 Prior to the first day of the month preceding a calendar
quarter the required cash for payment of operating expenses
(all expenses which are not capital items) shall be called
for by the Company from the Parties concerned. Each Party
shall put at the disposal of the Company not later than the
day before the first of each calendar quarter amounts
sufficient to cover such Party's share of the expenditures
envisaged for the then next two succeeding calendar quarters,
and if a remittance is late, the Company shall give notice to
the Party in default demanding payment within fifteen (15)
days from the date such notice is served. Any Party may
satisfy its obligations in whole or part under this paragraph
by authorizing the Company to use for such expenditures the
whole or part of its share of joint account funds held by the
Company for it. The required cash for capital expenditures
shall be handled in a similar manner although the Company
shall not require payments in advance except to the extent
reasonably necessary.
<PAGE> 13
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-13-
8.3 The Board of Directors or the Technical Manger shall from time
to time determine the rates of production of minerals, taking
into consideration all relevant factors including availability
of labour, transportation end economically attractive markets.
Such rates of production shall prevail until changed by the
Board of Directors or by the Manager Technical.
ARTICLE 9 - ACCOUNTING PROCEDURE:
Each Party and the Company shall maintain, at their main
business offices in Saudi Arabia, books of account in
accordance with generally accepted first-class accounting
practices used in mining industry, and such other books and
records as may be necessary to show the work performed under
this Contract, including the quantity and value of all
mineral ore/ores produced or exported hereunder. The Company
shall furnish to the Parties concerned monthly returns showing
the quantity of mineral ores produced, transported or exported
by it hereunder. Such returns shall be prepared in the form
required by the Parties concerned and shall be delivered to
each Party within thirty (30) days after the end of the month
covered in the return.
Company shall also prepare and submit all forms returns etc.,
required to be prepared or submitted under provisions of the
Mining Code. Company shall furnish copies of all such forms or
documents to Parties concerned also.
ARTICLE 10 - INSURANCE:
10.1 Adequate insurance shall be maintained by the Company and
charged to the joint account, which insurance coverage shall
include Fire and Extended Coverage, Workman's Compensation,
Employers' Liability, General Liability, and Aircraft
Liability, and when necessary Marine Insurance.
10.2 A Party desiring additional insurance in excess of that
mutually agreed upon, may do so for its own account and
benefit in connection with its interest under the Concession
and this Contract.
<PAGE> 14
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-14-
10.3 The Company shall require all contractors and subcontractors
to furnish certificates of their insurance evidence of such
types and limits of insurance which in the opinion of the
Company are deemed sufficient and in accordance with good
industry practice.
ARTICLE 11 - TREATMENT PLANT AND TRANSPORTATION FACILITIES:
11.1 The Parties concerned agree and undertake with each other that
they will exercise their right under the Concession and this
Contract for optimum benefit of Parties and to that extent it
is specifically agreed that if the Parties agree or it is
determined as provided hereinafter that the ultimate
profitability of treating processing or manufacturing the
mineral ore produced from the Concession Area will be more if
exported or sold in treated/processed form than exports of
same in untreated/unprocessed form, then the Parties agree to
apply for and obtain Concession for Treatment Plants and to
set up Treatment Plant for that purpose.
11.2 Similarly if it is agreed or determined that it will be more
profitable to have a Transportation Concession, the Parties
agree to apply for and obtain a Concession for Transportation.
11.3 In order to agree or determine whether the obtaining of a
Concession for Treatment Plant and/or Transportation and the
setting up of such facilities will have more ultimate
profitability, the Parties shall within one year of
establishing of first exports of mineral ore, initiate
feasibility studies in relation to such facilities. Such
studies shall conform to the terms of reference laid down in
Annex "B" and shall be completed within twenty-four months
of first export.
11.4 The Parties shall each inform the other of the names and
qualifications of the engineers and other experts each has
instructed to carry out such studies on its behalf so that
each Party may take recommendations to the other Party as to
any further or alternate experts which it may consider
desirable to instruct. The Parties shall each request their
engineers and other experts fully to cooperate with the other
Party's engineers and experts during the course of such
studies with the intent that there shall be produced by all
engineers and experts engaged agreed results of such studies,
or where they do not agree, fully reasoned
<PAGE> 15
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-15-
dissenting reports. The Parties shall each bear all costs and
charges of engineers and other experts respectively instructed
or employed by them.
11.5 With respect to the Treatment Plant end Transportation
Facilities envisaged the criteria used by the engineers and
other experts to determine the profitability of projects under
consideration shall be those criteria normally and
conventionally used in the Mining Industry in comparable
situations.
11.6 If the agreed results of any such study shall be to the
effect that :-
(a) either of the projects referred to in the foregoing
paragraph will show on equal or higher profitability
than profitability derived from sales of the raw ore
at export taking into account the then prevailing
prices for such raw ore or the use of alternative
transport, as applicable, and
(b) such projects are within the limits of financial
commitment of Parties adding thereto conventional
loan capital,
then the Parties undertake to carry out such projects.
11.7 If the agreed or determined results of such feasibility study
are to the effect that the criteria necessary for these
projects are not present, then the projects, which are the
subject of such feasibility study, shall be delayed until such
time within the period of this Contract as the Parties may
agree based on further feasibility studies, which feasibility
studies shall be made at intervals of not more than two (2)
years after the conclusion of the previous feasibility study.
11.8 If the engineers end other experts respectively instructed or
employed by the Parties for the purpose of any such
feasibility study shall express dissenting views on the
subject to be covered by the relevant feasibility study and
either one of such views is to the effect that the criteria
referred heretofore in this Article would be satisfied, then
the subject or subjects on which such
<PAGE> 16
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-16-
dissenting views are expressed shall be submitted for the
decision of such expert third party or parties as the Parties
shall agree, or failing such agreement, such expert third
party shall be nominated by the President of the Board of
Concession Appeals provided for in Article 50 of the Mining
Code. If the decision of such third party or parties on the
matters which are the subject of such dissent is to the effect
that the criteria set out above would be satisfied, then the
Parties undertake to carry out such project or projects and
undertake with each other to make available, when called upon,
their relevant shares of investment.
11.9 For the purpose of financing such Treatment Plants and
Transportation Facilities as described in this Contract, the
necessary capitalization provided for in Annex "B" shall be
made available by the Parties in proportion with their
respective interests in the Concession.
ARTICLE 12 - PLANT CONSTRUCTION:
12.1 In the event the Parties agree or it is determined as set
forth in Article 11 hereof to set up a Treatment Plant and or
Transportation Facilities, and a Concession for same is
granted by the Government, Second Party shall be responsible
for making necessary arrangements for the design, engineering
purchasing of material and equipment and construction of the
Treatment Plant and or Transportation Facilities and its
commencement of operation.
12.2 In discharging the duties undertaken by it under Article
12.1 above, Second Party shall be responsible, amongst other
things, for the compilation of all data, specifications
drawings, conditions of contract end other documents and
information necessary or desirable for obtaining tenders on an
international basis for the design, engineering, purchasing of
materials and equipment and construction of the Treatment
Plant and or Transportation Facilities. No such data,
specifications, drawings, conditions of contract, documents or
information shall be published or distributed unless the same
shall have been approved by PETROMIN provided that this
requirement shall not apply if PETROMIN does not hold an
interest in the Concession.
<PAGE> 17
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-17-
12.3 Upon such approval having been given, Second Party shall
invite tenders for the design, engineering, purchasing of
materials and equipment and construction of the
Plant/Transportation Facilities from such persons and in such
countries as the Parties to this Contract agree in advance.
12.4. Second Party shall not conclude by themselves any contract for
design, engineering, purchasing of materials and equipment and
construction of Plant/Transportation Facilities or any part
thereof. Instead, Second Party shall forward to PETROMIN
all tenders received together with the appraisals and
recommendations of Second Party with regard to those tenders
and the contracts will be placed thereafter with the mutual
agreement of the Parties.
12.5 During the period of construction of the Treatment Plant,
Second Party shall:-
(a) prepare any further designs and drawings necessary
for the information of the contractors to enable them
to carry out such construction.
(b) inspect and teat during construction the mechanical
and electrical materials, machinery and equipment
supplied by the contractors and arrange and witness
acceptance tests.
(c) issue proper instructions to contractors in
accordance with the terms of contracts between the
Joint-Venture and such contractors.
(d) issue such certificates as the conditions of
contracts between the Parties and a contractor
provide shall be issued prior to the contractor
becoming entitled to the whole or any part of his
contract price.
(e) arrange with prior written concurrence of PETROMIN
for such competent and qualified engineers,
technicians and/or consultants, as shall be
reasonably necessary for the efficient planning and
designing of the Treatment Plant and facilities; and
for a competent and qualified resident staff.
(f) assist, when appropriate, in settling disputes and
differences which may arise between the Parties and
contractors.
<PAGE> 18
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-18-
Provided always that Second Party shall in no way be
responsible to the Joint-Venture and/or PETROMIN for the
wrongful or negligent acts or omissions of the contractors
where such acts or omissions do not result from the failure of
Second Party to discharge its own responsibilities as set
forth in this Article.
12.6 Second Party shall not charge any fees to the Joint-Venture
for the exercise of its functions under this Article. However,
it is agreed that the Joint-Venture shall pay (a) expenses
incurred for jobs carried out through third parties with the
prior approval of PETROMIN and (b) salaries and remunerations
of staff employed for supervision of designing, planning and
construction of the Plant/Transportation Facilities.
ARTICLE 13 - PLANT OPERATION:
13.1 Second Party shall, for the duration of the Contract, be
responsible to Joint-Venture and PETROMIN for efficient
technical management of the Treatment Plant and/or
Transportation Facilities (in the event same are set up) and
its offsites, according to first-class generally accepted
engineering standards. In the discharge of this responsibility
Second Party shall :-
(a) provide and/or secure with the prior
approval of PETROMIN, if PETROMIN is
holder of an interest, in the Concession,
such technical staff and employees of the
Joint-Venture as may be reasonably
necessary on suitable terms of employment.
(b) ensure proper extraction of minerals ore and
proper scheduling of production in the
Treatment Plant when it is set up.
(c) ensure that the Treatment Plant and its
offsites are properly maintained and
repaired.
(d) ensure that the production of the Treatment
Plant is properly stored and loaded on to
Transportation.
(e) from time to time transfer such of its
responsibility to such Saudi Arabian
employees of the Joint-Venture as the
Parties mutually agree are sufficiently
experienced.
<PAGE> 19
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-19-
(f) provide all such information, patents and
processes and consultation services to the
Joint-Venture as may be reasonably within
its power and which shall be needed to
perform its obligations hereunder to the
efficient degree and to ensure that the
production by the Treatment Plant is
technically uptodate.
(g) provide for, as long as necessary, continued
instruction and training to an appropriate
number of Saudi Arabian employees of the
Joint-Venture with a view to ensuring that
the management and staff employed in the
operation, maintenance and repair of the
equipment and machinery of the
Joint-Venture and in marketing the ore
and/or products of the Treatment Plant shall
become progressively more Saudi Arabian in
content. The instruction and training of
such Saudi Arabian employees shall take
place at the Plants and offices of Second
Party or its affiliates as may be
appropriate. The Joint-Venture shall be
responsible for the travelling expenses,
living expenses and salaries of such Saudi
Arabian employees during the period of such
instruction and training but Second Party
shall not make any charge for such
instruction and training.
13.2 The provision of this Article shall apply with equal force in
case any Transportation Facilities are set up.
ARTICLE 14 - MARKETING ARRANGEMENTS:
14.1 Second Party, severally and jointly, shell be responsible for
a period of eight (8) years from the commencement of
production in the Concession Area or by the Treatment Plant,
in consideration of the remuneration hereinafter laid down, to
arrange the marketing and sales of relevant proportion of
PETROMIN's share, if any, of all the mineral ore produced
and/or products of the Treatment Plant, that are available for
export from Saudi Arabia and in the discharge of such
responsibility Second Party shall either itself purchase or at
its option procure purchasers for such ore or products of
PETROMIN's share that are available for export. Sales in
Saudi Arabia shall be handled by PETROMIN itself or through
any other agency appointed by PETROMIN.
<PAGE> 20
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-20-
14.2 The relevant proportion of PETROMIN's share, referred to in
Article 14.1 hereinabove, shall be :-
(a) During the 1st year from the date of commencement
of production in the Concession Area or by the
Treatment Plant...............................100%
(b) During the 2nd year...........................87 1/2%
(c) During the 3rd year...........................75%
(d) During the 4th year...........................62 1/2%
(e) During the 5th year...........................50%
(f) During the 6th year...........................37 1/2%
(g) During the 7th year...........................25%
(h) During the 8th year...........................12%
(i) During the 9th year...........................NIL
The excess of ore and or Plant production over the relevant
proportion will be sold by PETROMIN itself or through any
other agency appointed by it. PETROMIN will be entitled to a
commission of two percent (2%) on the total of such sales and
sales in Saudi Arabia.
14.3 The prices to be paid by the purchasers for mineral ore and
Plant products F.O.B. Jeddah or any other port of loading in
Saudi Arabia shall be the prices fixed under paragraph 8 and
of this Article 14, except in the case of sales into Saudi
Arabia where sales shall be at the best prices obtainable
having due regard to local conditions and prevailing world
prices at the time of such sales. In case of sales to Second
Party or purchasers of products for export directly procured
by Second Party it shall be entitled to a gross sales
commission equal to two percent (2%) of the sale price
received.
14.4 The volume of sales into Saudi Arabia shall be determined by
the Parties for each period of three (3) months ending 31st
March, on 30th June, on 30th September and 31st December.
Sales into Saudi Arabia shall have priority over sales for
export.
<PAGE> 21
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-21-
14.5 50 far as may be reasonable the Parties will cooperate with
each other in agreeing prices on a long term basis.
14.6 If Second Party shall fail to market any portion of the ore or
the products of the Plant in accordance with its
responsibilities as per paragraphs 1 and 2 of this Article 14
then without prejudice to remedies of PETROMIN against Second
Party, PETROMIN shall be entitled to procure export buyers
for such portion. In such event PETROMIN shall be entitled to
receive from the Joint-Venture the sales commission of two
percent (2%) which would have been paid to Second Party had it
marketed such portion and PETROMIN shall in addition be
entitled to receive from Second Party compensation at the rate
of two percent (2%) of the purchase price received by the
Joint-Venture for the portion so sold.
14.7 (a) The mineral ore or the Treatment Plant products for export
shall be sold only under the following terms end conditions:-
(i) On payment of agreed F.O.B. price against
delivery of shipping documents,
(ii) On payment agreed F.O.B. price within
thirty (30) days from the date of the
relevant bill of loading such payment to be
guaranteed in advance by a bank acceptable
to PETROMIN, if PETROMIN at the time
has an interest in the Concession,
(iii) Risk and title shall pass to Second Party or
buyer, as the case may be, at delivery point
F.O.B. Jeddah or any other Saudi port as
progressively loaded.
(iv) Arrangements for payment shall be agreed to
the satisfaction of PETROMIN any shipment
can be taken in hand.
Where Second Party estimate that the best
economic interest of the Joint-Venture
requires variations in the above, they shall
secure the prior approval of PETROMIN for
making such variations.
<PAGE> 22
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-22-
(b) Payments for the account of the Joint-Venture by
Second Party or a purchaser for all its purchases
from the Joint-Venture shall be made in U.S.
Dollars or any other currency acceptable to the
Joint-Venture and freely convertible into U.S.
Dollars but sales into Saudi Arabia shall be made
in Saudi Arabian currency. Such sales shall be made
in cash or on thirty (30) days credit against
acceptable bank guarantee.
14.8 The representative/representatives of each Party shall meet
together in Saudi Arabia or such other place as may be agreed
on March 31, June 30, September 30 and December 31, or as near
as possible to such dates, in each year during the period of
the Contract for the purpose of agreeing upon prices at the
date of such meeting for the ore and plant products,
considering the provision of paragraph 14.9 hereof. If within
a period of fourteen (14) days from the date of such
representatives so meeting together, they shall not have
agreed on prices, then the matter shall be referred to the
Government Prices Committee set up for this purpose. An appeal
against the decision of this Committee may be made by any
party to the Board of Concession Appeals provided for in
Article 50 of the Mining Code, the award of the Board shall be
final and binding.
14.9 The geographic world markets the prices of which shall be
taken into consideration are :
(1) NEW YORK (2) LONDON
(3) TOKYO (4) ZURICH
(5) OTHERS. The list of such markets may be
amended from time to time by mutual agreement of Parties.
14.10 If at any time during the said period of eight (8) years
Second Party are in breach of its duty imposed by paragraph 1
of this Article 14 to purchase or procure purchasers of the
relevant proportion of PETROMIN's share of the ore
produced or the Treatment Plant products, then they shall be
liable to pay to PETROMIN as liquidated damages in respect
of such default so long is it continues, such profit as
PETROMIN would have realized on the sale of such relevant
proportion not so purchased at prices which shall reflect the
prices actually obtained during the period of default based
on the program or actual production from the Concession Area
whichever is more at the time of commencement of such
default less such profit as PETROMIN shall actually
<PAGE> 23
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-23-
realize on such sales as it shall be able to make of such
relevant proportion of ore produced or the Plant products not
purchased but after adding all costs incurred by PETROMIN,
as the same shall not have been taken into account in arriving
at such profit in keeping mining operations in the Concession
Area and/or the Plant in operational readiness during the
period of such default.
14.11 Without prejudice to the provisions of this Contract and in
case at any time during the period of this Contract any party
is in breach of its obligations under this Contract that party
shall pay to the other party or parties damages as shall be
determined by adjudication as set forth in Article 29 hereof.
14.12 Second Party shall be free to market the ore or the Treatment
Plant products in any country of the world provided that at no
time shall Second Party market the ore or Treatment Plant
products to any hostile country or sell the same to Parties
under a commercial ban by the Government of the Kingdom of
Saudi Arabia.
ARTICLE 15 - MATERIAL AND SERVICES:
15.1 Second Party shall give preference to goods and materials that
are available in Saudi Arabia. They shall not knowingly
purchase directly or indirectly goods or materials from any
foreign source hostile or unfriendly to the Saudi Government.
Each year from the beginning of the commercial production,
at least twenty five percent (25%) of the cash reserves
retained by Second Party in Saudi Arabia shall be deposited as
current account in Saudi bank or banks and that fifty percent
(50%) of the value of the Second Party's letters of credit
related to purchases made during the period of the Concession
shall be opened through such bank or banks.
15.2 Second Party shall also accord priority to Saudi Arabian
contractors for the execution of the Second Party's works and
installations, provided that the rates and terms and the
quality of work are generally the same as those that may be
obtained from contractors in other countries.
<PAGE> 24
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-24-
15.3 Should the need arise during the periods of the License and
the Concession, for the services of drilling rigs other than
those owned by Second Party, first preference shall be given
to rigs owned by the Saudi Government, any of its
organizations and/or Saudi Arabian nationals, provided that
the rates and terms and quality of work are generally the same
as those for similar rigs of other contractors.
ARTICLE 16 - PERSONNEL:
16.1 Second Party and the Company shall employ Saudi Arabian
personnel in the administration and management of their
operations and activities. Once the Concession is granted, the
following proportions must be observed in all brackets:-
16.2 Inside Saudi Arabia a minimum of eighty five percent (85%) of
the employees of the Second Party and the Company shall be
Saudis, of whom at least fifty percent (50%) must be in major
posts.
16.3 Outside Saudi Arabia a minimum of thirty-five percent (35%)
shall be Saudis, if and when they are available.
16.4 Whenever it is not possible to meet these requirements, due
to a shortage of skilled Saudi personnel, Second Party, the
Company and such other companies or ventures formed under this
Contract shall employ personnel in the following order :
citizens of the Arab States who are members of the Arab
League, citizens of other Arab countries and citizens of other
friendly states.
16.5 Saudi and non-Saudi employees having substantially similar
capabilities or having substantially similar duties and
responsibilities must receive the same remuneration and the
same reasonable foreign allowance if an when circumstances
require it.
ARTICLE 17 - TRAINING:
Once the Concession is granted by the Government, the Parties
shall, at the expense of the Joint-Venture, prepare a
specialized theoretical and practical training program for
Saudi Arabian employees relating to the various aspects of the
mining industry and including supervisory and management
training.
<PAGE> 25
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-25-
ARTICLE 18 - EDUCATION, MEDICAL AND OTHER SERVICES:
Once the Concession is granted, the Parties shall contribute
to the welfare of the people of Saudi Arabia by providing
various facilities pertaining to educational, medical,
hygenical and other services including but not limited to
setting up of schools, hospitals and water facilities to be
agreed upon with the Government.
ARTICLE 19 - OTHER INTERESTS:
19.1 Except with the prior written approval of PETROMIN, neither
Second Party nor any of its affiliates or associated companies
shall either directly or indirectly in any capacity be
concerned or interested in any corporation, firm, business or
enterprise in Saudi Arabia which shall compete with or be
likely to compete with the business, activities and program of
the Joint-Ventvre.
19.2 PETROMIN notwithstanding anything to the contrary herein
contained shall be at liberty without any restriction
whatsoever to mine, produce or sell or be associated with or
interested in any corporation, firm, business or enterprise
mining, making or selling any minerals or products whatsoever
whether or not the same shall be competitive with the
business, activities and program of the Joint-Venture.
ARTICLE 20 - TRANSFER OF INTEREST IN CONCESSION:
20.1 PETROMIN may transfer its total or partial interest
and holdings in the Concession and/or the Joint-Venture to
any Saudi Arabian company, firm or person, provided PETROMIN
shall always hold itself responsible to Second Party for
performance by such transferee of this Contract.
20.2 Second Party may transfer its total or partial interest and
holdings in the Concession and/or the Joint-Venture to its
parent company or a subsidiary or an affiliate, provided
Second Party shall always hold itself responsible to
PETROMIN for performance, by such transferee of this
Contract
<PAGE> 26
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-26-
A subsidiary shall mean a corporation or company which the
Second Party owns more than half of its capital and which is
under the direct or indirect control of the Second Party. An
affiliate shall mean a corporation or company which more than
half of its capital is owned by, and which is under the
direct or indirect control of, a corporation or company which
the Second Party owns more than half of its capital and which
is under his direct or indirect control.
20.3 Any transfer by any Party at variance with the afore stated
provisions of this Article shall require the approval in
writing of the other Party.
ARTICLE 21 - VOLUNTARY SURRENDER OF CONCESSION
21.1 Should any Party at any time desire to surrender or abandon
its entire interest under the Concession and this Contract,
and any other Party or Parties do not so desire, such Party
shall, subject to Government approval, execute and deliver an
instrument transferring its interest, pro rata, to the
Parties desiring not to surrender or abandon, provided
however, that if either PETROMIN or NATIONAL wishes to abandon
its participation interest as aforesaid, the other of them
shall have the first option to take all of the interest so
abandoned.
21.2 From and after the making of the transfer referred to in the
preceding paragraph, the transferring Party shall have no
further interest under the Concession and this Contract and
shall be relieved from the relevant obligations thereafter
accruing under the Concession and this Contract but shall be
bound to meet and clear all its share obligations and
liabilities up to and including such date of transfer and the
substitute Party shall assume all obligations and be entitled
to all benefits thereafter arising so far as applicable to the
interest transferred.
21.3 At the making of the transfer under this Article the
transferee shall be entitled to purchase the transferor's
interest in all facilities, materials and equipment at its
value determined by agreement, or, failing such agreement, by
an award of the Board of Concession Appeals.
<PAGE> 27
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-27-
21.4 If however the Transferor should wish to participate once
again under the particular Concession and this Contract it may
do so upon terms mutually acceptable to PETROMIN.
ARTICLE 22 - WAIVER:
The failure of any Party hereto to insist upon strict
performance of any terms, conditions and provisions of
the Contract shall not be deemed a waiver of future compliance
therewith by the Party by which the same is required to be
performed hereunder and shall in no way prejudice the
remaining provisions of this Contract.
ARTICLE 23 - INDEMNITY:
Second Party hereby agrees to indemnify and keep PETROMIN
harmless and indemnified against all claims, demands or
losses, including but not limited to personal losses and
third party claims from whatever source arising, for the
duration hereof, which PETROMIN may have to meet during the
currency of the Contract or after its termination, if such
claims, demands, or losses are the result of any neglect,
delay or default by Second Party of any of the obligations or
liabilities assumed by Second Party under this Contract, the
License, the Concession, or the provisions of the Mining Code.
ARTICLE 24 - FORCE MAJEURE:
Neither party to this Contract shall be liable to the other
party for any failure of or delay in performance of its
obligations hereunder due to any cause or circumstance which
is beyond its reasonable control and may not reasonably be
prevented, including but without limiting the generality of
the foregoing any such failure or delay as is caused by
strikes, lockouts, fires, explosions, shipwreck, stern,
earthquake, flood, lightning, act of God, wars, riots,
interference by military authorities, regulation or direction
of the Government of Saudi Arabia, or any other government or
governmental authority, provided that the party so restricted
shall continue to use its best efforts to remove the cause
of the force majeure.
<PAGE> 28
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-28-
ARTICLE 25 - CONTROLLING LAW:
The rights of Parties hereunder shall be exercised in a lawful
manner, subject to the laws of the Kingdom of Saudi Arabia,
and in the exercise thereof all respect shall be accorded to
the religion and customs of the people.
ARTICLE 26 - CONFIDENTIAL INFORMATION:
All information acquired by any Party hereto in respect of the
operations hereunder shall be considered as confidential and
shall not be divulged to any other entity except on mutual
agreement of the Parties. This restriction shall not apply in
case of information submitted to or required by the
Government.
ARTICLE 27 - NOTICES:
27.1 Second Party shall designate a fully authorized representative
who shall maintain an office in Saudi Arabia at which notices
to Second Party may be validly served. The address of such
office and any change of address shall be noticed in writing
to PETROMIN, and the address of PETROMIN shall be noticed by
it in writing to Second Party at the office of its said
representative. A party shall not be bound to take notice of
any change of address of the other party until it is so
notified. Second Party, unless otherwise advised, shall direct
his correspondence with PETROMIN to PETROMIN'S address in
Riyadh, Saudi Arabia.
27.2 Any notice to be given by a party to another party hereto
shall be deemed to be validly served if made:
27.2.1 by means of a registered letter, airmail post,
postage prepaid, with receipt requested sent to the
office of the party or authorized representative to
which it is addressed:
27.2.2 by means of a letter delivered by hand at the mail
reception department or desk of the party or
authorized representative to which it is sent, with
an acknowledgement of a receipt on a copy.
<PAGE> 29
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-29-
27.3 Notice by registered mail shall be deemed to have been served
at the expiration of the tenth (10th) day after the same shall
have been posted in Saudi Arabia. In proving such service, it
shall be sufficient to prove that the envelope containing the
notice was properly addressed and posted with prepaid postage.
ARTICLE 28 - ABEYANCE OR ARTICLES:
All Articles of this Contract pertaining to imposition of a
financial burden or responsibility on PETROMIN or pertaining
to participation of PETROMIN in non-profit joint company shall
remain in abeyance and shall come into force only after
PETROMIN exercise its option to retain or resume the agreed
percentage of interest in the Concession in accordance with
provision of this Contract.
ARTICLE 29 - SETTLEMENT OF DISPUTES:
If any doubt, difference or disputes shall arise between the
Parties concerning the interpretation of performance of this
Contract, or anything herein contained or in connection
herewith, or the rights and liabilities of the Parties
hereunder, it shall, failing any agreement to settle it, be
referred to the Board of Concession Appeals provided for in
Article 50 of the Mining Code. The award of the said Board
shall be final and binding on the Parties and may be
enforceable in any Court of Law.
ARTICLE 30 - ORIGINALS AND LANGUAGE:
This Contract is executed in six (6) duplicates, three in
Arabic and three in English and each of the Parties
<PAGE> 30
[GENERAL PETROLEUM & MINERAL ORGANIZATION LETTERHEAD]
-30-
shall retain one of each. All duplicates shall be regarded as
originals and both Arabic and English texts shall have equal
authority and weight.
ARTICLE 31 - EFFECTIVE DATE OF THE CONTRACT:
This Contract shall be effective on and from the date of
signing hereof.
GENERAL PETROLEUM AND MINERAL ORGANIZATION
By /s/ AHMED ZAKI YAMANI
------------------------------------------
NATIONAL MINING COMPANY
By /S/ [ILLEGIBLE]
------------------------------------------
ARABIAN SHIELD DEVELOPMENT COMPANY
By /s/ HATEM EL KHALIDI
------------------------------------------
<PAGE> 1
EXHIBIT 10(b)
LOAN AGREEMENT
This Loan Agreement was signed on 24/1/1979 between:
The Government of Saudi Arabia, represented by His Excellency the
Minister of Finance and National Economy, Sheikh Mohammad Aba Al Khail (First
Party) and,
National Mining Company, a limited Saudi company with headquarters in
Jeddah, represented by His Highness Prince Kaled bin Abdullah bin Abdul Rahman
in accordance with resolution of the Board no. 78/1, dated 20/12/1978 and,
Arabian Shield Development Company, a public stock company with head-
quarters at 10830 North Central Expressway, Dallas, Texas, U.S.A., represented
by Mr. Hatem Hussein El-Khalidi, U.S. citizen, in accordance with Power of
Attorney dated 10 October, 1978. The two above will be referred to as (Second
Party).
Introduction
Whereas the Second Party has procured two exploration licenses for
minerals in the areas of Wadi Qatan and Al Masane in accordance with Council of
Ministers Resolution no. 264 adated 28/3/1391, or 22/5/71, and another
exploration license in the Jabal Harr area in accordance with Ministerial
resolution no. 35/16/4368 dated 1/9/1397.
And whereas the field operations performed by the Second Party has
proven the existence of nickel minerals in Wadi Qatan and the minerals of
copper, zinc, silver and gold in the Al Masane area, and the Second Party then
brought two consulting companies and they are Robertson Research of British
Nationality, and Watts, Griffis and McOuat of Canadian Nationality to
economically evaluate these minerals, and make feasibility studies on them.
These companies did the above studies and they recommended in their report to
begin Phase I of the development program which was estimated to cost 11 million
U.S. dollars.
These reports were also studied by the Technical experts of the
Ministry of Petroleum and Mineral Resources who concluded that the deposits of
the Al Masane area could be economically exploited.
It is understood that that period for the implementation of this
Phase I of this mining program is estimated to be sixteen months as shown by the
reports presented by the consultants to the Directorate General of Mineral
-1-
<PAGE> 2
Resources. This period starts from the date of the obtaining of the loan of
this agreement.
And whereas the High Order (from the Prime Minister) no. 14672 dated
9/7/1398 delegating the Minister of Finance and National Economy as the
Minister of Petroleum and Mineral Resources to implement what is necessary for
the issuance of financial aid to the Second Party. The two Ministers met and
agreed to give the Second Party a loan of 11 million U.S. dollars to help the
Second Party in implementing its Phase I program on condition that the
implimentation shall be under the supervision of the Directorate General of
Mineral Resources as shown in the minutes of the meeting of the two Ministers
on 12/9/1398.
And whereas National Mining Company and Arabian Shield Development
Company are agreeable to a joint undertaking to benefit from this loan to
implement the above mentioned program. Thus the two parties have agreed to the
following:
Article I The introduction above shall be considered as an integral
part of this agreement.
Article II The First Party agrees to loan jointly to the Second Party,
11 million dollars to help him implement Phase I of the development and
exploitation of minerals in the Al Masane area.
Article III (1) The Second Party agrees to spend this loan for the
implementation of the program referred to in the Introduction of this
agreement, and that is under the supervision of the Directorate General of
Mineral Resources. (2) Second Party agrees to keep records and books whereby
all equipment purchased by this loan can be identified, also all expenses
incurred. (3) The Directorate General of Mineral Resources shall have access at
all times to the records of the Second Party, and the right to audit all Second
Party's accounts and documents, and that is for insuring that the funds are
being correctly spent.
Article IV The loan funds shall be payed to the Second Party as
follows: (a) The First Party shall immediately upon the signing of this
agreement deposit the full amount of this loan in a special account in the name
of the Second Party in the Saudi Dutch Bank in Jeddah. (b) The Second Party
shall have the right to draw from this account to open letters of credit to buy
and pay for equipment and instruments and others which are necessary for the
-2-
<PAGE> 3
implementation of Phase I of the mining program. The Second Party shall also
have the right to draw from this account to pay for the general administrative
expenses. The consultants' fees, operating expenses, salaries of personnel,
fuel, and other expenses of operation and administration. In both cases the
drawing of funds shall be in accordance with periodic statements of accounts
authorized by the joint financial committee of the Second Party and a
representative of the Directorate General of Mineral Resources. (c) Second
Party shall give certified copies of all shipment records and the periodic
statements of account to the Directorate General of Mineral Resources, also a
certified copy of the budget of Phase I, and the final statement of account
audited by an authorized Auditor. (d) First Party shall have the right to stop
the withdrawal of funds from this account by Second Party if conditions arise
for the stoppage of the project before completion, or if Second Party did not
comply with the Articles of this Agreement.
Article V The period of repayment of this loan is 10 years which
starts from the date of deferral specified as five years after the signing of
this Agreement.
Article VI The Second Party agree jointly to repay the loan to the
First Party in U.S. dollars in ten equal yearly installments, and without any
interest, and each yearly installment shall be due at the end of the month of
December of every year following the period of exemption described in Article V
of this Agreement.
Article VII The Petroleum and Mineral Association (PETROMIN) shall have
the right to participate in the mineral exploitation of the Al Masane area in
accordance with PETROMIN's agreement with the Second Party dated 6/6/1391. And
in that case and upon PETROMIN's signing an agreement to that effect with the
Second Party, then this loan shall be considered as part of the participation
of PETROMIN in the capital of the joint company that will be formed for that
purpose in accordance with the agreement referred to. The resolution of the
loan shall then be in accordance with an agreement to be made between the two
parties.
Article VIII As security for this loan the Second Party shall put all
its movable and immovable assets in the country in lien to the First Party,
also its equipment and other things tabulated in Attachment (I) of this
Agreement. And the Second Party cannot sell or bequeath or dispose of this
-3-
<PAGE> 4
equipment and other things in any manner during the period of this loan, and
until it is fully repaid or considered part of PETROMIN's contribution to the
capitalization of the proposed company as described in the previous article.
Article IX No member of the second Party can withdraw from this Loan
Agreement or transfer it to others except by prior written agreement of the
First Party.
Article X This agreement comes under the jurisdiction of the laws and
regulations of the Kingdom of Saudi Arabia.
Article XI In case of dispute between the two parties about the
interpretation or its implementation, then the Saudi Office of Appeal shall be
the final arbitrator in any such dispute, and its decision binding on both
parties.
Article XII This agreement has been prepared in five copies in Arabic
and was signed on the above date after reading and understanding it, and the
Second Party received a copy to take action in accordance with it.
First Party
Mohammad Aba Al Khail
Minister of Finance and National Economy
Second Party jointly
For National Mining Company
Prince Khaled bin Abdullah bin Abdul Rahman
For Arabian Shield Development Company
Hatem El-Khalidi
-4-
<PAGE> 1
EXHIBIT 10(c)
Mining Lease Agreement
Preamble:
This lease is granted in accordance with the provisions of the Mining Code of
the Kingdom of Saudi Arabia issued under Royal Decree No. M/21 dated 20.05.1392
A.H., its Executive Regulations, directives and any amendments thereto.
Article 1
The above preamble is considered as an integral part of the Lease.
Article 2
1. "Code" designates the Mining Code of the Kingdom of Saudi Arabia issued
under Royal Decree No. M/21 dated 20.05.1392 A.H.
2. (Lessee) designates Arabian Shield Development Company (formed in accordance
with U.S. laws, with headquarters in Dallas, Texas, or any natural person or
entity to which the rights granted by this lease can be transferred to it in
accordance with Article (49) of the Code.
3. (Minerals) designates any natural ones which the lessee has the right to
exploit.
4. (Lease Area) designates the area of the lease located in the area of Al
Masane mine in the Southern part of the Kingdom of Saudi Arabia, with an area
of 44 square kilometers as shown in the map accompanying this lease agreement
(Appendix I), and which is considered as an integral part of this agreement.
5. (Products) designates the ore which can be treated in any way.
6. (Year and month) designates the Hejira year and its [illegible].
7. (Ministry) designates the Ministry of Petroleum and Mineral Resources of
Saudi Arabia.
Article 3
The Lease includes zinc, lead, gold and associated minerals found in the ore,
excluding radioactive minerals and the minerals excluded by Article (2) of the
Code.
Article 4
The Lease confers upon Lessee the exclusive right to produce and exploit the
minerals specified in Article (3) within the Lease area by way of drilling,
mining, concentration, smelting, and refining; to carry away, transport,
export, and sell them in their original or refined form: and to
<PAGE> 2
-2-
construct, operate, and maintain all mines, buildings, railroads, highways,
pipelines, refineries and treatment plants, communication systems, power
plants, and other facilities necessary or convenient for the purpose of the
Lease. The enjoyment of all these rights is subject to conformance with the
provisions of the Mining Code and other laws in force.
Article 5
The lease is for an initial period of 30 years starting with the date of the
Royal Decree, by which the mining lease is issued. The Lessee shall have the
right to extend the period of the lease after the expiration of the initial
period for a period or periods which do not exceed another 20 years, taking
into regard the current codes then, and provided that the lessee has fulfilled
all his obligations with respect to the lease, the Code and its regulations and
any changes made thereto.
Article 6
Lessee shall pay to the Ministry a surface rental for the duration of the lease
at the rate of 10,000 Saudi Riyals per year per square kilometer or part
thereof. Payment will be made in advance each year starting from the issuance
of the Royal Decree.
Article 7
Lessee shall undertake the implementation of the work plan of Appendix 2
attached to this agreement, and shall present the Ministry reports as follows:
1. Report every six months in the construction stage and until the beginning of
commercial production outlining progress of work and expenditures.
2. Yearly reports during commercial production, including all statistics
associated with production, and any anticipated changes in the planned
production schedule or in exploration. Such reports should be presented within
a month after it is due. The lessee shall also provide the ministry with any
other information requested. The Ministry shall take all measures to insure that
all such reports and information shall not be given to third parties to protect
the commercial interests of the lessee.
Article 8
The lessee undertakes to carry out all operations under the lease in accordance
with modern techniques, economically appropriate and recognized by the mining
industry, and shall avoid to the extent practical, waste or loss of natural
resources. Moreover, production of minerals shall not mean extracting the most
valuable only at the expense of the other minerals in the ore.
<PAGE> 3
- 3 -
The lessee shall take all necessary precautions and measures throughout all
operations related to the lease, to safeguard and protect the environment from
any hazardous waste and any other environmental damage, in accordance with the
rules and regulations of environmental protection then in force in the Kingdom
of Saudi Arabia. When the surface of the land is damaged, it should be restored
to its original contours to the extent possible and reasonable.
Article 9
The lessee undertakes to execute all his obligations prescribed in the lease
with diligence and accuracy, under the general supervision of the Ministry and
in accordance with the programs of construction and operation agreed upon with
the Ministry. Lessee also undertakes to produce the minerals specified in the
lease and to maintain production at the highest level that the ore reserves and
market can support. Lessee also undertakes to observe the safety requirements
and prevent waste.
Article 10
Lessee undertakes to give priority in employment to qualified Saudi citizens.
Lessee also undertakes to have the percentage of Saudi citizens and their wage
scales in accordance of what the Minister of Labor and Social Welfare
decides in agreement with the Minister of Petroleum and Mineral Resources.
Lessee shall prepare and implement a special program for the training of Saudi
employees in different kinds of work in the project including administrative
and technical work.
Article 11
Lessee undertakes to provide the necessary security for all his installations
in the lease area in accordance with accepted procedures followed in this
respect.
Article 12
The Lessee undertakes in to bear the costs of all the infrastructure
necessary for the mine, such as electricity, roads, water, dams and any
other services required for this work, and undertakes to use his best efforts
to develop the lease area.
Article 13
The Ministry reserves the right to enter the lease area to make sure that the
Lessee is fulfilling his obligations in the right manner agreed upon, by
sending its representatives to the lease area to look at the commercial
operations performed. The Lessee shall cooperate with the ministry and its
representatives in this matter and give them all help needed.
<PAGE> 4
-4-
The Ministry has the right to perform work it deems necessary provided in the
area that such work does not hinder the work of the lessee.
Article 14
Without prejudice to the rules and regulations for the use of explosives
within the Kingdom of Saudi Arabia, the Ministry will assist the Lessee to
obtain the necessary permits to use such explosives as may be necessary to
carry out the program of work specified in the lease. The Lessee undertakes to
comply with the applicable laws of the Kingdom of Saudi Arabia regulating the
use of explosives.
Article 15
Lessee shall have all the rights vested in him by virtue of the Code in respect
of export and sale of the production, provided that the State shall at all
items retain priority if it so wishes to purchase from the Lessee the whole
production of gold or any part thereof. The State also reserves the right to
purchase a maximum of ten percent (10%) of his annual production of other
minerals, on the same terms and conditions then available to other similar
buyers, and at current prices then prevailing in the free market. For purpose
of reserving the state's right of priority, the Lessee shall notify the
Ministry in writing at sufficient notice of the amount of production he wishes
to sell every year, so as to enable the state to declare its willingness to
purchase any such amount by written notice to the Lessee three (3) months
before the beginning of the Lessee's financial year.
Article 16
The Lessee has the right to select his suppliers and contractors, on condition
that the Lessee undertakes to give preference to local suppliers and
contractors who can provide goods and services of similar quality upon
acceptable terms.
Article 17
The Lessee undertakes to appoint a chartered accountant, to be chosen by the
Lessee from members of the profession authorized to practice in the Kingdom.
He also undertakes to establish a financial department in the Kingdom for the
purposes of maintaining all necessary financial statements, records and
accounting in accordance with practices used in commercial mining operations.
Lessee shall provide the Ministry with the reports of the chartered accountants
and other reports asked for by the Ministry.
Article 18
The Lessee undertakes to repay the loan which had been granted to it by the
Ministry of Finance and National Economy on 26/2/1399, amounting to $11 million
in accordance
<PAGE> 5
-5-
with agreement with the Ministry of Finance and National Economy.
Article 19
Without prejudice to the exemption from income tax set forth in Article (46) of
the Code, Lessee shall pay income tax in accordance with the income tax laws
then in force in the Kingdom of Saudi Arabia.
Article 20
When the profitability of the project is established, the Lessee shall undertake
the formation of a Saudi Public Stock Company with the Petroleum and Mineral
Organization (PETROMIN), where the Lessee shall subscribe to 50% of the shares,
and PETROMIN to no more than 25%. The remainder of the shares shall be put out
for public subscription. The title of the lease shall then be transferred to the
public stock company. The Ministry shall follow the implementation of the above.
Article 21
Lessee shall be exempt from import and export duties for all equipment imported
for the implementation of the Lease, and unless resold in the Kingdom of Saudi
Arabia, lessee may re-export such equipment. If sold within the Kingdom, customs
duties payable thereof shall be calculated on the value of the equipment at the
time, and according to its condition.
Article 22
Any disputes between the Lessee and the Ministry, which cannot be settled
amicably, shall be settled in accordance with Saudi Codes.
Article 23
No provisions of the lease may be construed in such a manner that it confers
upon the Lessee the ownership of any part of the land within the Lease area, or
grants the Lessee any other rights except those explicitly defined in the Lease
and Code.
Minister of Petroleum and Mineral Resources
Hisham Muhialdin Nazer.
The Lessee agrees to all provisions of the lease above, and shall abide by them,
and abide by all provisions of the Mining Code, and any amendments thereof.
Arabian Shield Development Company,
By: Hatem El-Khalidi
<PAGE> 1
EXHIBIT 10(d)
STOCK OPTION PLAN
OF
ARABIAN SHIELD DEVELOPMENT COMPANY
This Stock Option Plan (the "Plan") is designed to provide for the
granting of options to key employees, including key employees who are officers
or directors, of Arabian Shield Development Company (the "Company") and its
subsidiaries. The purposes of the Plan are to provide an incentive for such key
employees to remain with the Company or its subsidiaries, to provide an
opportunity for them to acquire a proprietary interest in the Company so that
they will devote their best efforts for the benefit of the Company and to aid
the Company and its subsidiaries in attracting able persons to enter their
employ.
DEFINITIONS
As used in the Plan, the following terms shall, unless the context
otherwise requires, have the respective meanings set forth below:
(a) "Code" shall mean the Internal Revenue Code of 1954, as amended.
(b) "Common Stock" shall mean the Common Stock, par value $.10 per
share, of the Company or the other kind(s) of securities which shall
be substituted for Common Stock or to which Common Stock shall be
adjusted in accordance with Section 3.6 of the Plan. "Shares" shall
mean shares of Common Stock or shares or units of such other kinds of
securities.
(c) "Committee" shall mean the Compensation Committee of the Board of
Directors of the Company which shall consist of three or more members
of the Board of Directors, each of whom shall be selected by and serve
at the pleasure of the Board of Directors and shall be a
"disinterested person" (as that term is defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended).
(d) "Fair Market Value" on any date shall mean (i) the closing sale
price per share of Common Stock on the principal national securities
exchange on which it is
<PAGE> 2
listed on such date or if there be no sales reported on such date, on
the most recently preceding business day on which a sale is reported,
(ii) if the Common Stock is not then listed on any national securities
exchange, the median of the average final bid and average final asked
prices for a share of Common Stork in the over-the-counter market on
such date, as reported by the National Association of Securities
Dealers Automated Quotations System (NASDAQ) or (iii) if the Common
Stock is not then listed on any national securities exchange or quoted
on NASDAQ, the amount reasonably determined by the Committee to be the
Fair Market Value per share of Common Stock on such date.
(e) "Incentive Stock Option" shall mean a stock option that meets the
requirements of Section 422A of the Code.
(f) "Non-Incentive Stock Option" shall mean a stock option that is
not an Incentive Stock Option.
(g) "Parent", as to a company, shall mean any corporation that owns,
directly or indirectly, stock possessing more than 50% of the voting
power of all classes of stock of such company.
(h) "Securities" shall mean shares of Common Stock of the Company
acquired upon exercise of options and any securities issued in respect
of such shares.
(i) "Subsidiary", as to a company, shall mean any corporation if
stock possessing more than 50% of the voting power of all classes of
stock of such corporation is owned, directly or indirectly, by such
company.
I. ADMINISTRATION
Section 1.1 Administration. The Plan shall be administered by the
Committee. The Committee from time to time may prescribe, amend and rescind such
rules, regulations, provisions and procedures, consistent with the terms of the
Plan, as, in its opinion, may be advisable in the administration of the Plan and
shall determine the provisions, which shall be consistent with the terms of the
Plan but need not be identical, of the respective agreements required by Section
1.5 of the Plan, including, without limitation, provisions (a) specifying the
term, and period or periods
2
<PAGE> 3
and extent of exercisability, of options, (b) imposing, and specifying the
nature and extent of, restrictions, if any, upon disposition of any Securities,
(c) specifying the circumstances, if any, under which all or part of any
Securities may be required to be forfeited and surrendered to the Company (and
the consideration, if any, to be paid by the Company for any such Securities
forfeited and surrendered) and (d) specifying the extent and times of lapse of
any such restrictions or risks of forfeiture. The Committee shall have the
authority, in its discretion, to construe and interpret the Plan and such
respective agreements and to make all other determinations necessary or
advisable for administering the Plan. A majority of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all members
of the Committee, shall be the acts of the Committee, unless provisions to the
contrary are embodied in the Company's Bylaws or resolutions duly adopted by the
Board of Directors. All actions taken and decisions or determinations made by
the Committee pursuant to the Plan shall be binding and conclusive on all
persons interested in the Plan. No member of the Committee shall be liable for
any action, decision or determination taken or made in good faith with respect
to the Plan or any option granted under it.
Section 1.2 Eligibility. Those individuals who become employees of the
Company and its Subsidiaries (including officers and directors thereof if they
are such employees) and who, consistent with the purposes of the Plan, are
selected by the Committee, shall be eligible to be granted options, provided,
however, that no such employee who, immediately after the grant of an option,
would own (within the meaning of Section 425(d) of the Code) stock possessing
more than 10% of the combined voting power of all classes of the Company or any
Parent or Subsidiary of the Company shall be eligible to be granted options.
From such eligible employees, the Committee shall, from time to time, choose
those, if any, to whom options shall be granted. More than one option may be
granted to the same person. The adoption of the Plan shall not be deemed to give
any person a right to be granted any option.
Section 1.3 Shares Available. The Board of Directors shall reserve for
the purposes of the Plan, out of the authorized but unissued shares of Common
Stock or out of shares of Common Stock held in the Company's Treasury, or partly
out of each, as shall be determined by the Board of
3
<PAGE> 4
Directors, a total of 250,000 shares of such Common Stock. Any shares delivered
upon exercise of options granted under the Plan shall reduce by the number of
shares so delivered the number of shares available for the granting of options
under the Plan. If an option granted under the Plan to any employee expires or
is cancelled or terminated unexercised as to any shares covered thereby or if
any Securities are forfeited and surrendered to the Company, such shares or
Securities shall be available for granting of options.
Section 1.4 Authority of the Committee to Grant Options. Subject to
the provisions of the Plan, the Committee shall have authority, in its
discretion, to determine the persons to whom options shall be granted, to grant
options and to determine the number of shares to be covered by any option.
Section 1.5 Agreements. The specific terms of each option granted by
the Committee pursuant to the Plan shall be determined by the Committee,
consistent with the terms of the Plan, and shall be set forth and confirmed in
an agreement which shall be in such form and contain such provisions as shall be
determined from time to time by the Committee and which shall be executed
pursuant and with reference to the Plan by the Company and the person to whom
such option is granted. Any such agreement may contain any provisions,
consistent with the terms of the Plan, as may be deemed necessary or appropriate
and approved by the Committee and may be amended from time to time by written
instrument executed by the Company and the person holding such option to
reflect any change in the provisions thereof made in accordance with the Plan.
Section 1.6 Notice of Exercise. Each exercise of an option must be
evidenced by a written notice of exercise to the Company in form satisfactory to
the Committee.
II. OPTIONS
Section 2.1 Types of Options. Both Incentive Stock Options and
Non-Incentive Stock Options may be granted under the Plan. Any option granted
under the Plan that is intended to qualify as an Incentive Stock Option shall be
designated as such by the Committee at the time the option is granted, and such
designation shall be reflected in the agreement required by Section 1.5 of the
Plan. Notwithstanding anything herein to the contrary, the aggregate Fair Market
Value (determined as of the time the option is granted) of the
4
<PAGE> 5
stock for which any employee may be granted Incentive Stock Options in any
calendar year under the Plan and all other plans described in Section 422A(b)(8)
of the Code shall not exceed $100,000 plus any unused limit carryover to such
year computed in accordance with Section 422A(c)(4) of the Code.
Section 2.2 Option Price. The Committee shall establish the option
price per share at the time any option is granted, and such option price per
share shall not be less than the greater of (a) 100% of the Fair Market Value
per share of the shares subject to such option on the day such option is granted
or (b) the per share par value of such shares. The option price will be subject
to adjustment in accordance with the provisions of Section 3.6 of the Plan.
Options may be granted under the Plan for terms of not more than ten (10) years
from the date of grant thereof.
Section 2.3 Continuation of Employment. Each option by its terms shall
require the employee granted such option to remain in the continuous employ of
the Company and/or a Subsidiary of the Company for such period or periods as the
Committee shall determine at the time of grant from the date of grant of his
option before the right to exercise any part of the option will accrue, provided
that the Committee at any time, or from time to time, after the time of grant
may in its discretion shorten such period or periods.
Section 2.4 Exercise of Options. Subject to the provisions of this
Article II, each option shall become and be exercisable at such time or times
and during such period or periods, in full or in such installments (which may be
cumulative or noncumulative) as may be determined by the Committee at the time
of the grant of such option, provided that the Committee at any time, or from
time to time, after the time of grant may in its discretion accelerate the
exercisability of all or any portion of any option by accelerating the date on
which it was initially to have become exercisable and/or, in the case of options
exercisable in installments, accelerating the dates on which all or any portion
of any or all of such installments were initially to have become exercisable.
Notwithstanding anything herein to the contrary, each Incentive Stock Option
granted under the Plan shall by its terms not be exercisable while there is
outstanding (within the meaning of Section 422A(c)(7) of the Code) any Incentive
Stock Option previously granted to the optionee to purchase stock in his
employer corporation or in a corporation which (at the time of granting of the
later granted Incentive Stock Option) is a Parent or Subsidiary of
5
<PAGE> 6
the employer corporation, or in a predecessor of any of such corporations.
Section 2.5 Payment of Option Price. The option price of each share
purchased pursuant to exercise of each option granted under the Plan shall be
paid either (i) entirely in cash or (ii) if permitted by the Committee in its
sole discretion, partially or entirely in full shares of Common Stock, with the
balance, if any, to be paid in cash. Any payment of the option price in shares
of Common Stock shall be credited toward the option price at the Fair Market
Value per share of such shares on the date of payment. Any payment to the
Company in shares of Common Stock as permitted by this Section 2.5 shall vest in
the Company good and unencumbered title thereto, free and clear of all liens,
restrictions, charges, encumbrances and adverse claims, and shall be effected by
delivery of the certificate(s) representing such shares, duly endorsed in blank
or accompanied by stock power(s) duly executed in blank and otherwise in proper
form for transfer.
III. ADDITIONAL PROVISIONS
Section 3.1 Non-Transferability. Options shall not be transferable by
the optionee otherwise than by Will or, if he dies intestate, by the laws of
descent and distribution of the jurisdiction of his domicile at the time of his
death, and such options shall be exercisable during his lifetime only by such
optionee or his guardian or legal representative.
Section 3.2 Termination of Employment. If the employment by the
Company and all its Subsidiaries of a person who is the holder of any option
shall terminate because of such person's discharge (for or without cause), his
rights under any then outstanding option shall terminate and be forfeited
immediately as to any unexercised portion thereof. If any such person shall
voluntarily terminate his employment (other than by reason of his disability),
each outstanding option held by him shall be exercisable by him at any time
prior to the expiration date of the option or within three (3) months after the
date of such termination or employment, whichever is the shorter period, but
only to the extent such option was exercisable at the date of such termination.
In the event of termination of employment by reason of disability (of which the
Committee shall be the sole judge) or the death of any such person while such
person is an employee
6
<PAGE> 7
of the Company or a Subsidiary of the Company, each outstanding option held by
him shall be fully exercisable (whether or not exercisable on the date of his
death or termination of employment by reason of disability) at any time prior to
the expiration date of the option or within six (6) months after the date of
death or termination of employment, whichever is the shorter period. To the
extent any option is not exercised during the period after termination of the
holder's employment specified in this Section 3.2, such option shall terminate
at the end of such period. In the case of death or disability, options shall be
exercisable by the person or persons specified in such deceased person's Will
or, if such deceased person shall have failed to make specific provision in his
Will for such exercise or shall have died intestate, or in the case of
disability, when appropriate, by such person's guardian or legal representative.
Anything to the contrary contained in this Section 3.2 notwithstanding, the
Committee, in its sole discretion, may increase the period and extent of
exercisability of any option held by (i) a person whose employment terminates as
the result of his death or disability, (ii) a person who dies or becomes
disabled during any period while his option remains exercisable under this
Section 3.2 or (iii) a person who demonstrates to the Committee special
circumstances that, in the sole judgment of the Committee, merit such increase.
Section 3.3 Leave of Absence. The Committee may make such provisions,
regarding the effect of a leave of absence of any optionee as the Committee
shall determine.
Section 3.4 Securities Laws; Compliance with Laws. Each exercise of an
option shall, at the election of the Committee, be contingent upon receipt by
the Company from the optionee (or, in the event of his death or disability, his
legal representatives, legatees or distributees) of such written representations
(if any) concerning the optionee's (or their) intentions with regard to the
acquisition, retention or disposition of the shares being acquired upon exercise
of such option and/or such written covenants and agreements (if any) as to the
acquisition, retention and disposition of such shares as, in the opinion of the
Committee, may be necessary to ensure that the acquisition and any disposition
of such shares by the optionee or such other persons will not involve a
violation of the Securities Act of 1933, as amended, or any similar or
superseding statute or statutes, or any other applicable statute or regulation,
as then in effect. Each option shall be subject to the requirement that if at
any time the Committee shall determine, in
7
<PAGE> 8
its discretion, that the listing, registration or qualification of Common Stock
subject to such option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with the granting of,
such option or the issuance or delivery of shares thereunder, such option may
not be exercised unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. Nothing in the Plan or in any option granted under
it shall require the Company to issue or deliver any shares upon exercise of any
options if such issuance or delivery would, in the opinion of counsel for the
Company, constitute a violation of the Securities Act of 1933, as amended, or
any similar or superseding statute or statutes, or any other applicable statute
or regulation, as then in effect.
Section 3.5 Issuance of Shares. A person exercising an option shall
not be treated as having become the registered owner of any shares of Common
Stock issuable or deliverable on such exercise until such shares are issued and
delivered.
Section 3.6 Adjustment of Number and Kind of Shares. The shares
available for the Plan as provided in Section 1.3 of the Plan are a part of the
Common Stock, par value $.10 per share, of the Company, presently authorized in
the Certificate of Incorporation, as amended, of the Company. In the event that
a dividend shall be declared and paid upon the Common Stock payable in shares of
Common Stock, the number of undelivered shares of Common Stock then subject to
any option and the number of shares of Common Stock at the time reserved for
sale or delivery pursuant to the Plan but not at the time covered by an Option
shall be adjusted by adding to each such share the number of shares which would
be distributable thereon if such share had been outstanding on the date fixed
for determining the stockholders entitled to receive such stock dividend. In the
event that the outstanding shares of Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company, whether through amendment of the Company's Certificate of
Incorporation, reorganization, recapitalization, stock split-up, combination of
shares, merger or consolidation (other than a merger or consolidation to which
Section 3.7 of the Plan applies), then there shall be substituted for each
undelivered share of Common Stock then subject to any option and for each share
of Common
8
<PAGE> 9
Stock at the time reserved for sale or delivery pursuant to the Plan but not at
the time reserved for sale or delivery pursuant to the Plan but not at the time
covered by an option, the number and kind of shares of stock or other securities
into which each outstanding share of Common Stock shall be so changed or for
which each such share shall be exchanged. In the event there shall be any
change, other than as specified above in this Section 3.6, in the outstanding
shares of Common Stock, then if the Committee shall, in its sole discretion,
determine that such change equitably requires an adjustment or change in the
number or kind of shares then reserved for sale or delivery pursuant to the Plan
but not at the time covered by an option and of undelivered shares then subject
to an option, such adjustment or change shall be made by the Committee and shall
be effective and binding for all purposes of the Plan. In the case of any such
substitution or adjustment as provided for in this Section 3.6, the option price
in each stock option agreement for each share covered thereby prior to such
substitution or adjustment will be the option price for all shares which shall
have been substituted for such share or to which such share shall have been
adjusted pursuant to this Section 3.6. The determination of the Committee as to
all adjustments and substitutions referred to in this Section 3.6 shall be
conclusive. No adjustment or substitution provided for in this Section 3.6 shall
require the Company to deliver or sell a fractional share, and any fractional
shares resulting from any adjustment or substitution pursuant to this Section
3.6 shall be eliminated from the applicable option. The provisions of this
Section 3.6 shall apply with respect to successive dividends, amendments,
reorganizations, recapitalizations, stock split-ups, combinations of shares,
mergers, consolidations and changes of the kind referred to in this Section 3.6.
Section 3.7 Business Combinations. In the event that, while any
options are outstanding under the Plan, there shall occur (a) a merger or
consolidation of the Company with or into another corporation in which the
Company shall not be the surviving corporation (for purposes of this Section
3.7, the Company shall not be deemed the surviving corporation in any such
transaction if, as the result thereof, it becomes a wholly-owned subsidiary of
another corporation), (b) a dissolution of the Company or (c) a transfer of all
or substantially all of the assets of the Company in one transaction or a series
of related transactions to one or more other persons or entities, then, with
respect to each option outstanding immediately prior to the consummation of such
transaction:
9
<PAGE> 10
(i) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the
options granted under the Plan, or the substitution for such
options of new options equivalent to such options, with
appropriate adjustment as to number and kind of shares or
other securities deliverable with respect, thereto, the
options granted under the Plan, or the new options substituted
therefor, shall continue, subject to such adjustment, in the
manner and under the terms provided in the respective
agreements under Section 1.5.
(ii) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the
options granted under the Plan, or for the substitution of
equivalent options, then each holder of an outstanding option
shall be entitled, immediately prior to the effective date of
such transaction, to purchase the full number of shares that
he would otherwise have been entitled to purchase during the
entire remaining term of the option and any restriction or
risk of forfeiture imposed pursuant to Section 1.1 of the Plan
shall lapse immediately prior to the effective date of such
transaction. The unexercised portion of any option shall be
deemed cancelled and terminated as of the effective date of
such transaction.
IV. MISCELLANEOUS
Section 4.1 Amendment of Plan. The Board of Directors of the Company
shall have the right to amend, suspend or terminate the Plan at any time,
provided that no amendment shall be made which shall (a) increase the total
number of shares which may be issued pursuant to options granted under the
Plan, (b) decrease the minimum option price provided for in Section 2.2 hereof,
(c) extend the term of the Plan or of any option granted under the Plan or (d)
withdraw administration of the Plan from the Committee, unless such amendment is
approved by the affirmative vote of the holders of a majority of the
outstanding shares of voting stock of all classes of the Company (voting
together and not separately by class). The Board of Directors may delegate to
the Committee all or any portion of its authority under this Section 4.1. No
amendment, suspension or termination (whether
10
<PAGE> 11
pursuant to this Section 4.1 or upon expiration of the stated term of the Plan)
may, without the consent of the holder of an existing option, materially and
adversely affect his rights under such option.
Section 4.2 Effective Date and Duration of Plan; Stockholder Approval.
The Plan shall become effective on May 16, 1983 and, unless sooner terminated
pursuant to the terms hereof, the Plan shall terminate on May 16, 1993. However,
the Plan, and each option granted under the Plan, will be null and void unless
the Plan is approved by the affirmative vote of the holders of a majority of the
outstanding shares of voting stock of all classes of the Company entitled to
vote thereon (voting together and not separately by class) at the Company's 1983
Annual Meeting of Stockholders.
Section 4.3 Right to Continued Employment. Nothing in the Plan or in
any option granted under it shall confer any right to continue in the employ of
the Company or any of its Subsidiaries or interfere in any way with the right of
the Company or any of its Subsidiaries to terminate any employment at any time.
Section 4.4 Requested Information. Each grantee of an option shall
furnish to the Company all information requested by the Company to enable it to
comply with any reporting or other requirements imposed upon the Company by or
under any applicable statute or regulation.
Section 4.5 Payment of Taxes. Prior to the exercise of any option or
in connection with any disposition of Shares of Common Stock acquired pursuant
to such exercise, the holder of such option shall make arrangements
satisfactory to the Company for the payment of any applicable federal or other
withholding taxes payable as a result thereof.
Section 4.6 Headings. The Article and Section headings contained in
the Plan are for convenience only and shall not affect the construction of the
Plan.
11
<PAGE> 12
FIRST AMENDMENT TO
STOCK OPTION PLAN OF
ARABIAN SHIELD DEVELOPMENT COMPANY
Effective January 1, 1987
The Stock Option Plan (the "Plan") of Arabian Shield Development
Company (the "Company") and its subsidiaries, adopted by the Board of Directors
of the Company on May 16, 1983, and approved by the stockholders of the Company
on July 28, 1983, is amended effective as of January 1, 1987 as follows:
1. All references to the "Code" shall mean the Internal Revenue
Code of 1986, as amended, but also such related or successor
provisions as may be applicable pursuant to subsequent
amendments.
2. Section 2.1 of the Plan is amended to read in its entirety as
follows:
Section 2.1 Types of Options. Both Incentive Stock Options and
Non-Incentive Stock Options may be granted under the Plan. Any
option granted under the Plan that is intended to qualify as
an Incentive Stock Option shall be designated as such by the
Committee at the time the option is granted, and such
designation shall be reflected in the agreement required by
Section 1.5 of the Plan. Notwithstanding anything herein to
the contrary, the aggregate Fair Market Value (determined as
of the time the option is granted) of the stock with respect
to which such options are exercisable for the first time by
any employee during any calendar year under this Plan and all
plans described in Section 422A(b) of the Code of the Company
shall not exceed $100,000. For the purpose of this Section,
any unused limit carryover shall be determined pursuant to
Section 422A(c)(4) of the Code.
3. Section 2.4 of the Plan is amended to read in its entirety as
follows:
Section 2.4 Exercise of Options. Subject to the provisions of
this Article II, each option shall become and be exercisable
at such time or times and during such period or periods, in
full or in such installments (which may be cumulative or
noncumulative) as may be determined by the Committee at the
time of the grant of such option, provided that the Committee
at any time, or from time to time, after the time of grant,
may in its discretion accelerate the exercisability of all or
any portion of any option by accelerating the date on which it
was initially to have become exercisable
<PAGE> 13
and/or, in the case of options exercisable in installments,
accelerating the dates on which all or any portion of any or
all of such installments were initially to have become
exercisable.
This First Amendment to the Company's Stock Option Plan shall be
effective as of January 1, 1987.
Adopted by the Board of Directors of the Company on January 28, 1987.
-2-
<PAGE> 14
SECOND AMENDMENT TO
STOCK OPTION PLAN OF
ARABIAN SHIELD DEVELOPMENT COMPANY
Effective December 29, 1992
The Stock Option Plan (the "Plan") of Arabian Shield Development
Company (the "Company") and its subsidiaries, adopted by the Board of Directors
of the Company on May 16, 1983, and approved by the stockholders of the Company
on July 28, 1983, as amended effective January 1, 1987, is amended effective
December 29, 1992 as follows:
1. Section 1.3 of the Plan is amended to read in its entirety as
follows:
Section 1.3 Shares Available. The Board of Directors shall
reserve for the purposes of the Plan, out of the authorized but
unissued shares of Common Stock or out of shares of Common Stock held
in the Company's Treasury, or partly out of each, as shall be
determined by the Board of Directors, a total of 500,000 shares of such
Common Stock. Any shares delivered upon exercise of options granted
under the Plan shall reduce by the number of shares so delivered the
number of shares available for the granting of options under the Plan.
If an option granted under the Plan to any employee expires or is
cancelled or terminated unexercised as to any shares covered thereby or
if any Securities are forfeited and surrendered to the Company, such
shares or Securities shall be available for granting of options.
2. Section 4.2 of the Plan is amended to read in its entirety as
follows:
Section 4.2 Effective Date and Duration Plan. The Plan shall
become effective on May 16, 1983 and, unless sooner terminated pursuant
to the terms hereof, the Plan shall terminate on May 16, 2003.
This Second Amendment to the Company's Stock Option Plan shall be
effective December 29, 1992.
Adopted by the Board of Directors of the Company on October 15, 1992.
<PAGE> 1
EXHIBIT 10(e)
ARABIAN SHIELD DEVELOPMENT COMPANY
1987 NON-EMPLOYEE DIRECTOR STOCK PLAN
This is a stock plan pursuant to which options to purchase shares of the
Common Stock, $.10 par value, of Arabian Shield Development Company, a Delaware
corporation (the "Corporation"), shall be granted to non-employee directors of
the Corporation. This plan shall be known as the 1987 Non-Employee Director
Stock Plan (the "Stock Plan"). The purpose of the Stock Plan is to enhance the
Corporation's ability to obtain and retain qualified persons who are not
full-time employees of the Corporation to serve as directors.
Section 1. Administration. The Stock Plan shall be administered by the
Board of Directors of the Corporation (the "Board"). The Board shall have the
power to construe the Stock Plan, to determine all questions hereunder and to
adopt and amend such rules and regulations for the administration of the Stock
Plan as it may deem desirable.
Section 2. Shares Available for Options. The Board shall reserve for
delivery pursuant to the Stock Plan, out of the authorized but unissued Common
Stock of the Corporation, or out of shares of Common Stock held in its Treasury,
or partly out of each, as shall be determined by the Board, a total of 100,000
shares of the Common Stock of the Corporation (or the number and kind of shares
of stock or other securities which, in accordance with Section 3 of the Stock
Plan, may be substituted for such shares or to which said number of shares may
be adjusted). In the event that an option granted under the Stock Plan to any
non-employee director expires or is terminated unexercised as to any shares
covered thereby, such shares shall thereafter again be available for the
granting of options under the Stock Plan.
Section 3. Adjustment of Number of Shares. In the event that a dividend or
stock split shall hereafter be declared upon the Common Stock of the Corporation
payable in shares of such Common Stock, the number of shares of Common Stock
then subject to any outstanding option under the Stock Plan, the number of
shares as to which an option is to be granted to a newly-elected non-employee
director under the Stock Plan and the number of shares reserved for issuance
pursuant to the Stock Plan but not yet covered by an outstanding option, shall
be adjusted by adding to each such share the number of shares which would be
distributable thereon if such share had been outstanding on the date fixed for
determining the stockholders entitled to receive such stock dividend or stock
split. In the event that the outstanding shares of Common Stock of the
Corporation shall be changed into or exchanged for a different number or kind of
shares of stock or other securities of the Corporation, whether through
reorganization, recapitalization or reclassification, then there shall be
substituted for each share of Common Stock subject to an outstanding option and
for each share of Common
<PAGE> 2
Stock reserved for delivery pursuant to the Stock Plan but not yet covered by an
option, the number and kind of shares of stock or other securities into which
each outstanding share of Common Stock shall be so changed or for which each
such share shall be so exchanged. In the event there shall be any change, other
than as specified above in this Section 3 or in Section 4, in the outstanding
shares of Common Stock of the Corporation or of any stock or other securities
into which such Common Stock shall have been changed or for which it shall have
been exchanged, then the Board may make such adjustment or change, if any, as it
deems equitable in the number or kind of shares or other securities then
reserved for delivery under the Stock Plan but not at the time covered by an
outstanding option and of undelivered shares or other securities then subject to
outstanding options. In the case of any such substitution or adjustment provided
for in this Section 3, the option price for each share covered by outstanding
options prior to such substitution or adjustment will be the option price for
all shares of stock or other securities which shall have been substituted for
such share or to which such share shall have been adjusted pursuant to this
Section 3. No adjustment or substitution provided for in this Section 3 shall
require the Corporation to sell a fractional share, and any fractional share
resulting from any such adjustment or substitution shall be eliminated from the
option in question.
Section 4. Business Combinations. In the event that, while there remain
options outstanding hereunder, there shall occur a dissolution of the
Corporation, a merger or consolidation in which the Corporation is not the
surviving corporation (for such purpose, the Corporation shall not be deemed the
surviving corporation in any such transaction if, as a result thereof, it
becomes a wholly-owned subsidiary of another corporation) or a transfer, in one
or a series of related transactions, of substantially all the assets of the
Corporation:
(a) If provision is made in writing in connection with such
transaction for the assumption and continuance of any such option, or the
substitution for such option of a new substantially equivalent option
covering different shares or securities, with appropriate adjustment as to
the number and kind of shares or other securities deliverable with respect
thereto, the existing option, or the new option substituted therefor, as
the case may be, shall continue in the manner and under the terms provided;
or
(b) If provision is not made in such transaction for the continuance
and assumption of any such option or for the substitution of a new
substantially equivalent option, then the holder of such option shall be
entitled, immediately prior to the effective date of any such transaction,
to purchase the full number of shares covered by such option whether or not
then
-2-
<PAGE> 3
otherwise exercisable as to such shares. The unexercised portion of any
option shall be deemed cancelled as of the effective date of such
transaction.
Section 5. Granting of Options. Each member of the Corporation's Board who
is not a full-time employee of the Corporation or one of its subsidiaries
("non-employee director") serving on the date of adoption of the Stock Plan by
the Board shall be granted, without further action by the Board on the date of
such adoption, an option to purchase 10,000 shares of the Corporation's Common
Stock, provided that in the case of each such non-employee director who holds an
option granted prior to the adoption of the Stock Plan in connection with his
service as a director (an "Existing Option"), such grant under the Stock Plan
shall be conditioned on the cancellation and termination of such previously
granted option. Thereafter, each newly-elected non-employee director of the
Corporation, effective on the date of his election, shall automatically be
granted, without any further action by the Board, an option to purchase 10,000
shares of the Corporation's Common Stock. As soon as practicable after the grant
of an option under the Stock Plan, the Corporation and the non-employee director
shall enter into a Stock Option Agreement evidencing the option so granted. Such
agreement shall be in such form, consistent with the Stock Plan, as the Board
shall deem appropriate.
Section 6. Exercise and Term of Options.
(a) Except as hereafter provided with respect to options granted to
holders of Existing Options, options granted under the Stock Plan shall
become exercisable in cumulative annual installments of 20% of the shares
covered thereby, beginning one year from the date of grant. An option
granted to the holder of an Existing Option shall be exercisable on the
date of grant to the same extent, if any, that such Existing Option is then
exercisable and shall thereafter become exercisable in the same percentage
installments and on the same schedule that such Existing Option was
thereafter to become exercisable.
(b) The option price per share of the shares of Common Stock subject
to an option granted under the Stock Plan shall be 100% of the fair market
value of a share of the Common Stock on the day the option is granted. The
option price per share will be subject to adjustment in accordance with the
provisions of Section 3 of the Stock Plan. Any adjustment determination
made by the Board of Directors shall be conclusive. For purposes of the
Stock Plan, if the Common Stock is listed on a national securities exchange
or reported on the NASDAQ National Market System, the fair market value of
a share of the Common Stock on any day shall be the closing sale price of
such a share on such day
-3-
<PAGE> 4
or, if there is no closing sale price reported on such date, the closing
sale price of such a share on the last preceding day on which a closing
sale price is reported. If the Common Stock is not then listed on any
national securities exchange or reported on the NASDAQ National Market
System, the fair market value shall be the median of the average final bid
and average final asked prices for a share of the Common Stock in the
over-the-counter market on such date, as reported by NASDAQ. If the Common
Stock is not listed on any national securities exchange, reported on the
NASDAQ National Market System or quoted on NASDAQ, the fair market value
shall be the amount reasonably determined by the Board to be the fair
market value on such date.
(c) Options granted under the Stock Plan shall have a term of ten
years from the date of the granting thereof, except that an option granted
to the holder of an Existing Option shall have a basic term corresponding
to the basic term of such Existing Option, provided, however, that (1) upon
the termination of an optionee's service as a director other than by death
or disability, his option, to the extent then exercisable, may be
exercised for a period of seven months after such termination (whereupon it
shall terminate) or, if a shorter period, the remaining term of the option
and (2) upon the termination of an optionee's service as a director by
reason of death or disability (of which the Board shall be the sole
judge), his option shall become fully exercisable and may be exercised by
the person entitled to do so under his will or if he dies intestate, or in
the case of disability (when appropriate), by his guardian or legal
representative, at any time during the period ending seven months after his
death or disability (whereupon it shall terminate) or, if a shorter period,
the remaining term of the option.
(d) Options granted under the Stock. Plan shall not be transferable by
the optionee other than by will, or if he dies intestate, by the laws of
descent and distribution of the state of domicile at the time of his death,
and such options shall be exercisable during his lifetime only by such
optionee or, in the case of disability, his guardian or legal
representative.
Section 7. Exercise of Option. An option granted hereunder shall be
exercised by delivering to the Corporation a written notice specifying the
number of shares the optionee then desires to purchase, accompanied by payment
in full for such shares, which payment may be in whole or in part in shares of
the Corporation' Common Stock valued based on the fair market value
(determined as set forth in Section 6(b)) of such shares on the immediately
preceding business day, and such other instruments or
-4-
<PAGE> 5
agreements as in the opinion of counsel for the Corporation may be necessary or
advisable in order that the issuance of such shares complies with the Securities
Act of 1933 and the rules and regulations thereunder, any applicable state
securities laws, rules or regulations, any requirement of any stock exchange on
which such stock may be traded and any other applicable law, rule or regulation.
As soon as practical after any such exercise, the Corporation will deliver to
the optionee a certificate for the number of shares with respect to which the
option shall have been so exercised, issued in the optionee's name. Such stock
certificate shall bear such legends, and such instructions shall be given to the
Corporation's transfer agent with respect thereto, as may be deemed necessary or
advisable by counsel to the Corporation in order to comply with the,
requirements of any applicable law, rule or regulation.
Section 8. Effective Date and Duration of Stock Plan; Stockholder Approval.
The effective date of the Stock Plan shall be the date of its adoption by the
Board, and the duration of the Stock Plan shall be 10 years from the effective
date; provided, however, that the Stock Plan (and each option granted hereunder)
will be null and void unless the Stock Plan is approved by the affirmative vote
of the holders of a majority of the shares of voting stock of the Corporation
present or represented and entitled to vote at a meeting of stockholders of the
Corporation, duly held no later than the date of the first annual meeting of
stockholders of the Corporation held subsequent to the effective date of the
Stock Plan.
Section 9. Amendment of the Plan. The Board shall have the right to amend,
suspend or terminate the Stock Plan at any time, and make modifications or
amendments to such Stock Plan, except that no such modification or amendment
which has any of the following effects shall be effective unless it is approved
by the affirmative vote of the holders of a majority of the outstanding shares
of voting stock of the Corporation present or represented and entitled to vote
at a duly held meeting of stockholders of the Corporation:
(a) increase the maximum number of shares subject to the Stock Plan;
(b) increase the number of shares to be covered by an option granted to a
non-employee director under the Stock Plan;
(c) decrease the option exercise price provided for under the Stock Plan;
(d) change the class of persons who are to receive options granted under
the Stock Plan; or
(e) extend the term of the Stock Plan or of any option granted hereunder.
-5-
<PAGE> 6
Termination or any modification or amendment of the Stock Plan shall not,
without the consent of an optionee, affect his rights under an option previously
granted to him.
-6-
-6-
<PAGE> 1
EXHIBIT 10(f)
TEXAS OIL & CHEMICAL CO.
PHANTOM STOCK PLAN
1. Purpose. This Phantom Stock Plan, (the "Plan"), of Texas
Oil & Chemical Co. for a select group of management personnel is intended to
advance the best interest of Texas Oil & Chemical Co. and subsidiary companies
by providing such personnel who have a substantial responsibility for the
management and growth of the companies with additional incentive by promoting a
productivity viewpoint among such executive and key personnel.
2. Definitions.
2.1 "Administrative Committee" shall mean the Board of Directors of
the Company or any committee established by the Board of Directors of the
Company to administer this Plan.
2.2 "Anniversary Date" shall mean September 30 of each calendar year,
which will be the last day of the fiscal year of the Company.
2.3 "Award Level" shall mean any of the following as determined by the
Administrative Committee in granting an award: (i) the attainment of a level of
net profits of the Company for a given year, (ii) the attainment of a level of
net profits of a specified Sub or a combination of Subs for a given year, or
(iii) a fixed dollar amount.
<PAGE> 2
2.4 "Common Stock" shall mean the common stock of the Company, no par
value.
2.5 "Company" shall mean Texas Oil & Chemical Co.
2.6 "Date of Award" shall mean the Anniversary Date as of which a
Participant is determined to be entitled to specified incentive compensation
because of the attainment of an Award Level.
2.7 "Employee" shall mean any person including an officer of the
Company or a Sub (whether or not he is also a director) who is employed by the
Company or a Sub on a full time basis, who is compensated for such employment by
regular salary and who, in the opinion of the Administrative Committee is one of
a select group of management personnel of the Company or of a Sub in a position
to contribute materially to the continued growth and development and to the
future financial success of the Company.
2.8 "Net Profits of the Company" shall mean the net profits of the
Company as reflected on its federal income tax return for the year before
provision for federal income tax plus or minus the net Lifo inventory adjustment
for the year and plus or minus the net entitlement changes for the year, but
exclusive of all items of extraordinary income as delineated in the audited
annual statements. For
-2-
<PAGE> 3
this purpose the net profits of the Company shall be consolidated with the net
profits of all subsidiaries of the Company.
2.9 "Net Profits of the Sub" shall mean the net profits of a given Sub
or a combination of subs as selected by the Administrative Committee when making
an award to a Participant as reflected in its or their financial statements as
prepared for the purpose of filing its or their federal income tax return or
returns for the year before provision for federal income tax plus or minus the
net Lifo inventory adjustment for the year and plus or minus the net entitlement
changes for the year, but exclusive of all items of extraordinary income as
delineated on the audited annual statement.
2.10 "Participant" shall mean an Employee who is awarded deferred
compensation hereunder.
2.11 "Retirement" shall mean severance from the employ of the Company
and all Subs upon or after attaining the normal retirement age whether
established by the Company or Sub through its qualified Plan (which is presently
age 65) or through contract with a particular employee or becoming totally
disabled under such a plan, if applicable.
2.12 "Stated Value" shall mean the value of one share of common stock
of the Company as determined by the Administrative Committee for the Company as
of a given
-3-
<PAGE> 4
Anniversary Date. This Stated Value is not necessarily the fair market value of
the Company but is the value established only for purposes of this Plan pursuant
to the procedures as set forth below in this Section. The purpose of the
valuation is to provide a consistent method of determining the relative changes
in the value of the Company and its related Subs, both as individual companies
and as a whole, over a period of years, in order to accomplish the purpose
stated in section 1 hereof. While the Stated Value may bear some relation to
fair market value, it does not purport to be fair market value for the purpose
of selling one asset, one Sub, or the whole Company, of borrowing money, of
determining estate or inheritance tax liabilities, or for any other specific
purpose.
Stated Value shall be determined as follows:
(a) The Administrative Committee shall determine the fair market value
of the various assets either individually or by classes, based on the most
recent formal outside valuation of the Company, and updated to the date of
this valuation. These values shall be substituted for the book value of the
fixed assets and the difference shall be added to or subtracted from the
net equity as reflected in the audited financial statements of the Company
to determine a value.
-4-
<PAGE> 5
(b) The Administrative Committee shall determine the 3 year historical
Net Profits of the Company as defined in section 2.8 and estimate one (1)
year of Net Profits of the Company in the future using the same type of
procedure. The sum of these four (4) years' Net Profits are to be divided
by four (4) to arrive at an average Net Profit. The resulting average Net
Profit shall be multiplied by five (5) to determine a value of the Company.
(c) The Administrative Committee shall then determine the average
value of the Company by adding the values determined under subsections
2.12 (a) and (b) dividing by two (2). This value shall then be divided by
the total number of shares of Common Stock outstanding to determine a
value per share. The value per share so determined shall then be discounted
by 35% to arrive at the Stated Value.
In the event the Company becomes publicly held, the most recent
published price shall become the Stated Value. Each year as of the Anniversary
Date the Administrative Committee shall certify said Stated Value and shall
place it on the special) ledger of the Phantom Stock Plan and
-5-
<PAGE> 6
shall provide each Participant with a copy thereof. A Participant shall have the
right within thirty (30) days of the date he received his notice of the Stated
Value to object to its calculation. After such thirty (30) day period, if no
written objections are received, said Stated Value shall be final and conclusive
for all purposes of the Plan.
2.13 "Sub" shall mean any corporation in which the Company owns
directly or indirectly stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock.
2.14 "Termination Date" shall mean the date a Participant's severance
of employment with the Company and all Subs for any reason other than
retirement for age or disability or death.
2.15 "Unit" shall mean one share of the phantom common stock set aside
for a Participant. The number of units set aside each year is determined by
dividing the incentive compensation awarded to a Participant as of a given
Anniversary Date by the Stated Value of one share of common stock as of that
same Anniversary Date.
3. Administration.
3.1 Composition: The Administrative Committee shall be composed of the
Board of Directors of the Company
-6-
<PAGE> 7
or those persons chosen by the Board of Directors to constitute the Committee.
The Administrative Committee shall administer and construe this Plan. No member
of the Administrative Committee shall be liable for any act done or any
determination made in good faith.
3.2 Administration of Plan: Construction by the Administrative
Committee of any provision of this Plan shall be final and conclusive. It shall
determine, subject to the provisions of this Plan:
(a) Participants: The Employees who shall participate in the Plan
from time to time;
(b) Incentive Compensation Formula: The percentages and Award Level
which shall be used to determine incentive compensation for each of the
Participants in the Plan, it being intended that the percentages and Award
Level may be different for groups of Participants and for individual
Participants; and
(c) Service: Whether authorized leave of absence, or absence on
military or government service shall constitute severance from the Company
and all Subs;
(d) Stated Value: The Stated Value of one share of Common Stock of the
Company for the
-7-
<PAGE> 8
purpose of this Plan. The Stated Value shall be determined consistently
from year to year based upon the method described in section 2.12.
3.3 Delegation: The Administrative Committee may in its discretion
delegate one or more of its duties to an officer or Employee or a committee
composed of officers and Employees of the company or of a Sub but may not
delegate its authority to construe this Plan or to make the determinations
specified in section 3.2.
4. Establishment of Incentive Compensation Formula. Each year prior to
the Anniversary Date the Administrative Committee shall determine the
Employees who shall be eligible to have incentive compensation accrued for
their account at the next Anniversary Date and shall determine the Award Level
to be applicable to each Employee and the percentage of the Award Level which
will be awarded to each Employee at the next Anniversary Date and shall make
this known to each Participant in writing prior to or at the commencement of
the fiscal year. The Award Level and percentage set for each of the various
Participants need not be the same.
Each year as soon as possible after the Anniversary Date the
Administrative Committee shall determine the amount of incentive compensation
awarded to each individual Participant and the amount of dividends paid on
shares of Common Stock
-8-
<PAGE> 9
equal to the number of Units previously awarded to the Participant and shall
convert the awarded incentive compensation and dividends paid since the last
Anniversary Date into whole and/or fractional units as may be required.
Fractional Units shall be rounded to the third decimal. Then the Administrative
Committee shall notify each Participant in writing of the amount of incentive
compensation awarded to him during that year, the amount of dividends that had
been paid on Common Stock equal to the number of units that he held during that
year, and the number of Units that the incentive compensation and dividends were
converted into as of the Anniversary Date, together with a restatement of the
number of Units which have been previously awarded to him prior to the
Anniversary Date and the new value of a Unit as of said Anniversary Date.
5. Income Earned During Employment. The Administrative Committee shall
set up an appropriate record ("Special Ledger") which will from time to time
reflect the name of each Participant, the number of Units which have been
awarded to the individual as incentive compensation and the value of one Unit,
determined as of the last Anniversary Date. Each year's award of Units shall be
maintained separately.
-9-
<PAGE> 10
6. Benefits.
6.1 Retirement, Death or Termination by Company or Sub without Cause. A
Participant who retires from the employ of the Company or a Sub on or after his
retirement date as described in section 2.11 for age or disability, who dies at
any time while in the employ of the Company or a Sub or who is terminated by the
Company or a Sub without cause shall receive a benefit equal to the number of
Units credited to his account on such date multiplied by the value of one such
Unit determined as of the last preceding Anniversary Date prior to his death,
retirement or termination.
6.2 Termination by Participant Prior to Retirement or Death. A
Participant who terminates his services with the Company and all Subs with or
without cause for any reason other than retirement for age or disability or
death shall be entitled to a benefit equal to the applicable percentage in the
table below for the period of participation in the Plan after the date given
incentive compensation and dividends were converted into Units to the date of
termination. For purposes of determining vesting under this schedule each year's
Units shall each be treated separately, i.e., Units initially set aside in the
special ledger on September 30, 1979, would become fully vested on September 30,
1984. Full years will be counted from September 30th of a given year to
September 30th of the next year.
-10-
<PAGE> 11
<TABLE>
<CAPTION>
Years of Participation After Date
Units Are Initially Determined Percentage
------------------------------ ----------
<S> <C>
One 20%
Two 40%
Three 60%
Four 80%
Five 100%
</TABLE>
6.3 Termination by the Company or a Sub for Cause. A Participant who is
terminated by the Company or a Sub for cause shall not be entitled to any
benefit under this agreement and shall forfeit all of his rights to Units
previously placed in his account. Termination for cause shall include, but not
be limited to, the following: termination for willful misconduct, fraud, theft,
embezzlement, commission of a felony, proven dishonesty or acts of moral
turpitude which damaged the Company or a Sub or for disclosing trade secrets or
business methods of the Company or a Sub or for enticing employees away to a
competitor. The determination of whether a Participant has been terminated for
cause shall be made by the Administrative Committee, by a majority vote, after
full consideration of the facts presented on behalf of both the Company or the
Sub, as the case may be, and the Participant. The decision of the Administrative
Committee as to the cause of a former Participant's discharge and damage done
to the Company or the Sub shall be final. No decision of the Administrative
Committee, however, shall affect the finality of the discharge of the
Participant by the Company or the Sub in any manner.
-11-
<PAGE> 12
7. Payment of Benefits.
7.1 Method of Payment. On or before thirty (30) days prior to receiving
a benefit under section 6 hereof, the Participant may request either to receive
payment in one lump sum, payable within four months of his termination date, or
in ten or less equal annual installments with interest accrued yearly on the
Anniversary Date at one percent (1%) below the average prime rate for the fiscal
year ending on such Anniversary Date as such prime rates are quoted by Bank of
the Southwest National Association, Houston in Houston, Texas, but not less
than one percent (1%) above the interest rate paid to Silver Compass Pass Book
Savings Accounts holders on the Anniversary Date by Bank of the Southwest
National Association, Houston nor more than ten percent (10%) per annum, except
that the last year's installment shall have the interest determined as of the
date the payment is made, the first such payment to be made within four months
after his termination date, or in the form of an annuity payable over the
Participant's lifetime or the joint lifetime of the Participant and a designated
joint pensioner; but, the Administrative Committee shall in its sole discretion
have the power to determine the method of payment. The payment of a benefit
under this P1an shall be made by the Company or the Sub by whom the Participant
was employed on
-12-
<PAGE> 13
the date of his termination which paying corporation shall be reimbursed by the
Company or any other Sub for which the Participant worked for any awards made
during his career while employed by the Company or such other Sub. The
obligation of the Company or of the Sub shall be a general obligation of the
Company or the Sub to be paid out of the general assets of the Company or the
Sub subject to the general creditors of the Company or the Sub. In no event
shall any separate trust fund be set aside to fund said benefit payment which
shall not be reachable by the general creditors of the Company or the Sub.
7.2 Beneficiary Designation. Each person becoming a Participant shall
file with the secretary of the Administrative Committee a notice in writing
designating one or more beneficiaries to whom payments otherwise due the
Participant shall be made in the event of his death while in the employ of the
Company or a Sub or after severance but prior to full payment of the benefits
specified in section 6. The Participant shall have the right to change the
beneficiary or beneficiaries from time to time; provided, however, that no
change shall become effective until received in writing by the Secretary of the
Administrative Committee.
7.3 Payments to Incompetents and Minors. Should the Participant become
incompetent or should the Participant
-13-
<PAGE> 14
designate a beneficiary who is a minor or incompetent, the Company or the Sub,
as the case may be, shall be authorized to pay such funds to a parent of such
minor or to a guardian of such minor or incompetent or directly to such minor or
to apply such funds for the benefit of such minor or to apply such funds for the
benefit of such minor or incompetent in such manner as the Administrative
Committee shall determine in its sole discretion.
8. Adjustment in Units. The existence of outstanding award of Units
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalization,
reorganization or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the right thereof, or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding whether of a similar character or otherwise.
If, while there are outstanding awards of Units, the Company shall
effect any split-up or any other subdivision or consolidation of shares or
other readjustment, the payment of a stock dividend or other increase or
reduction
-14-
<PAGE> 15
in the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then (a) in the event of
an increase in the number of shares outstanding, the number of shares of Common
Stock then reflected by awarded Units hereunder shall be proportionately
increased and the Stated Value of the Units awarded as of the award day shall be
proportionately reduced; and (b) in the event of a reduction in the number of
shares outstanding, the number of shares of Common Stock then subject to awarded
Units hereunder shall be proportionately reduced, and the Stated Value of the
awarded Units on the day of award shall be proportionately increased.
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Participant shall be entitled to
receive in lieu of the number of Units previously awarded the number of Units
with a corresponding adjustment to the Stated Value of said Units at the date of
award that such holder would have been entitled to pursuant to the terms of the
agreement of merger or consolidation, if immediately prior to such merger or
consolidation such holder had been the holder of record of a number of shares of
Common Stock equal to the number of shares which the Units previously
-15-
<PAGE> 16
awarded represented. Should the Company or a Sub by which a Participant is
employed elect to dissolve, enter into a sale of its assets or enter into any
reorganization in which it is not the surviving company, unless the surviving or
successor company shall formally adopt this Plan and agree to continue it, such
Participant shall be deemed to have reached retirement age as of the date of
such reorganization, sale, merger, etc., and shall be entitled to receive such
benefit in one lump sum immediately. If, however, the Company merges,
consolidates or is otherwise a party to a reorganization and it is not the
surviving corporation but the surviving corporation adopts this Plan then the
Plan shall continue uninterrupted and the vesting schedule shall continue as
though there were no change in the employing corporation; the Units, of course,
will be adjusted, if necessary, as hereinabove provided.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible in shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
any conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by
-16-
<PAGE> 17
reason thereof shall be made with respect to, the number of or Stated Value of,
Units then outstanding under previous awards.
9. Limitation of Rights. Nothing in this Plan shall be construed to:
9.1 Pay. Give any Employee of the Company or a Sub any right to be
awarded incentive pay other than in the sole discretion of the Administrative
Committee;
9.2 Terminate Employment. Limit in any way the right of the Company or
a Sub to terminate a Participant's employment with the Company or a Sub at any
time; or
9.3 Specific Agreement. Evidence any agreement or understanding,
express or implied, that the Company or the Sub will employ a Participant in any
particular position or for any particular remuneration.
10. Nonalienation of Benefits. No right or benefit under this Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge and any attempt to anticipate, alienate, sell, assign,
pledge, encumber or charge the same shall be void. No right or benefit hereunder
shall in any manner be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to such benefits. If any Participant
or beneficiary hereunder shall become bankrupt or attempt to
-17-
<PAGE> 18
anticipate, alienate, assign, pledge, sell, encumber or charge any right or
benefit hereunder then such right or benefit shall in the discretion of the
Administrative Committee cease; and in such event, the Company or the Sub, as
the case may be, shall hold or apply the same or any part thereof for the
benefit of the Participant, or beneficiary, his or her spouse, children or other
dependents, or any of them in such manner and in such proportion as the
Administrative Committee shall deem proper.
11. Amendment and Termination of Plan.
11.1 Amend or Terminate at any Time. The Board of Directors may amend
or terminate this Plan at any time.
11.2 No Retroactive Effect on Accrued Benefits. Any amendment or
termination of this Plan shall not affect the rights of any Participant to the
benefits hereunder as to the Units then standing to the credit of the
Participant in the Special Ledger at the time such amendment or termination,
together with such appreciation or depreciation as shall accrue to such Units
after such date until date of payment of the benefit.
12. Effective Date. This Plan shall become operative and effective on
such date as shall be fixed by the Board of Directors of the Company.
-18-
<PAGE> 1
EXHIBIT 10(g)
AGREEMENT
Between
CHEVRON RESEARCH COMPANY
and
SOUTH HAMPTON REFINING COMPANY
Relating to
CHEVRON AROMAX PROCESS
<PAGE> 2
THIS AGREEMENT, is effective as of the Tenth day of March,
1988, between Chevron Research Company, a Delaware corporation, hereinafter
referred to as "Chevron Research", and South Hampton Refining Company, a Texas
corporation, hereinafter referred to as "South Hampton";
W I T N E S S E T H:
WHEREAS, Chevron Research has developed a new catalytic
process for converting petroleum naphtha and desires to have that new process
demonstrated in commercial operation by a licensee other than an Affiliate of
Chevron Research; and
WHEREAS, the process heretofore has only been demonstrated on
a bench and pilot plant scale and Chevron Research and South Hampton both
acknowledge that the process may not work as hoped in a refinery; and
WHEREAS South Hampton is willing to test and demonstrate the
process in an existing unit that will be converted from use as a catalytic
reforming unit and that is located at South Hampton's Silsbee, Texas, refinery
("Refinery"); and
WHEREAS, as Chevron Research's first non-affiliated licensee
and demonstrator of the new process in the United States of America, South
Hampton wishes to agree with Chevron Research on the terms and conditions for
conducting the demonstration and for licenses relating to the use of the process
in the converted unit;
<PAGE> 3
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants contained in this Agreement, the parties agree as follows:
ARTICLE 1-0 - DEFINITIONS
1.1. Whenever used in this Agreement, the following terms
shall have the meanings prescribed in Schedule "A" attached hereto and made a
part hereof: "AROMAX Process"; "AROMAX Catalyst"; "Type L zeolite"; "Patent
Rights"; "Catalyst Patent Rights"; "Technical Information"; "Subsidiary";
"Affiliate"; "Licensed Unit"; "Stock Charge"; "Barrel"; "United States";
"Procedures Manual"; and Demonstration Run".
ARTICLE 2-0 - LICENSES - Chevron Research to South Hampton
2.1. Subject to the terms and conditions of this Agreement,
Chevron Research grants to South Hampton a nonexclusive, nontransferable,
fully-paid license under Chevron Research's Patent Rights and Catalyst Patent
Rights to practice the AROMAX Process in the Licensed Unit. This license
includes the right under Chevron Research's Patent Rights to make or have made
any apparatus for South Hampton's use in practicing the AROMAX Process in the
Licensed Unit, and the right to export to,
-2-
<PAGE> 4
sell, or use in any country the products produced in the Licensed Unit when
practicing the AROMAX Process.
2.2. Nothing contained in this Agreement shall be construed as
granting any rights, express or implied, under any of Chevron Research's patents
or Patent Rights or Catalyst Patent Rights or as estopping Chevron Research from
claiming infringement of any of its patents or Patent Rights or Catalyst Patent
Rights in connection with any operation of South Hampton not conducted in the
Licensed Unit.
ARTICLE 3-0 - LICENSES - South Hampton to Chevron Research
3.1. South Hampton grants to Chevron Research and its
Subsidiaries a nonexclusive, nontransferable, royalty-free license under South
Hampton's Patent Rights and Catalyst Patent Rights to practice the AROMAX
Process in the United States and elsewhere. This license includes the right
under South Hampton's Patent Rights to make or have made any apparatus for
Chevron Research's use and/or sale to its AROMAX Process licensees for their use
in practicing the AROMAX Process; and the right to export to, sell, or use in
any country the products of such process.
3.2. South Hampton grants to Chevron Research, without
obligation to account, the nonexclusive right to grant (either directly or
indirectly through others) nonexclusive licenses
-3-
<PAGE> 5
under South Hampton's Patent Rights and Catalyst Patent Rights to Chevron
Research's other AROMAX Process licensees to use South Hampton Technical
Information, if those licensees grant back, without obligation to account, a
license under their Patent Rights and Catalyst Patent Rights inuring to South
Hampton's benefit under this Agreement.
ARTICLE 4-0 TECHNICAL INFORMATION
4.1. Upon South Hampton's request, Chevron Research's
Technical Information shall be available to South Hampton for use in the
operations of the Licensed Unit. South Hampton shall not use any Technical
Information furnished by Chevron Research in any additional processing unit
without first entering into an appropriate licensing arrangement with Chevron
Research covering such use. Except as provided by Section 5.1(7) below, such
licensing arrangement shall be under the terms and conditions then being offered
to other licensees by Chevron Research.
4.2. All Technical Information, including all data, plans,
specifications, flow sheets and drawings, furnished directly or indirectly, in
writing or otherwise, to South Hampton by Chevron Research, whether pursuant to
Article 5-0 of this Agreement or otherwise, are and shall remain Chevron
Research's property and shall be used only for the construction, erection,
alteration, maintenance, repair and operation of the Licensed
-4-
<PAGE> 6
Unit. South Hampton shall use all reasonable efforts to prevent duplication or
disclosure of all Technical Information furnished directly or indirectly, in
writing or otherwise, by Chevron Research which is confidential in nature and
has been so designated. South Hampton may furnish portions of Chevron Research's
Technical Information, to the extent necessary for South Hampton's operation of
Licensed Unit, to others who have entered into an appropriate agreement with
Chevron Research. Chevron Research shall not be unreasonable with respect to
the terms and conditions of any such agreement or with respect to the approval
or selection of any party to such agreement and Chevron Research shall not
require payment of a fee as a condition to entering into such an appropriate
agreement. South Hampton shall exercise all reasonable efforts to prevent others
from acquiring information concerning, and/or samples of, AROMAX Catalyst
acquired from Chevron Research or its nominee.
4.3. Notwithstanding any other provision in this Agreement,
South Hampton shall not, except as permitted in writing by Chevron Research,
perform or have performed any analyses or tests of any nature to determine the
structure or composition or physical-chemical characteristics of AROMAX
Catalyst whether such catalyst is new, used, or spent. However, upon request,
Chevron Research will assist South Hampton in arranging
-5-
<PAGE> 7
such analyses or tests as necessary for the purposes of metals recovery and
catalyst disposal.
4.4. Chevron Research's obligation pursuant to Section 4-1
above shall not include any obligation on the part of Chevron Research under
this Agreement to furnish or make available to South Hampton detailed
information with respect to the specific design, construction, and/or operation
of any commercial AROMAX Process plants. Any furnishing by Chevron Research to
South Hampton of such specific information for, or other services in connection
with, a commercial AROMAX Process plant shall be done pursuant to Article 5-0
of this Agreement or pursuant to agreements separate and apart from this
Agreement on terms and conditions mutually satisfactory to Chevron
Research and South Hampton.
4.5. All data, plans, specifications, flow sheets and
drawings, furnished directly or indirectly, in writing or otherwise, to South
Hampton by Chevron Research pursuant to Article 5-0 of this Agreement shall be
used by South Hampton only for the construction, erection, alteration,
maintenance, repair and operation of the Licensed Unit. Subject to Section 4.2,
South Hampton may furnish such portions of such data, plans, specifications,
flow sheets and drawings to others to the extent necessary for the construction,
erection, alteration, maintenance, repair and operation of the Licensed Unit.
-6-
<PAGE> 8
4.6. Upon Chevron Research's request, South Hampton's
Technical Information shall be available to Chevron Research. Chevron Research
agrees that it will use all reasonable efforts to prevent duplication or
disclosure to third parties, except entities having obligations of secrecy to
Chevron Research that are equivalent to the obligations of secrecy used by
Chevron Research to protect its own Technical Information, of all Technical
Information furnished, directly or indirectly, in writing or otherwise, by South
Hampton that is confidential in nature and has been so designated.
4.7. No obligation shall be imposed by this Article 4-0 upon
the recipient party with respect to the protection and use of any portion of
proprietary information which corresponds in substance to information (i) that
was developed by and in the recipient party's possession prior to receipt
hereunder of the corresponding information, (ii) that at the time of disclosure
is, or thereafter becomes through no act or failure to act by the recipient
party, published information generally known in the petroleum refining industry,
or (iii) that is furnished to the recipient party by another as a matter or
right without restriction on disclosure; provided, however, that the occurrence
of either (i) or (ii) or (iii), above, shall not be construed as granting any
rights, express or implied, under patents licensable by Chevron Research or by
South Hampton as the case may be. Such
-7-
<PAGE> 9
information shall not be deemed to be within one of the foregoing exceptions if
it is merely embraced by more general information available on a nonconfidential
basis or in the recipient party's possession. In addition, any combination of
features shall not be deemed to be within the foregoing exceptions unless the
combination itself and its principle of operation are embraced by corresponding
information which is within one of the foregoing exceptions.
ARTICLE 5-0 - TECHNICAL COOPERATION AND DEMONSTRATION
5.1. Because the Licensed Unit is the first demonstration unit
for the AROMAX Process, Chevron Research will make available to South Hampton
different services than it normally makes available to licensees of its fully
commercialized technology. Chevron Research and South Hampton agree that certain
obligations and responsibilities relating to the conversion, preparation,
startup, and operation of the Licensed Unit shall be as follows:
1. Laboratory Work
a. Chevron Research will conduct or have conducted, at its
expense, all standard laboratory tests and analyses appropriate to support the
Demonstration Run. In order to perform
-8-
<PAGE> 10
such analyses, Chevron Research may set up its own gas chromatographic
equipment at the Refinery. Test results shall be Chevron Research Technical
Information.
b. To the extent pilot plant work is necessary or appropriate,
in Chevron Research's opinion, to support the Demonstration Run, Chevron
Research will perform pilot plant tests or have them performed, at its expense.
Pilot plant results shall be Chevron Research Technical Information.
2. Engineering Support
a. Process Engineering--Chevron Research will provide, at
its expense, process engineering services required to prepare the Licensed Unit
for start-up. Those process engineering services include preparing sulfur
sorber and sulfur control catalyst reactor specifications, reviewing and
evaluating existing Refinery equipment for suitability for the Demonstration Run
and determining modifications that are necessary, preparing flow schemes for
feed and product streams of the Licensed Unit, defining the plant configuration
for the Demonstration Run, and preparing performance estimates. Chevron
Research, upon request and upon reasonable notice from South Hampton, will
prepare and furnish for South Hampton's use a Procedures Manual for the Licensed
Unit. South Hampton shall be responsible for process
-9-
<PAGE> 11
engineering evaluations relating to the operation of the debutanizer column on
the product streams from the Licensed Unit.
b. Plant Cleanup for Sulfur Removal--Chevron Research will
specify the procedures appropriate for cleaning the Licensed Unit and associated
equipment and pipes before catalyst may be loaded and the unit started up. South
Hampton will perform or have performed those cleanup procedures at its expense
and under the supervision or guidance of Chevron Research.
c. Plant operation--South Hampton will provide plant operators
at its expense. Chevron Research will station or have stationed, at its expense,
at least one engineer at the refinery during the first six weeks of the
Demonstration Run covering plant cleanup, startup, and the initial phases of
operation of the Licensed Unit. The Chevron engineer(s) will provide full shift
assistance during the two week period following startup of the Licensed Unit.
Full shift assistance will also be provided during the first regeneration of the
first charge of AROMAX Process Catalyst to the Licensed Unit. Chevron Research
will instruct South Hampton's employees at the Refinery in the operation of
Licensed Units, including reasonable training, at times mutually agreeable to
South Hampton and Chevron Research.
d. Routine operation--Chevron Research will make available
engineering assistance for normal operations and for
-10-
<PAGE> 12
emergencies from the San Francisco area or from the Port Arthur Refinery of
Chevron U.S.A. Inc., as appropriate, for the Licensed Unit during the
Demonstration Run.
3. Equipment
a. Chevron Research will provide online sulfur measurement
apparatus or equipment appropriate to monitor the sulfur content of the feed
stream to the Licensed Unit during the Demonstration Run. At the end of the
Demonstration Run, South Hampton may buy that online sulfur measurement
equipment from Chevron Research at a price to be mutually agreed, taking into
account depreciation of the equipment.
b. Except for the online sulfur measurement equipment provided
for by Section 5.1(3)(a), South Hampton will provide, at its expense, all
equipment, including but not limited to reactor vessels, sulfur sorber and
sulfur control vessels, sampling and monitoring equipment and associated piping,
sampling ports and valves, and all process control equipment, appropriate to
conduct the AROMAX Process in the Licensed Unit. South Hampton will bear the
costs of installing any equipment, including online sulfur measurement
apparatus, in the Licensed Unit.
-11-
<PAGE> 13
4. Catalysts and Sorbents
a. Sulfur Sorbent--Chevron Research will provide the first
charge of sulfur sorbent for use in the Demonstration Run. Chevron Research will
retain ownership of that first charge and upon its deactivation will be
responsible for proper disposal of it. South Hampton will provide all further
sulfur sorbent charges necessary for the operation of the Licensed Unit at its
expense.
b. Sulfur Control Catalysts--Chevron Research will provide the
first charge of each of the sulfur control catalysts to be installed for both
the cleanup phase and the Demonstration Run in the Licensed Unit. Chevron
Research shall retain all ownership rights in the catalysts, including catalyst
bases and platinum and other metals deposited on the catalyst bases, and upon
deactivation of the sulfur control catalysts will be responsible for proper
disposal of them. South Hampton will provide all further sulfur control catalyst
charges necessary for the operation of the Licensed Unit at its expense.
c. AROMAX Catalyst--Chevron Research will provide the first
charge of AROMAX Catalyst to be installed in the Licensed Unit ("First Charge").
Chevron Research shall retain all ownership rights in the First Charge,
including catalyst base and platinum and other metals deposited on the catalyst
base.
-12-
<PAGE> 14
Chevron Research expects that the First Charge will achieve a total service
life in excess of nine months from startup through use of multiple
regenerations.
From time to time during the Demonstration Run, Chevron
Research will estimate the length of the then current run of the First Charge
and the length of the run immediately following the next regeneration of the
First Charge. The total service life of the First Charge will end with the then
current run when the estimated length for the run immediately following the next
regeneration is one and one-half months or less, unless South Hampton elects to
continue to use the First Charge. In the event South Hampton elects to continue
to use the First Charge for a run that Chevron Research has estimated will be
one and one-half months or less, the total service life of the First Charge
shall end when South Hampton ceases using the First Charge.
In the event the total service life of the First Charge is
less than nine months from startup, a replacement charge of AROMAX Catalyst is
recommended, and South Hampton elects to place a replacement charge of AROMAX
Catalyst in the Licensed Unit, Chevron Research will provide one replacement
charge at no cost to South Hampton. Chevron Research shall retain all ownership
rights in the replacement charge of AROMAX Catalyst, including catalyst base and
platinum and other metals deposited on the catalyst base.
-13-
<PAGE> 15
d. Except as provided in Section 5.1(4)(c), Chevron Research
will make AROMAX Catalyst, sulfur control catalysts or sulfur sorbents available
to South Hampton pursuant to catalyst supply contracts containing Chevron
Research's standard commercial terms and conditions if South Hampton wishes to
continue practicing the AROMAX Process in the Licensed Unit or South Hampton
wishes to continue using sulfur sorbent or sulfur control catalysts after
removal of the first charge of each. Except as provided in Section 5.l(4)(c),
all costs relating to all catalyst charges after the first, including metals
recovery and disposal, will be for South Hampton's account. Upon request,
Chevron Research will assist South Hampton in locating a source of metals for
such further charges.
5. Refinery integration
a. Feeds and Utilities--South Hampton will provide all feeds
and utilities, including nitrogen gas and electrolytic hydrogen for the cleanup,
startup, and regeneration phases of the demonstration, at its expense.
b. Hydrogen--The unit being converted produces hydrogen gas
that is supplied to other units at the Refinery. During the plant cleanup and
startup phases of the demonstration, South Hampton will arrange for a hydrogen
source to supply all hydrogen requirements of its other units at the Refinery
at its expense.
-14-
<PAGE> 16
In the event of either a process failure of the AROMAX Process after startup of
the Licensed Unit so that the Licensed Unit does not produce hydrogen (a need to
regenerate AROMAX Catalyst is not a process failure) or a delay in startup
beyond two weeks after commencement of plant cleanup, such delay being caused in
Chevron Research's opinion by inadequate plant cleanup even though Chevron
Research plant cleanup instructions are followed, Chevron Research shall arrange
for hydrogen to be provided to the Refinery until the unit resumes hydrogen
production. Notwithstanding the foregoing, Chevron Research's total liability in
the event of such a process failure (a need to regenerate AROMAX Catalyst is not
a process failure) or delay, including the cost of hydrogen provided, shall not
exceed the greater of either Thirty-five Thousand Dollars ($35,000) or an amount
agreed to in writing by an officer of Chevron Research. Chevron Research shall
keep South Hampton informed of the amounts of costs applied against said total
liability of Chevron Research.
6. Visitation rights
a. At any time following execution of this Agreement, Chevron
Research may, at its election, announce to the trade that South Hampton is an
AROMAX Process licensee. South Hampton grants to Chevron Research and its
representatives, visitors, customers, and nominees the right of access to the
Licensed Unit during normal business hours for a period ending either five
-15-
<PAGE> 17
years after startup of the Licensed Unit or upon conversion of the unit to a
process other than the AROMAX Process, whichever occurs first. South Hampton may
limit such visits to a maximum of two per calendar month, may require Chevron
Research personnel to accompany any such visitors, and may require any such
visitors to enter into a secrecy agreement appropriate to protect South
Hampton's proprietary information used at the Refinery.
7. Second unit license
During the term of this Agreement, Chevron Research agrees that upon
written request by South Hampton, Chevron Research shall grant South Hampton an
AROMAX Process license so that South Hampton's 4,000 BPOD catalytic reforming
unit located at the Refinery may be a licensed AROMAX Process unit. Chevron
Research and South Hampton agree that AROMAX Process royalty rates charged to
South Hampton for that unit, whether running or fully paid royalty rates, shall
be based on Chevron Research's then current AROMAX Process royalty rates as
follows:
<TABLE>
<CAPTION>
Royalty rate: % of then
Barrels/Calendar Day current AROMAX Process rate
-------------------- ---------------------------
<S> <C>
0 - 1,000 0%
1,001 - 20000 50
2,001 - 3,000 75
over 3,000 100
</TABLE>
-16-
<PAGE> 18
ARTICLE 6-0 - CHARGES AND PAYMENTS
6.1 Except as provided by Article 5-0 above, South Hampton
shall pay Chevron Research for all work and services, including pilot plant
tests (if any), performed for South Hampton pursuant to this Agreement or as
otherwise mutually agreed. South Hampton shall, within thirty (30) days after
submission of Chevron Research's invoices therefor, pay to Chevron Research
a sum equal to the cost of all work and services performed by Chevron Research
during each calendar month plus an amount to equal twenty percent (20%) of the
cost invoiced to allow Chevron Research to recover costs incurred but not
billed. Included in the determination of such cost, but not by way of
limitation, shall be: all direct expenses such as blueprints, computer usage,
engineering and drafting supplies, analytical services, postage and shipping,
telegraph, telephone, transportation and living expenses of Chevron Research's
employees while engaged in services rendered at points other than at Chevron
Research's home office or laboratories, and all similar expenses directly
incurred in connection with such work and services; the salaries or wages
allocated for the actual time of Chevron Research's employees engaged in such
work and services; and an amount in respect of Chevron Research's overhead and
indirect expenses that shall be determined as a percentage of such salaries and
wages, such percentage to be the same as that applied by Chevron
-17-
<PAGE> 19
Research for similar services being performed at the time in question by Chevron
Research for others under similar conditions and on substantially the same terms
as this agreement. All charges and payments specified herein refer to lawful
money of the United States and all payments to be made by South Hampton
hereunder shall be paid to Chevron Research at the office of Chevron Research or
by wire transfer in immediately available funds to Chevron Research's bank, each
as designated in Article 8-0 hereof.
ARTICLE 7-0 - RESPONSIBILITY AND LIABILITY
7.1 Neither party shall be liable for failures and delays in
performance due to any cause or circumstance beyond its reasonable control,
including, without thereby limiting the generality of the foregoing, any
failures or delays in performance caused by differences with workmen, lockouts,
fires, acts of God or the public enemy, riots, incendiaries, interference by
civil or military authorities, compliance with the laws of the United States or
with the orders of any governmental authority, compliance with public policy,
delays in transit or delivery on the part of transportation companies or
communication facilities, or any failure of sources of material.
7.2. Although Chevron Research represents that the work and
services performed by it under this Agreement shall be
-18-
<PAGE> 20
performed in accordance with accepted engineering standards, South Hampton
acknowledges that the AROMAX Process is not yet commercialized and that the
Licensed Unit is a scale-up demonstration and test unit. Chevron Research's
only liability, if any, respecting the Licensed Unit and/or the operation of it
and/or the Demonstration Run, including but not limited to any breach of the
foregoing representation or for any losses, damages, claims or demands of any
nature arising out of work and services provided under this Agreement, to South
Hampton and/or South Hampton's contractors and/or third parties shall be that
set forth in Section 5.l(5)(b) above. In no event shall Chevron Research be
liable for or obligated in any manner to pay any consequential or indirect
damages.
7.3. Except as provided in Article 5-0, South Hampton shall
have complete control of the construction, erection, alteration, maintenance,
repair and operation of Licensed Unit at all times.
ARTICLE 8-0 - TERM AND TERMINATION
8.1. Chevron Research's obligations to South Hampton pursuant
to Article 5-0 to perform services, make payments, or incur costs for its own
account with respect to the Demonstration Run or the Licensed Unit shall
terminate upon completion of the Demonstration Run.
-19-
<PAGE> 21
8.2. In the event of a breach of any provision of or default
in any obligation under this Agreement, including a failure or refusal by South
Hampton to make payments to Chevron Research as required by Article 6-0, unless
the breaching party fully remedies such breach with reasonable promptness under
the circumstances after the breach is called to its attention in writing by the
other party, then such other party may terminate this Agreement by giving the
breaching party written notice of termination. No such termination for breach
shall relieve the breaching party of any liability for breach incurred prior to
the effective date of said termination or from the obligation to fulfill any
payment obligation based on operations prior to said effective date of
termination. No express or implied waiver of any breach of any of the provisions
of this Agreement shall constitute a waiver of any subsequent breach of the same
or different provisions hereof. The right of termination provided in this
section is in addition to any other rights available by law, including the right
to sue for breach without terminating.
8.3. South Hampton may terminate this Agreement at any time
after the expiration of seven (7) years from the date on which the Licensed Unit
first goes on stream, by giving sixty (60) days' prior written notice to Chevron
Research. The date on which the Licensed Unit first goes on stream shall be the
startup
-20-
<PAGE> 22
date for the Demonstration Run unless otherwise agreed by Chevron Research and
South Hampton.
8.4 If there is either a process failure of the AROMAX Process
after startup of the Licensed Unit so that the Licensed Unit does not produce
hydrogen (a need to regenerate AROMAX Catalyst is not a process failure) or a
delay in startup beyond two weeks after commencement of plant cleanup, as
provided in Section 5.l(5)(b), and if Chevron Research's total liability in the
event of such a process failure or delay pursuant to Section 5.1(5)(b) is or
will be exceeded, South Hampton may, at its election, terminate either the
Demonstration Run (if started) or this Agreement by written notice to Chevron
Research.
8.5. Upon any termination of this Agreement South Hampton
shall retain its right to use Chevron Research's Technical Information in the
Licensed Unit and its rights under Chevron Research's Patent Rights and Catalyst
Patent Rights but only to the extent to which, had this Agreement not been
terminated, South Hampton would have been entitled to process Stock Charge
without payment to Chevron Research. Termination of this Agreement shall not
terminate Chevron Research's right to use and to disclose South Hampton's
Technical Information provided in Article 4-0 or Chevron Research's rights under
South Hampton's Patent Rights and Catalyst Patent Rights as provided in Article
3-0. However, the rights retained by South Hampton and
-21-
<PAGE> 23
Chevron Research after termination shall not extend to any Patent Rights or
Catalyst Patent Rights based on inventions made after the effective date of
termination or to any information developed or acquired after the effective date
of such termination.
8.6. In the event of termination, South Hampton shall not be
entitled to refunds of any amounts paid hereunder and if South Hampton has
authorized Chevron Research to perform work for South Hampton for which payment
would be due to Chevron Research, South Hampton shall pay Chevron Research an
amount for reasonable costs incurred as preparation for work authorized but not
yet performed and incurred in shutting down services then being performed.
8.7. Termination of this Agreement shall not affect either
party's right to enforce any obligation or liability accruing under this
Agreement prior to the effective date of termination. Termination of this
Agreement shall not relieve South Hampton or Chevron Research with respect to
protection and use of confidential Technical Information as provided in Article
4-0.
8.8. Unless sooner terminated as hereinabove provided, this
Agreement shall continue in full force and effect for a period of fifteen (15)
years from the effective date, on which date this Agreement shall automatically
terminate.
-22-
<PAGE> 24
ARTICLE 9-0 - GENERAL PROVISIONS
9.1 The addresses of the parties hereto are as follows:
Chevron Research: Chevron Research Company
Licensing and Catalyst Division
P.O. Box 1627
Richmond, CA 94802-0627
Copy to: Chevron Corporation
Law Department, Contracts Division
P.O. Box 7141
San Francisco, CA 94120-7141
Chevron Research's
Bank Account: Wells Fargo Bank
3900 MacDonald Avenue
Richmond, CA 94804
Account No. 4335-028510
South Hampton: South Hampton Refining Company
P.O. Box 1636
Farm Road 418
Silsbee, TX 77656
Any notice required or permitted under this Agreement, shall be personally
delivered, sent by registered mail, sent by Telex, or sent by ordinary mail.
9.2 "AROMAX Process" and "AROMAX Catalyst" are proprietary
names, and South Hampton shall not contest Chevron Research's claim of ownership
of or claim any rights or interests in the words "AROMAX Process" or AROMAX
Catalyst" and South Hampton shall make no commercial use of the words "AROMAX
Process" or "AROMAX Catalyst" as trademarks, or otherwise, unless
-23-
<PAGE> 25
such commercial use and the manner thereof have first been approved in writing
by Chevron Research.
9.3 This Agreement shall not be assignable by either party
without the prior written consent of the other party hereto, except that it may
be assigned without such consent to the successor of either party or to a
person, firm, or corporation acquiring all or substantially all of the business
and assets of such party. Nothing herein contained, however, shall be deemed to
prevent Chevron Research from assigning this Agreement to any corporation which
shall acquire all or substantially all of Chevron Research's technical
information and unexpired patents in the petroleum refining field. No assignment
of this Agreement shall be valid until and unless this Agreement shall have been
assumed by the assignee. When duly assigned in accordance with the foregoing,
this Agreement shall be binding upon and shall inure to the benefit of the
assignee.
Any assignment of this Agreement shall provide that neither
South Hampton nor Chevron Research shall be relieved of their respective
obligations with respect to the use, duplication or disclosure of data or other
information of a confidential nature as provided in Article 4-0.
No sale, lease or other disposition by South Hampton of the
Licensed Unit shall relieve South Hampton of its obligation
-24-
<PAGE> 26
with respect to the use, duplication, or disclosure of data or other information
of a confidential nature as provided in Article 4-0 above.
9.4 Except as otherwise expressly provided herein, neither
Refiner nor any director, employee or agent of Refiner or of Refiner's
subcontractors or vendors, shall give to or receive from any director, employee
or agent of Chevron or any Affiliate any gift or entertainment of significant
value or any commission, fee or rebate in connection with this Agreement. In
addition, neither Refiner nor any director, employee or agent of Refiner or of
Refiner's subcontractors or vendors, shall enter into any business arrangement
with any director, employee or agent of Chevron or any Affiliate who is not
acting as a representative of Chevron or its Affiliate without prior written
notification thereof to Chevron. Any representative authorized by Chevron may
audit any and all records of Refiner or Refiner's subcontractors or vendors for
the sole purpose of determining whether there has been compliance with this
Section 9.4.
9.5 This Agreement is executed and delivered with the
understanding that it embodies the entire agreement between the parties and that
there are no prior representations, warranties, or agreements relating thereto.
-25-
<PAGE> 27
9.6 This Agreement shall be construed and the legal relations
of the parties determined in accordance with the laws of state of California.
9.7 This Agreement shall become effective on the date first
written above upon execution by South Hampton and by Chevron Research in
California, U.S.A. No change in, addition to, or waiver of the terms and
provisions hereof shall be binding upon Chevron Research or South Hampton
unless approved in writing by their respective authorized representatives, and
no modification shall be effected by the acknowledgment or acceptance of
purchase order forms containing other or different terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused their
respective corporate names to be hereto subscribed by their respective officers
and agents thereunto duly authorized.
CHEVRON RESEARCH COMPANY
By
---------------------------------
Title
------------------------------
Date
-------------------------------
SOUTH HAMPTON REFINING COMPANY
By
----------------------------------
Title
-------------------------------
Date
--------------------------------
Attachments: Schedule A"
-26-
<PAGE> 28
SCHEDULE "A"
DEFINITIONS
1. "AROMAX Process" shall mean a catalytic process for
converting normally liquid hydrocarbons in a Charge Stock to a normally liquid
hydrocarbon product or products, having a higher aromatic hydrocarbon content
than the Charge Stock wherein the conversion is conducted at a temperature above
555(degrees)F, and at a total pressure below 800 psi, in the presence of
hydrogen and a solid catalyst containing a Type L zeolite and at least the metal
platinum, or compounds thereof.
2. "AROMAX Catalyst" shall mean a solid catalyst containing
at least a Type L zeolite and at least the metal platinum, or compounds thereof,
for use in the practice of the AROMAX Process.
3. Type L zeolite" shall mean a crystalline alumino-silicate
as disclosed in U.S. Patent 3,216,789, Breck, et al., issued November 9, 1965.
4. Patent Rights shall mean all claims, or the equivalent of
claims (hereinafter referred to as "claims"), of all patents and published
patent applications of all countries to the extent and only to the extent that
said claims are directed primarily to the AROMAX Process (including, without
limitation, claims to apparatus for carrying out the AROMAX Process and
-1-
<PAGE> 29
product of the AROMAX Process, but excluding claims to catalyst compositions,
methods of catalyst loading, and methods of catalyst manufacture), based on
inventions conceived prior to five (5) years after the effective date of this
Agreement, and transferable interests in or rights with respect thereto; in each
case to the extent that, and subject to the terms and conditions (including the
obligation to account to and/or make payments to others) under which, the
person, firm, or company in question now has or hereafter shall have the right
to grant licenses, immunities, or licensing rights thereunder.
5. "Catalyst Patent Rights" shall mean all claims, or the
equivalent of claims (hereinafter referred to as "claims"), of all patents and
published patent applications of all countries to the extent and only to the
extent that said claims cover the composition of the AROMAX Process Catalyst
(excluding claims directed to methods of manufacture of AROMAX Process Catalyst)
based on inventions conceived prior to five (5) years after the effective date
of this Agreement, and transferable interests in or rights with respect thereto;
in each case to the extent that, and subject to the terms and conditions
(including the obligation to account to and/or make payments to others) under
which, said person, firm, or company in question now has or hereafter shall have
the right to grant licenses, immunities, or licensing rights thereunder.
-2-
<PAGE> 30
6. "Technical Information" shall mean improvements and
developments relating to and operating techniques necessary for the operation of
the AROMAX Process, in a stage of development suitable for commercial use,
developed prior to five (5) years after the effective date of this Agreement, to
the extent that, and subject to the terms and conditions (including the
obligation to account to and/or make payments to others) under which, the
person, firm, or company in question has the right to disclose such information
to others. Technical Information" shall not include information relating to (i)
catalyst manufacture, (ii) catalyst loading, or (iii) catalytic reforming or
similar processes other than the AROMAX Process.
7. "Subsidiary" shall mean any company in which the company in
question, directly or indirectly, shall, at the time in question, own or have
the power to exercise control of a majority of the stock having the right to
vote for the election of directors. For purposes of this Agreement, Chevron
Corporation, incorporated in the State of Delaware, U.S.A., and its
Subsidiaries, as defined above, shall be deemed to be Subsidiaries of Chevron
Research.
8. "Affiliate" shall mean any company of which the designated
company now or hereafter owns or controls, directly or indirectly, fifty percent
(50%) or more of the stock having the right to vote for the election of
directors thereof. For the purpose of this definition, the stock owned or
controlled by a
-3-
<PAGE> 31
particular company shall be deemed to include all stock owned or controlled,
directly or indirectly, by any other company of which the particular company
owns or controls, directly or indirectly, fifty percent (50%) or more of the
stock having the right to vote for the election of directors thereof. Further,
as used in connection with Chevron Research the term "Affiliate" shall include
Chevron Corporation, a Delaware corporation, and its Affiliates, as defined
above; and Irving Oil Limited, incorporated in New Brunswick, and its one
hundred percent (100%) owned Subsidiaries.
9. "Licensed Unit" shall mean South Hampton's AROMAX Process
unit having a design capacity of 131,400 Barrels of Charge Stock per calendar
year (400 Barrels per operating day at an operating factor of 0.9) located at
South Hampton's Silsbee Texas, refinery.
10. Stock Charge" shall mean all normally liquid hydrocarbons
charged or recycled to the Licensed Unit.
11. "Barrel" shall mean forty-two (42) gallons of two hundred
thirty-one (231) cubic inches each, measured at sixty degrees Fahrenheit (60
degrees F).
12. "United States" shall mean all territory to which patents
of the United States of America apply.
-4-
<PAGE> 32
13. "Procedures Manual" shall mean, as applicable to the
Licensed Unit: recommended start-up, shutdown, and regeneration procedures and
recommended procedures for catalyst handling.
14. "Demonstration Run" shall mean that period of time during
which the AROMAX Process is being demonstrated in the Licensed Unit, beginning
on startup of the Licensed Unit with the first charge of AROMAX Catalyst after
plant cleanup and ending either (a) on the latter to occur of nine months after
startup or completion of regeneration(s) of the first charge of AROMAX Catalyst
to the Licensed Unit or (b) as mutually agreed.
-5-
<PAGE> 33
Revisions
First introductory paragraph: effective date inserted--March 10, 1988
Section 4.3: sentence added at the end, per 3/4/88 fax--"However upon request,
Chevron Research will assist South Hampton in arranging such analyses or
tests as necessary for the purposes of metals recovery and catalyst
disposal."
Section 5.l(4)(b), sulfur control catalysts, line 3: phrase inserted per 3/4/88
fax--"both the cleanup phase and"
Section 5.1(4)(c): entire section revised per N.N. Carter/D.V. Law telephone
discussion
Section 5.1(7), line 1: introductory phrase added for consistency with revised
5.l(4)(c) and new 8.4--"During the term of this Agreement,"
Section 6.1, line 5, "twenty (20)" changed to "thirty (30)" per 3/4/88 fax
Article 8-0, a new Section 8.4 inserted per N.N. Carter/D.V. Law telephone
discussion, remaining sections in the article renumbered
Section 9.1, in South Hampton address, "Attn:" deleted, "Farm Road 418" inserted
Schedule A, paragraph 9, design capacity inserted
<PAGE> 34
[CHEVRON RESEARCH COMPANY LETTERHEAD]
March 8, 1988
Mr. David B. Carpenter
South Hampton Refining
Company
P.O. Box 1636
Farm Road 418
Silsbee, Texas 77659
Dear Mr. Carpenter:
Duplicate execution copies of the contract between South Hampton and
Chevron Research for the Chevron AROMAX Process demonstration are
attached. Please have both copies executed for South Hampton and
return them to me. I will arrange for execution for Chevron Research
and return a fully executed copy to you for your files.
The contract has been revised to make the changes of the March 4
facsimile message from David Law to you and to respond to concerns
expressed by Mr. N. N. Carter in a telephone conversation with Mr.
Law. The revisions are outlined on the attached sheet entitled
"Revisions."
We are looking forward to beginning the demonstration.
Very truly yours,
/s/ W. J. ROSSI
Enclosure
<PAGE> 35
FACSIMILE TRANSMITTAL SHEET
[CHEVRON RESEARCH COMPANY LETTERHEAD]
TO: Mr. N. N. Carter
South Hampton Refining Company DATE April 27, 1989
Silsbee, Texas -------------------
Page 1 of 18
------ ---------
Fax: (409) 385-2453
================================================================================
Subject: Continuation of AROMAX Demonstration
Attached is a draft of our proposed agreement covering continuation of the
AROMAX demonstration at your refinery. It takes the form of an Addendum to
the first agreement, "Agreement Relating to AROMAX Process," dated March 10,
1988.
Exhibits to the Addendum will be:
o Security Agreement: covering the equipment purchased with monies
loaned by Chevron.
o Financing Statements: for State and Hardin County.
o Contract of Sale: covering conditional offtake of AROMAX product
by Chevron Chemical.
These exhibits are still under preparation, and will be forwarded as soon
as possible.
Please review the Draft Addendum and give us your comments. Note that we
have updated the costs for the modifications of the AROMAX and RHENIFORMING
units following a more detailed analysis of the requirements. The amounts
are now $297,000 and $135,000, respectively.
Regards,
/s/ W.J. ROSSI/DAVID V. LAW
End. - Draft Addendum
DVLaw:
NNCarter-1 JCWatson/BEReynolds-1
WWSmith-1 PMSpindler-1
WLStumpf-1 WEBrown-1
WKTurner-1 No Encl. CMDetz-1
WJRossi-2 DVLaw-1
LCfile-1
<PAGE> 36
ADDENDUM TO THE AGREEMENT
RELATING TO AROMAX PROCESS
SECOND COMMERCIAL DEMONSTRATION
THIS ADDENDUM, effective as of the __ day of __________, 1989, is between
Chevron Research Company, a Delaware corporation, hereinafter referred to
as "CHEVRON RESEARCH", and South Hampton Refining Company, a Texas
corporation, hereinafter referred to as "SOUTH HAMPTON";
W I T N E S S E T H:
WHEREAS, CHEVRON RESEARCH and SOUTH HAMPTON have entered into an
"Agreement Relating to AROMAX Process" effective March 10, 1988
("Agreement"), pursuant to which SOUTH HAMPTON carried out a
demonstration of the AROMAX Process using an existing unit converted to
reforming operations located at SOUTH HAMPTON's Silsbee, Texas, refinery
("Refinery") and which shall have a design capacity of 420 Barrels of
Demonstration Feed per operating day at an operating factor of 0.9 for
purposes of the Long-Term Demonstration contemplated by this ADDENDUM
("Licensed Unit"); and
WHEREAS, CHEVRON RESEARCH is interested in supporting a long-term second
commercial demonstration of the AROMAX process in Licensed
4-21-89
<PAGE> 37
Unit processing only Demonstration Feed in a multi-reactor system with
at least one full catalyst regeneration; and
WHEREAS, SOUTH HAMPTON as CHEVRON RESEARCH's first non-affiliated
licensee is willing to carry out a long-term commercial demonstration
meeting CHEVRON RESEARCH's objectives on the terms and conditions set
forth in this ADDENDUM;
NOW, THEREFORE, in consideration of the premises and covenants herein,
CHEVRON RESEARCH and SOUTH HAMPTON agree as follows:
ARTICLE 1-0 DEFINITIONS
1.1 Whenever used in this ADDENDUM, any term which has been defined in
the AGREEMENT shall have the same definition. In addition, the
following terms shall have the definitions prescribed in Schedule I
attached hereto and a part hereof: "Rheniforming Unit", "AROMAX
Equipment", "Rheniforming Equipment", "Long-Term Demonstration",
"Demonstration Feed", "Rheniforming Catalyst", "AROMAX Product",
"Support Price", and "Received Price".
Rheniforming Unit = Large Reformer
Licensed Unit = Small Reformer
-2-
<PAGE> 38
ARTICLE 2-0 TECHNICAL ASSISTANCE
2.1 In order to support the Long-Term Demonstration of the AROMAX
Process in Licensed Unit, Licensed Unit must be modified by the
addition of AROMAX Equipment and new AROMAX Catalyst must be
installed in Licensed Unit. In addition, since Licensed Unit will not
provide the estimated hydrogen requirements for SOUTH HAMPTON's
hydrotreating operations at the Refinery, based upon SOUTH HAMPTON's
planned expansion of such operations, it will be necessary to return
the Rheniforming Unit to service. Accordingly, as part of the
Long-Term Demonstration contemplated by this ADDENDUM, the
Rheniforming Unit must be modified by the addition of Rheniforming
Equipment and new Rheniforming F Catalyst must be installed in the
Rheniforming Unit. CHEVRON RESEARCH and SOUTH HAMPTON agree that the
relative responsibilities and obligations of the parties during the
Long-Term Demonstration relating to assistance during pre-startup,
startup, and normal operations for Licensed Unit and for the
Rheniforming Unit shall be as follows:
2.1.1 (Pre-Startup) CHEVRON RESEARCH will specify the equipment
modifications required for the Long-Term Demonstration, and
will assist SOUTH HAMPTON to locate, inspect, and install
AROMAX Equipment and
-3-
<PAGE> 39
Rheniforming Equipment. Following installation and inspection
of the AROMAX Equipment and Rheniforming Equipment, CHEVRON
RESEARCH will specify cleanup and dryout procedures to ready
Licensed Unit and the Rheniforming Unit for catalyst loading,
and will advise and assist SOUTH HAMPTON during cleanup and
dryout. CHEVRON RESEARCH will specify and supply the initial
charges of new AROMAX Catalyst, Rheniforming Catalyst, and
sorbents required for the Long-Term Demonstration and will
assist SOUTH HAMPTON during loading of such Catalysts and
sorbents. The extent of pre-startup assistance for Licensed
Unit and the Rheniforming Unit to be provided by CHEVRON
RESEARCH will be determined by CHEVRON RESEARCH as required to
carry out the Long-Term Demonstration after consultation with
SOUTH HAMPTON. SOUTH HAMPTON will be responsible for and will
carry out pre-startup of Licensed Unit and the Rheniforming
Unit. CHEVRON RESEARCH and SOUTH HAMPTON will each bear their
own expenses incurred during pre-startup of Licensed Unit and
the Rheniforming Unit. CHEVRON RESEARCH will also bear the
expense of the initial charge of AROMAX Catalyst,
Rheniforming Catalyst, and sorbents. CHEVRON RESEARCH will
perform of have performed at its expense cleanup and dryout of
Licensed Unit.
-4-
<PAGE> 40
when requested by CHEVRON RESEARCH, SOUTH HAMPTON will at its
expense provide reasonable assistance during cleanup and
dryout of Licensed Unit.
2.1.2 (Startup) The Rheniforming Unit will be returned to service
before starting up Licensed Unit. CHEVRON RESEARCH has
previously provided startup procedures for the Rheniforming
Unit and will advise and assist SOUTH HAMPTON during startup
of the Rheniforming Unit. However, SOUTH HAMPTON will be
responsible for carrying out the startup, including the supply
of required feed and all chemicals. Following startup of the
Rheniforming Unit, SOUTH HAMPTON will startup Licensed Unit
with the advice and assistance of CHEVRON RESEARCH. Startup
procedures for Licensed Unit will be those previously
specified by CHEVRON RESEARCH for the first Demonstration Run
conducted pursuant to the Agreement unless otherwise specified
or approved by CHEVRON RESEARCH. CHEVRON RESEARCH will specify
the Demonstration Feed, the feed rate(s), and operating
conditions for Licensed Unit during startup and at all times
during the Long-Term Demonstration. The extent of startup
assistance for Licensed Unit and the Rheniforming Unit to be
provided by CHEVRON RESEARCH will be determined by
-5-
<PAGE> 41
CHEVRON RESEARCH an required to carry out the Long-Term
Demonstration after consultation with SOUTH HAMPTON, and will
include full shift coverage during startup of Licensed Unit.
CHEVRON RESEARCH and SOUTH HAMPTON will each bear their own
expenses incurred during startup of Licensed Unit and the
Rheniforming Unit.
2.1.3 (Operation) Operations of the Rheniforming Unit will be
controlled by and will be the sole responsibility of SOUTH
HAMPTON. Rheniforming Process operations will be carried out
by SOUTH HAMPTON pursuant to the terms and conditions of the
"Agreement Relating to Rheniforming Process" dated May 16,
1978, as supplemented and amended by subsequent written
agreements entered into by CHEVRON RESEARCH and SOUTH HAMPTON.
Operations of Licensed Unit during the Long-Term Demonstration
will be controlled by and will be the sole responsibility of
SOUTH HAMPTON. SOUTH HAMPTON will operate Licensed Unit during
the Long-Term Demonstration to process only Demonstration
Feed at a feed rate(s) and under operating conditions to be
specified by CHEVRON RESEARCH.
-6-
<PAGE> 42
ARTICLE 3-0 CATALYSTS AND SORBENTS
3.1 The initial charge of AROMAX Catalyst and sorbents for use in
Licensed Unit for the Long-Term Demonstration will be supplied by
and delivered to the Refinery by CHEVRON RESEARCH. CHEVRON RESEARCH
will retain ownership and risk of loss at all times. At the
conclusion of the Long-Term Demonstration CHEVRON RESEARCH will
assist SOUTH HAMPTON to unload AROMAX Catalyst and Sorbents and
CHEVRON RESEARCH may then use and/or dispose of the AROMAX Catalyst
and sorbents in any manner without accounting to SOUTH HAMPTON.
3.2 The initial charge of Rheniforming Catalyst, for the Rheniforming
Unit will be supplied by and delivered to the Refinery by CHEVRON
RESEARCH. Title and risk of loss will pass to SOUTH HAMPTON upon
delivery to the Refinery gate. Rheniforming Catalyst supplied
hereunder, upon transfer of title to SOUTH HAMPTON, will be deemed
subject to the terms and conditions of the "Rheniforming Catalyst
Supply Contract", dated May 6, 1978 entered into by CHEVRON RESEARCH
and SOUTH HAMPTON. Accordingly, SOUTH HAMPTON will not resell or
otherwise transfer ownership, possession, or control of any portion
of Rheniforming Catalyst without CHEVRON RESEARCH'S prior written
approval.
-7-
<PAGE> 43
3.3 Licensed Unit presently contains Rheniforming Catalyst which will be
removed during pre-startup in order to convert to the practice of
the AROMAX Process for the Long-Term Demonstration. SOUTH HAMPTON
owns such Rheniforming Catalyst and will deliver same to CHEVRON
RESEARCH at the Refinery gate immediately upon removal. Title and
risk of loss will pass to CHEVRON RESEARCH upon such delivery.
CHEVRON RESEARCH may use and/or dispose of the Rheniforming Catalyst
acquired hereunder in any manner without accounting to SOUTH HAMPTON.
ARTICLE 4-0 LOAN AND SECURITY INTEREST
4.1 CHEVRON RESEARCH will loan to SOUTH HAMPTON up to One Hundred
Thirty-five Thousand Dollars ($135,000.00) for the sole purpose of
purchasing Rheniforming Equipment and covering the expenses of SOUTH
HAMPTON related to Rheniforming Unit cleanup as per the following
terms and conditions:
4.1.1 SOUTH HAMPTON will purchase only such Rheniforming Equipment
as has been previously approved by CHEVRON RESEARCH, which
approval will not be unreasonably withheld.
-8-
<PAGE> 44
4.1.2 CHEVRON RESEARCH will loan to SOUTH HAMPTON the purchase price
of Rheniforming Equipment delivered to the Refinery and funds
necessary to cover SOUTH HAMPTON's actual out-of-pocket
expenses related to Rheniforming Unit cleanup. However, in no
event will CHEVRON RESEARCH'S loan obligation hereunder exceed
$135,000.00.
4.1.3 CHEVRON RESEARCH will lend the purchase price as stated above
and SOUTH HAMPTON will execute and record a Security
Agreement(s) in the form attached hereto at the time of sale
to SOUTH HAMPTON of any equipment within Rheniforming
Equipment.
4.1.4 SOUTH HAMPTON will pay to CHEVRON RESEARCH the full amount
loaned to SOUTH HAMPTON hereunder by CHEVRON RESEARCH without
interest or penalty in three equal consecutive monthly
payments due on the first day of each of the first three
calendar months following the calendar month during which the
average feed rate of penhex fed to the Refinery over thirty
(30) consecutive operating days equals or exceeds 2000 Barrels
per day. The foregoing payment obligation will apply during
and/or after completion of the Long-Term Demonstration.
-9-
<PAGE> 45
4.2 CHEVRON RESEARCH will loan to SOUTH HAMPTON up to Two Hundred
Ninety-seven Thousand Dollars ($297,000) for the sole purpose of
purchasing AROMAX Equipment as per the following terms and
conditions:
4.2.1 SOUTH HAMPTON will purchase only such AROMAX Equipment as has
been previously approved by CHEVRON RESEARCH, which approval
will not be unreasonably withheld.
4.2.2 CHEVRON RESEARCH will loan to SOUTH HAMPTON the purchase price
of AROMAX Equipment delivered to the Refinery. However, in no
event will CHEVRON RESEARCH's loan obligation hereunder exceed
the aggregate price F.O.B. the Refinery for all AROMAX
Equipment purchased by SOUTH HAMPTON or $297,000.00 whichever
is the lesser amount.
4.2.3 CHEVRON RESEARCH will lend the purchase price as stated above
and SOUTH HAMPTON will execute and record a Security
Agreement(s) in the form attached hereto at the time of sale
to SOUTH HAMPTON of any equipment within AROMAX Equipment.
-10-
<PAGE> 46
4.2.4 SOUTH HAMPTON will pay to CHEVRON RESEARCH the full amount
loaned to SOUTH HAMPTON hereunder by CHEVRON RESEARCH without
interest or penalty in nine (9) equal consecutive monthly
payments due on the first day of each calendar month following
the first seventy-five (75) days of operations of Licensed
Unit after startup of the Long-Term Demonstration.
ARTICLE 5-0 AROMAX PRODUCT AND CONTRACT OF SALE
5.1 All AROMAX Product will be sold by SOUTH HAMPTON at the highest
available price on a monthly basis.
5.2 CHEVRON RESEARCH will arrange with its affiliated company, Chevron
Chemical Company ("CHEVRON CHEMICAL), to enter into a Contract of
Sale with SOUTH HAMPTON for AROMAX Product which SOUTH HAMPTON cannot
within a reasonable time sell to a third party purchaser. Such
Contract of Sale acceptable to CHEVRON CHEMICAL and SOUTH HAMPTON is
attached hereto.
ARTICLE 6-0 PRICE SUPPORT, CREDIT, AND REFUND
6.1 In the event that the Received Price for AROMAX Product sold during
any calendar month in which SOUTH HAMPTON has a payment obligation to
CHEVRON RESEARCH pursuant to
-11-
<PAGE> 47
Section 4.2.4 is less than the Support Price for the same calendar
month, CHEVRON RESEARCH will grant to SOUTH HAMPTON a credit which
will be applied against SOUTH HAMPTON'S next monthly payments due
pursuant to Sections 4.1.4 and 4.2.4. The amount of such credit will
be the lesser of either the amount of the payments due to CHEVRON
RESEARCH or the arithmetic product obtained by multiplying the
number of gallons of AROMAX Product sold by SOUTH HAMPTON during the
month in question times the arithmetic difference obtained by
subtracting the Received Price from the Support Price.
6.2 Following completion of the Long-Term Demonstration or at the end
of the twelfth month of the Long-Term Demonstration, whichever
occurs first, if the Received Price averaged over such period is
equal to or greater than the Support Price averaged over such period,
within thirty (30) days of the completion of the Long-Term
Demonstration or the end of the twelfth month of the Long-Term
Demonstration as the case may be SOUTH HAMPTON will pay to CHEVRON
RESEARCH a refund in the amount of the total of all the credits taken
by SOUTH HAMPTON pursuant to Section 6.1 above.
6.3 SOUTH HAMPTON will keep, and on request provide to CHEVRON RESEARCH,
verified copies of all books and records required
-12-
<PAGE> 48
to establish the amount of and the schedule of, any credit(s) or
payment(s) due hereunder.
ARTICLE 7-0 MISCELLANEOUS
7.1 The provisions of this ADDENDUM are in addition to the provisions in
the Agreement. This ADDENDUM is not intended to amend, modify, or
delete any right or obligation of either CHEVRON RESEARCH or SOUTH
HAMPTON under the Agreement.
7.2 This ADDENDUM upon full execution will be deemed appended to the
Agreement and will be deemed a part thereof. Any provision of the
Agreement which by reasonable interpretation relates to the conduct
of the Long-Term Demonstration will be so applied. In particular, the
provisions of Article 4-0, Article 7-0, and Article 9-0 will apply
to this ADDENDUM and the Long-Term Demonstration hereunder.
7.3 The Long-Term Demonstration will terminate when one of the following
events occurs: (1) the initial charge of AROMAX Catalyst provided
hereunder is spent and no longer regenerable, or, (2) the initial
charge of AROMAX Catalyst has produced AROMAX Product for twelve (12)
calendar months, or, (3) CHEVRON RESEARCH terminates the Long-Term
Demonstration, which it may do at its sole discretion; provided,
however,
-13-
<PAGE> 49
that by mutual agreement of the parties the Long-Term Demonstration
may continue for an additional period(s). During any such additional
period(s) the terms of Article 5-0 of this ADDENDUM shall not apply.
7.4 Upon completion of the Long-Term Demonstration, CHEVRON RESEARCH
shall remove its AROMAX Catalyst from Licensed Unit at the earliest
reasonable opportunity.
7.5 At no time prior to, during, or after the Long-Term Demonstration
will CHEVRON RESEARCH have any responsibility or liability to supply
or compensate SOUTH HAMPTON for purchased hydrogen supplied for use
in the Refinery.
-14-
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused their respective
corporate names to be subscribed hereto by the respective officers or
agents thereunto duly authorized.
CHEVRON RESEARCH COMPANY
By
-------------------------------------
Title
----------------------------------
Date
-----------------------------------
SOUTH HAMPTON REFINING COMPANY
By
------------------------------------
Title
---------------------------------
Date
----------------------------------
Attachments: Schedule I
Security Agreement
Contract of Sale
-15-
<PAGE> 51
SCHEDULE I
1. "Rheniforming Unit" means SOUTH HAMPTON's existing 4,000-Barrel
per operating day reforming unit located at its Silsbee, Texas,
refinery. The Rheniforming Unit is presently out of service but has
operated under license from CHEVRON RESEARCH using Rheniforming F
Catalyst.
2. "AROMAX Equipment" means new and/or used equipment specified by
CHEVRON RESEARCH as additional equipment for AROMAX Process
operations in Licensed Unit necessary for the Long-Term
Demonstration.
3. "Rheniforming Equipment" means new and/or used equipment specified by
CHEVRON RESEARCH as additional equipment necessary for Rheniforming
Process operations in the Rheniforming Unit.
4. "Long-Term Demonstration" means SOUTH HAMPTON's commercial
demonstration of AROMAX Process operations in Licensed Unit on feeds
and at feed rates and under operating conditions specified by CHEVRON
RESEARCH carried out under this ADDENDUM.
I-1
<PAGE> 52
5. "Demonstration Feed" means such feed(s) to Licensed Unit as are
specified by CHEVRON RESEARCH as feed(s) to be processed during the
Long-Term Demonstration.
6. "Rheniforming Catalyst" means Rheniforming F Catalyst supplied by
CHEVRON RESEARCH.
7. "AROMAX Product" means the liquid reformate product from Licensed
Unit produced during the Long-Term Demonstration.
8. "Support Price" means the average of high and low values of the daily
estimated U.S. Gulf Coast pipeline price in cents per gallon of
regular unleaded gasoline as reported in Platts Oilgram Price Report
plus nineteen and one-half cents (19.5 cents) per gallon averaged
over a calendar month.
9. "Received Price" means the price in cents per gallon of AROMAX
Product sold by SOUTH HAMPTON and averaged over a calendar month.
I-2
<PAGE> 53
CONTRACT OF SALE
This Contract of Sale is entered into as of ________________, 1989, by
and between Chevron Chemical Company, 1301 McKinney, Houston, Texas 77253
("Buyer") and South Hampton Refining Company, P. O. Box 1636, Farm Road 418,
Silsbee, Texas 77656 ("Seller").
Seller agrees to sell and deliver and Buyer agrees to purchase and
receive the product described below in the quantities and during the period set
forth in this Contract of Sale.
1. The product to be sold and delivered hereunder is AROMAX test
debutanized reformate having the typical composition shown on Exhibit "A"
attached hereto ("AROMAX Product"). The AROMAX Product shall be produced in
Seller's AROMAX Process Unit when processing feed(s) selected by Chevron
Research Company during the long-term, second commercial demonstration of the
AROMAX Process conducted in the AROMAX Process Unit pursuant to the "Addendum to
the Agreement Relating to AROMAX Process Second Commercial Demonstration"
between Chevron Research Company and South Hampton Refining Company dated
_______________________. The typical feed composition is shown in Exhibit B,
attached hereto.
2. The quantity of AROMAX Product to be sold hereunder shall be the
total AROMAX Product output from the AROMAX Process Unit during the test run,
less any quantities sold by Seller TO others.
<PAGE> 54
3. As AROMAX Product is manufactured, Seller shall transport the
AROMAX Product that is to be sold to Buyer under this Contract by tanktruck from
Seller's refinery in Silsbee, Texas, to Seller's storage facilities in Beaumont,
Texas. Seller shall invoice Buyer for each tanktruck load delivered to said
storage facilities for purchase by Buyer and Buyer shall pay Seller for the
amount of such delivered load within thirty (30) days after the date of invoice.
AROMAX Product purchased by Buyer pursuant to this Contract shall be purchased
at the F.O.B. Beaumont price set forth below. Title to the AROMAX Product shall
pass from Seller to Buyer upon delivery of the AROMAX Product into Seller's
storage facilities at Beaumont. Said AROMAX Product shall be stored in
segregated tanks for Buyer and shall not be commingled with materials belonging
to Seller or others. No storage costs or fees shall be assessed against or
payable by Buyer.
4. The F.O.B. Beaumont price for the AROMAX Product shall be
determined as follows:
Price in cents/gallon = .99 (X(BZ)) + .95 (X(TOL))(P(TOL))
+ X(R)(P(NG)) - .13 (1 - X(R))
Where: X(BZ) = Volume fraction of Benzene
X(TOL) = Volume fraction of Toluene
X(R) = Volume fraction of Raffinate =
1 - .99 (X(BZ)) - .95 (X(TOL))
P(BZ) = Average FOB Gulf Coast Contract Benzene Price published in the
Benzene & Derivatives Newsletter published by DeWitt & Company
Incorporated for the date of the tanktruck delivery.
-2-
<PAGE> 55
P(TOL) = Average FOB Gulf Coast Spot Commercial grade Toluene
price published in the Toluene/Xylene Newsletter
published by Dewitt & Company Incorporated for the date
of the tanktruck delivery.
P(NG) = Average Hi-Low Spot Gas Liquid Natural Gasoline price at
Mont Belvieu published in Platts' Oilgram for the date
of the tanktruck delivery.
Where the date of tanktruck delivery is a Saturday, Sunday, or
Holiday for which any of the foregoing publications does not publish the
specified price, the specified price published by the publication for the last
business day before such Holiday or Saturday/Sunday shall be used in the
calculation.
5. Seller shall deliver AROMAX Product to Buyer in Beaumont from
Seller's storage facilities in bargeload quantities unless otherwise agreed by
Buyer.
6. Notwithstanding the foregoing and despite the fact that, Seller may
have invoiced Buyer for AROMAX Product and that Buyer may have paid Seller
therefor, Seller shall have the risk of loss, including but not limited to
contamination, for all AROMAX Product invoiced to Buyer until such AROMAX
Product is delivered out of Seller's storage facilities to Buyers barge upon
Sellers downguage.
7. Each tanktruck load of AROMAX Product shall be analyzed by
acceptable gas chromatography techniques to determine the Benzene and Toluene
contents as mass fractions. The amount of such AROMAX Product transported by
tanktruck to storage shall be determined by difference (full versus empty) by
weighing on
-3-
<PAGE> 56
certified scales. The Benzene and Toluene contents of the tanktruck load shall
be determined by multiplying the weight of AROMAX Product delivered into storage
by the appropriate chromatographically determined mass fraction. Weights shall
be converted to volumes for price calculations using densities from ASTM Data
Series Publication DS4A (benzene = 7.3653 lb/gal., toluene = 7.2601 lb./gal.).
8. Buyer's obligation to purchase and Seller's right to sell pursuant
to this Contract of Sale shall apply only to AROMAX Product produced during the
long-term second commercial demonstration referred to in Paragraph 1 above. In
no event shall this Contract of Sale apply to any AROMAX Product produced more
than one year after the date of the AROMAX Process Unit startup for said
demonstration.
9. Buyer shall pay Seller, in addition to the price provided herein, an
amount equal to any tax, duty or other charge (including Superfund levies or the
like) assessed on Seller related to sales made pursuant to this Contract unless
such tax, duty, or charge is related to the storage of AROMAX Product, as
provided for above, or is measured by net income.
10. Seller warrants that at the time of delivery of AROMAX Product out
of Seller's storage facilities to Buyer Seller shall have good title thereto,
said AROMAX Product shall have been produced in Seller's AROMAX Process Unit
from feeds specified by Chevron Research Company, and said AROMAX Product shall
not have been comingled or mixed with any other materials and shall not have
been contaminated with any materials not named in Exhibit A.
-4-
<PAGE> 57
SELLER DOES NOT MAKE, AND EXPRESSLY DISCLAIMS, AND BUYER EXPRESSLY
WAIVES ANY OTHER WARRANTIES WHATSOEVER, INCLUDING (WITHOUT LIMITATION) ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, REGARDLESS OF
WHETHER ORAL OR WRITTEN, EXPRESSED OR IMPLIED, OR ALLEGEDLY ARISING FROM ANY
USAGE OF ANY TRADE OR ANY COURSE OF DEALING.
11. Seller's total liability for any claim of any nature made by Buyer
or Buyer's customers after delivery of AROMAX Product out of storage to Buyer's
barges shall not exceed the purchase price of the AROMAX Product sold hereunder.
This shall also constitute Seller's maximum liability even if Buyer or Buyer's
customers mix AROMAX Product with other materials or use AROMAX Product in
specialized equipment. In no event shall Seller be liable for any lost profits
or any indirect, consequential, special, incidental, contingent or punitive
damages incurred by Buyer.
12. a. Neither party shall be in breach of its obligations hereunder
to the extent that performance is prevented, delayed or (in the sole but
reasonable judgment of the party concerned) made substantially more expensive as
a result of any of the following contingencies: (i) any cause beyond the
reasonable control of the party concerned; (ii) labor disturbance, whether or
not involving the employees of the party concerned or otherwise, and whether or
not the disturbance could be settled by acceding to the demands of a labor
group; (iii) compliance with a request or order of a person purporting to act on
behalf of any government or governmental department or
-5-
<PAGE> 58
agency (including but not limited to EPA, OSHA, etc.); or (iv) shortage in raw
material, transportation, or power.
b. performance will be excused as provided above even though the
occurrence of the contingency in question may have been foreseen or foreseeable
at the time of contracting or subsequently become foreseeable, so long as such
occurrence is not definite or specific at the time of contracting.
c. Quantities not purchased or sold due to the provisions of this
Section need not be made up later.
d. Nothing in this Section shall excuse Buyer from its obligations to
make payments when due.
13. a. This Contract, integrates the entire understanding between the
parties with respect to the subject matter covered. It supersedes all prior
understandings, drafts, discussions or statements, whether oral or in writing,
expressed or implied, dealing with the same subject matter. It may not be
amended or modified in any manner except by a written agreement signed by both
parties which expressly amends this Contract.
b. No rights or obligations under this Contract may be assigned without
the prior written consent of the other party.
c. Any questions concerning the interpretation and enforcement of this
Contract shall be governed by the internal laws of the State of Texas.
d. Neither party shall give any director, employee or representative of
the other party any commission, fee, rebate, gift or entertainment of
significant cost or value in connection with this Contract, or enter into any
other business arrangement with any director, employee or representative of the
other,
-6-
<PAGE> 59
without prior written notification to the other party. Any representative(s)
authorized by either party may cause an audit of any and all records of the
other party as necessary and proper to verify that there has been compliance
with this paragraph.
e. Notices given hereunder are effective when sent by telex or received
by mail.
The agreement of the parties is shown by the signatures of their authorized
representatives below.
CHEVRON CHEMICAL COMPANY
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
SOUTH HAMPTON REFINING COMPANY
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
-7-
<PAGE> 60
EXHIBIT A
EXPECTED C5+ RECOVERED PRODUCT COMPOSITION
ISOHEXANE FEED
SOUTH HAMPTON AROMAX
<TABLE>
<CAPTION>
Composition, LV %
<S> <C>
iC5 9.0
nC5 10.1
CP 0.1
Benzene 44.2 (41.0 -- 46.0)
2-2 DMB 2.3
2-3 DMB 9.1
2-MP 10.6
3-MP 7.4
N-C6 5.3
MCP 1.9
</TABLE>
<PAGE> 61
EXHIBIT B
ISOHEXANE FEED COMPOSITION
SOUTH HAMPTON AROMAX
<TABLE>
<CAPTION>
Composition, LV %
<S> <C>
iC5 1.0
nC5 2.2
CP 10.5 (Max.)
2-2 DMB 2.3
2-3 DMB 12.1
2-MP 54.0 (Min.)
3-MP 16.1 (Min.)
N-C6 1.5
MCP 0.1
C7+ 0.2
</TABLE>
<PAGE> 62
(CONOCO LOGO)
[CONOCO LETTERHEAD]
October 7, 1988
Dr. Richard Crain
South Hampton Refining Company
P.O. Box 1636
Silsbee, TX 77656
Dear Dick:
Attached is two copies of the Processing Agreement. Please fill in the date and
the state in which South Hampton is incorporated on the front page of the
agreement and sign. Forward one copy back to me at Conoco.
With this agreement in place and Conoco Treasury's approval of the Letter of
Credit, we will wire you the 85,000 dollars to begin construction of the unit.
I am optimistic for the mutual success of this processing deal and look forward
to working with you and South Hampton Refining. If you have any questions,
please let me know.
Sincerely,
/s/ MICHAEL R. MITCHAEL
- -------------------------------
Michael R. Mitchael
/ng
Attachments
10
<PAGE> 63
SOUTH HAMPTON REFINING CO.
PROCESSING AGREEMENT
THIS AGREEMENT is entered into this 11 day of October 1988, by and between
CONOCO INC., a Delaware corporation (hereinafter referred to as "Conoco"), whose
address is P.O. Box 2197, Houston, Texas 77252, and SOUTH HAMPTON REFINING CO.,
a Texas corporation (hereinafter referred to as "South Hampton"), whose address
is P.O. Box 1636, Silsbee, Texas 77656.
WITNESSETH:
WHEREAS, South Hampton has the ability to process LVT(R) oil for Conoco at South
Hampton's Silsbee, Texas plant ("Plant"); and
WHEREAS, Conoco desires to have its LVT(R) oil ("Feedstock") processed through
processing equipment constructed by South Hampton at its Plant;
NOW, THEREFORE, for and in consideration of the mutual covenants and promises
set forth herein, the parties hereto agree as follows:
<PAGE> 64
1. TERM OF AGREEMENT
This Agreement shall have a primary term of one year beginning on
October 10, 1988, or on the date that the Letter of Credit described in
Section 3.2 is issued, whichever is later ("Commencement Date"), and
continuing from month to month thereafter unless cancelled by either
party by giving the other party sixty (60) days prior written notice.
2. FEEDSTOCK
2.1 The Feedstock to be processed by South Hampton shall be LVT(R)
oil, having the typical specifications set forth in Exhibit A,
attached hereto and made a part hereof.
2.2 Conoco, at its sole expense, shall supply and deliver
Feedstock to South Hampton's Plant from Conoco's Lake Charles
Refinery by tank truck.
2.3 Over the term of this Agreement, Conoco agrees to deliver to
South Hampton a minimum of 72,000 barrels of Feedstock for
processing the first six (6) months, and 55,000 barrels the
second six (6) months. Any light stream material which is
rerun for saturation shall be counted in these amounts.
2.4 South Hampton shall provide a clean 10,000-barrel tank
dedicated to Conoco's exclusive use for bulk storage of the
Feedstock prior to processing.
2
<PAGE> 65
2.5 South Hampton will sample and test the Feedstock in tankage at
its Plant once every twenty-four (24) hours while receiving
Feedstock to determine that its sulfur and ASTM D-86 End Point
meet the specifications described in Exhibit A. South Hampton
must notify Conoco within two (2) working days after delivery
of any off specification Feedstock. If Conoco receives no
notice during the two (2) working day period, then the
Feedstock will be deemed to meet the specifications on Exhibit
A. A laboratory analytical report will be forwarded to Conoco
on all Feedstock each week. An independent laboratory analysis
shall be used to resolve any discrepancies between Conoco and
South Hampton concerning the specifications of the Feedstock.
2.6 The amount of Feedstock received shall be determined by South
Hampton scale tickets showing the difference between the
certified full weight and the certified empty weight of the
tank trucks.
3. PROCESSING FACILITY
3.1 South Hampton shall construct a process facility for the
processing of Conoco's Feedstock ("Facility") at South
Hampton's Plant. In consideration for the
3
<PAGE> 66
Construction Funding ($85,000) supplied by Conoco as set forth
in Section 3.2 below, South Hampton will not use the Facility
for any purpose which will interfere with the processing of
Conoco's Feedstock nor will it sell, dismantle, relocate or in
any other manner decommission the Facility, during the term of
this Agreement.
3.2 Conoco agrees to pay to South Hampton on the Commencement Date
of this Agreement Construction Funding ($85,000) to be used by
South Hampton to finance the construction of the Facility.
South Hampton agrees to refund this amount to Conoco from the
fees for the first 30,000 barrels of Feedstock that are
processed, by subtracting the maximum Construction Funding
($85,000) from the invoices associated with the first 30,000
barrels of Feed-stock processed. South Hampton agrees to issue
an Irrevocable Standby Letter of Credit covering the
Construction Funding ($85,000) until the obligation to Conoco
is paid in full. Conoco agrees to maintain the U.S. dollar
value of the Letter of Credit in an amount equal to the
unrefunded portion of the Construction Funding. The Letter of
Credit must be issued by a bank acceptable to Conoco.
4
<PAGE> 67
3.3 South Hampton agrees to make best efforts to have the Facility
operational and capable of processing Feedstock into two (2)
streams as described in Section 4 below (collectively
"Operational") within five (5) weeks from the Commencement Date
of this Agreement. If the Facility is not Operational within
eight (8) weeks after the Commencement Date, or ceases to be
Operational at any time for longer than thirty (30) days
despite repair efforts by South Hampton, Conoco, at its sole
option, may terminate this Agreement with no further liability
hereunder or may extend the time for the Facility to be
Operational to a date acceptable to both parties. If Conoco
elects to terminate the Agreement prior to the Construction
Funding being totally refunded, South Hampton shall immediately
refund to Conoco the unrefunded portion of the Construction
Funding provided by Conoco to South Hampton under this
Agreement.
3.4 South Hampton agrees to manufacture under and keep records of
statistical process control. South Hampton shall make all such
records available to Conoco upon request.
5
<PAGE> 68
4. FINISHED PRODUCTS
4.1 South Hampton shall process Feedstock into two separate
streams: a light stream and a heavy stream (LVT200(R) oil)
(collectively "Products"). The LVT200(R) oil shall meet the
specifications set forth in Exhibit B, which is attached
hereto and made a part hereof. For every gallon of Feedstock
received by South Hampton, South Hampton shall return
ninety-nine (99) liquid volume percent Products.
4.2 South Hampton can control the following items of Exhibit B of
the Agreement: (a) IBP, (b) Wt. % Aromatics, (c) P-M Flash,
Deg. F. Minimum, and (d) ppm Sulfur. All other items, i.e., (a)
EP, (b) API Gravity, and (c) nitrogen content, are functions of
the Feedstock and cannot be controlled by South Hampton.
5. SAMPLING AND ANALYSIS
5.1 South Hampton will sample and conduct laboratory analysis in
its own laboratory for each batch of the Products manufactured
hereunder to determine if they meet the specifications set
forth in Exhibit B.
5.2 Once each month, South Hampton, at its sole expense, shall
arrange for verification of its analysis of a random sample of
the Products by an independent laboratory.
6
<PAGE> 69
5.3 South Hampton shall provide Conoco with a weekly laboratory
analytical report on all Products manufactured.
5.4 All off specification Products shall be rerun through the
process at South Hampton's expense.
6. STORAGE/DELIVERY
6.1 South Hampton shall store the Products in clean segregated
tankage, not commingled with any product not owned by Conoco,
until release to Conoco customers as scheduled by Conoco. Such
storage shall be appropriate for loading of Products into rail
cars or tank trucks.
6.2 Each week South Hampton shall forward to Conoco's Sales
Manager, Wax and Specialty Products, North American Marketing,
a report of inventory of Products in storage.
6.3 South Hampton agrees to keep confidential any Conoco customer
information which it receives from Conoco because of the direct
shipment of Products from South Hampton's Plant to Conoco
customers.
7
<PAGE> 70
7. FEES
7.1 Conoco shall pay South Hampton a fee for all of the services
performed hereunder on a cents-per-gallon of Feedstock
processed basis, according to the following schedule:
<TABLE>
<CAPTION>
Gallons of Feedstock Processed Fee per Gallon Processed
------------------------------ ------------------------
<S> <C>
0-50,000 Barrels* $0.18
50,001+ Barrels* $0.16
</TABLE>
*One Barrel Equals 42 U.S. Standard Gallons.
The aforesaid fees are based on Feedstock containing eighteen
(18) volume percent aromatics. For each volume percent of
aromatics over eighteen (18) percent in the LVT200 stream
prior to entering the hydrogen treater (raw LVT200), Conoco
shall pay an additional fee of $0.004375 per gallon. For each
volume percent of aromatics below eighteen (18) in the raw
LVT200, the fee paid by Conoco shall be less by $0.004375 per
gallon. Such fee adjustment will be calculated at the end of
each month, based upon the average of recorded tests made
twice each day by South Hampton on the raw LVT200.
7.2 In addition to the fees stated in Section 7.1 above, for each
volume percent yield of LVT200(R) comprising over fifty (50)
percent of the Feedstock, an additional $0.0015 per gallon
shall be
8
<PAGE> 71
added to the fee on volumes of Feedstock yielding over fifty
(50) percent LVT200(R). Likewise, for each volume percent
yield of LVT200(R) under fifty (50) percent of the Feedstock,
$0.0015 per gallon shall be subtracted from the fee on volumes
of Feedstock yielding under fifty (50) percent LVT200(R). Such
fee adjustment shall be calculated at the end of each month
based on the actual yield results.
7.3 The process fee for 0-50,000 barrels of Feedstock processed
shall never be lower than $0.15 per gallon of Feedstock
processed; and for 50,001+ barrels of Feedstock processed,
never lower than $0.13 per gallon of Feedstock processed.
7.4 Included in this fee is South Hampton's profit and other costs
including, without limitation, insurance, storage space, labor
and overhead, all Federal, State, and local excise taxes, and
any other charges assessed by or to South Hampton in the
performance of this Agreement.
8. PAYMENT
8.1 South Hampton shall invoice Conoco semi-monthly (first and
fifteenth) at the appropriate rate based on past volume of
Feedstock processed as of the
9
<PAGE> 72
invoice date. Conoco shall pay each invoice by check upon
receipt.
8.2 On the date of this Agreement, there is in effect between
Conoco and South Hampton a Promissory Note dated September 23,
1988 covering the repayment of a debt owed to Conoco by South
Hampton. In the event of South Hampton's default under said
Promissory Note, South Hampton agrees that Conoco may offset
against the fees due to South Hampton under this Agreement, any
amounts which are or become due and payable under said
Promissory Note, until said Promissory Note is fully paid.
9. TITLE
9.1 Title to all Feedstock delivered to South Hampton and all
Products manufactured therefrom shall remain in Conoco. South
Hampton shall at all times be responsible for Conoco's property
in its care, custody, and control, and shall reimburse Conoco
for any unaccounted for loss of property (excluding loss
allowance if applicable), contamination or damage thereto.
9.2 At Conoco's request, South Hampton will execute any document
which shows title as referenced herein to be in Conoco,
including, but not limited to a UCC-1 form.
10
<PAGE> 73
10. LOSS AND DAMAGE
10.1 South Hampton shall be responsible for any loss of, or damage
to Conoco property, as set forth in Section 9 hereof, within
its possession. South Hampton will take title to and be
responsible for legally disposing of any contaminated Feedstock
or Products or any off specification Products which cannot be
rerun pursuant to Section 5.4 above, which occurred while the
Feedstock or Products were in South Hampton's care.
10.2 Reimbursement for loss or contamination of Feedstock shall
be at Conoco's Gulf Coast jet fuel price posted in Platt's
Oilgram, plus freight from Lake Charles to South Hampton's
Plant. Reimbursement for loss or contamination of Products or
for any off specification Product which cannot be rerun shall
be at Conoco's cost as stated in the previous sentence, plus
any fees paid to South Hampton pursuant to Section 7 hereof.
Conoco will invoice South Hampton for any losses within sixty
(60) days after determination of the loss or contamination.
11
<PAGE> 74
11. INDEMNITY
11.1 South Hampton hereby agrees to indemnify, defend, and save
Conoco, and its officers, directors, and employees, harmless
from any and all loss or liability, including legal expenses,
arising out of any claim or cause of action for loss, loss of
use of or damage to property or natural resources, personal
injuries, violation of any governmental laws, or patent or
trademark infringement caused by or arising in any manner from
South Hampton's operations or ownership of its Plant and the
Facility and performance of the services under this Agreement.
11.2 Conoco hereby agrees to indemnify, defend, and save South
Hampton, and its officers, directors, and employees, harmless
from any and all loss or liability including legal expense
arising out of any claim or cause of action for loss, loss of
use of, or damage to property or natural resources, personal
injuries, violation of any governmental laws, or patent or
trademark infringement caused by or arising in any manner from
Conoco's sale or use of the Products produced under this
Agreement, except to the extent caused by South Hampton's sole
negligence.
12
<PAGE> 75
12. INSURANCE
South Hampton shall maintain in full force and effect the following
forms and amounts of insurance and shall furnish to Conoco current
certificates evidencing the insurance maintained. Such certificates
must provide for not less than ten (10) days' prior written notice to
Conoco in the event of cancellation or material change affecting
Conoco's interests. The insurance requirements below are Conoco's
minimum requirements and shall not be considered indicative of the
ultimate amounts and types of insurance needed by South Hampton.
Neither failure to comply nor full compliance with the insurance
provisions of this Agreement shall limit or relieve South Hampton from
indemnifying and holding Conoco harmless in compliance with the
provisions of this Agreement.
a. Worker's Compensation Insurance covering all employees in
accordance with the statutory requirements of the state in which
the services hereunder are rendered.
b. Employer's Liability Insurance in an amount not less than
$1,000,000 per occurrence.
c. Comprehensive General Liability insurance, including Product
Liability, completed operations, blanket contractual, contractors
protection, with a
13
<PAGE> 76
combined single limit for bodily injury and property damage of not
less than $1,000,000 per occurrence.
d. Named Peril Property Insurance of not less than $1,000,000 per
occurrence to cover the loss of Conoco's Feedstock and Products in
South Hampton's care, custody, and control. Such coverage shall
name Conoco as an additional named insured and loss payee with
respect to Conoco's interest.
13. FORCE MAJEURE
Neither party hereto shall be responsible or liable for failure to
perform its obligations under this Agreement or losses resulting from
any such failure to perform, or failure to make delivery, if prevented
from doing so by acts of God, floods, fires, explosions, storms,
vandalism, transportation difficulties, inability to obtain the
necessary supplies or other required raw materials, strikes, lockouts,
or other industrial disturbances, wars, or any law, rule, or action of
any court or instrumentality of the federal, state or local government,
or any other cause or causes beyond its reasonable control whether
similar or dissimilar to those above stated, provided only that the same
is not willfully done or brought about for the purpose of excusing
failure or omission to perform under this Agreement. In
14
<PAGE> 77
the event either party hereto is rendered unable to perform in whole or
in part, such party shall give notice in writing to the other party of
the full particulars of such force majeure as soon as possible after
the occurrence of such cause relied on, and the obligation of such
party to perform under this Agreement shall be suspended during the
continuance of any inability so caused, but no longer period, and such
cause shall insofar as possible be remedied with all reasonable
dispatch. If any of the events specified in this paragraph shall have
occurred, South Hampton shall allocate its available services to the
extent it is capable in a fair and equitable manner among its own needs
and its customers.
14. INSPECTION AND AUDIT
Conoco reserves the right to inspect South Hampton's Facility, Plant
and operations or audit South Hampton's business records pertaining to
South Hampton's performance of the terms and conditions of this
Agreement, at any time during South Hampton's operating hours, by
giving reasonable notice of its intent to do so and by doing so in a
manner which will not interfere with South Hampton's normal business
routine.
15
<PAGE> 78
15. TERMINATION
15.1 If any provision of this Agreement is or becomes violate of
any law, or any rule, order, or regulation issued thereunder,
either party shall have the right, upon notice to the other to
terminate such provision, without affecting other provisions
of the Agreement, or to terminate the Agreement in its
entirety.
15.2 In the event of the failure of South Hampton to perform any of
its obligations hereunder, and the continuance of such failure
after fifteen (15) days' written notice from Conoco, Conoco may
terminate this Agreement upon written notice to South Hampton.
In the event of insolvency, assignment for the benefit of
creditors, or impending bankruptcy proceedings by or against
South Hampton, Conoco may, at its option, terminate this
Agreement upon written notice to South Hampton. South Hampton
hereby agrees to give Conoco prompt written notice of the
occurrence of the aforesaid events. Termination of this
Agreement in accordance with this Paragraph shall not affect
any obligations accruing hereunder prior to such termination,
including, but not limited to, South Hampton's obligations
under Section 11 (Indemnity). Addi-
16
<PAGE> 79
tionally, should Conoco terminate this Agreement due to South Hampton's
failure to perform any of its obligations hereunder, South Hampton
shall immediately refund to Conoco the unrefunded portion of the
Construction Funding provided by Conoco to South Hampton under Section
3.2 of this Agreement.
15.3 In the event of the failure of Conoco to perform any of its obligations
hereunder, and the continuance of such failure after fifteen (15) days'
written notice from South Hampton, South Hampton may terminate this
Agreement upon written notice to Conoco. In the event of insolvency,
assignment for the benefit of creditors, or impending bankruptcy
proceedings by or against Conoco, South Hampton may, at its option,
terminate this Agreement by written notice to Conoco. Conoco hereby
agrees to give South Hampton prompt written notice of the occurrence of
the aforesaid events. Termination of this Agreement in accordance with
this Paragraph shall not affect any obligations accruing hereunder
prior to such termination, including, but not limited to, Conoco's
obligations under Paragraph 11 (Indemnity). Additionally, should South
Hampton terminate this Agreement due to Conoco's failure to perform any
of its obligations hereunder, the unrefunded
17
<PAGE> 80
portion of the Construction Funding provided by Conoco under Section
3.2 will be forfeited to South Hampton.
16. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however, neither party may assign this Agreement without the prior
written consent of the other party.
17. NOTICES
All notices required to be given hereunder shall be in writing, by
telegram, air express service or by certified mail; and shall be
addressed as follows:
CONOCO: Conoco Inc.
P.O. Box 2197, TA 2108
Houston, Texas 77252
Attention: Michael R. Mitchael
SOUTH HAMPTON: South Hampton Refining Co.
P.O. Box 1636
Silsbee, Texas 77656
Attention: Richard N. Cram
18. WAIVER
The failure of either South Hampton or Conoco to enforce at any time
any provisions of this Agreement shall not be construed to be a waiver
of those provisions or the right thereafter to enforce any such
provisions.
18
<PAGE> 81
19. SAFETY AND HEALTH INFORMATION
Conoco has furnished to South Hampton information (including Material
Safety Data Sheet(s)) concerning the safety and health aspects of the
Feedstock and Products handled by South Hampton hereunder, including
safety and health warnings. South Hampton acknowledges receipt of such
information and agrees to communicate such warnings and information to
South Hampton's employees, agents and contractors.
20. RELATIONSHIP OF THE PARTIES
20.1 Conoco and South Hampton are completely separate entities. They
are not partners, general partners, limited partners, joint
venturers, nor agents of each other in any sense whatsoever and
neither has the power to obligate or bind the other.
20.2 South Hampton is an independent contractor and shall be solely
responsible at all times for the safe and prudent operation and
maintenance of its Plant and the Facility. South Hampton shall
always be, and Conoco shall never be, in charge of all
equipment, including the Facility owned by South Hampton,
direction of all employees and other persons who may be on
South Hampton's premises at any time. Conoco, its employees,
and agents shall
19
<PAGE> 82
always abide by instruction and direction of South Hampton while on
South Hampton's premises. South Hampton shall take all necessary
precautions including adoption of and compliance with all reasonable
and customary fire prevention and safety measures to avoid property
damage and bodily injury.
20.3 If for United States tax purposes operations hereunder are regarded as
a partnership, each of the parties elects to be excluded from the
application of all of the provisions of Subchapter K, Chapter 1,
Subtitle A, of the Internal Revenue Code of 1986 as amended, as
permitted and authorized by Section 761 of the Code and regulations
thereunder. Each party will provide such evidence of this election as
may be required by law.
Should there by any requirement that each party further evidence such
election, such party shall execute such documents and furnish such
other evidence as may be required to evidence such election. Each party
shall not give any notices or take any other action inconsistent with
the election made hereby. If any present or future income tax laws of
the state or states which are applicable to the transactions of this
Agreement, or any
20
<PAGE> 83
future income tax law of the United States, shall contain a provision
similar to that in Section 761 of the Internal Revenue Code of 1986, as
amended, each party shall make such election as may be permitted or
required by such law.
In making such election, each party states that income or loss derived
by such party from operations under this Agreement can be adequately
determined without the computation of partnership taxable income or
loss.
21. GOVERNING LAW
This Agreement shall be governed by and interpreted according to the
laws of the State of Texas.
22. ENTIRE AGREEMENT
This Agreement constitutes and embodies the entire agreement and
understanding between South Hampton and Conoco. There are no
agreements, understandings or conditions, oral or written, express or
implied, that are not included herein. No alteration or amendment of
this Agreement shall be effective unless it is in writing and signed by
South Hampton and Conoco.
21
<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
CONOCO INC. SOUTH HAMPTON REFINING CO.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
----------------------------- -----------------------------
Title: Sales Manager - WAX Title:
-------------------------- --------------------------
and Specialties - NAM
--------------------------
22
<PAGE> 85
EXHIBIT A
TYPICAL FEED SPECIFICATIONS
D-86, (degrees)F
<TABLE>
<S> <C>
IBP 374
5% 384
50% 419
95% 495
EP 523
API Gravity 41.6
WT% Aromatics 17.8 20 Max
ppm Sulfur 1 ppm or less
P-M Flash, (degrees)F Min --
Nitrogen, Total ppm 3
Viscosity @ 40(degrees) 2.1
</TABLE>
23
<PAGE> 86
EXHIBIT B
PRODUCT SPECIFICATIONS
HEAVY (LVT200(R)
D-86, (degrees)F
<TABLE>
<S> <C>
IBP 427*
5% 440
50% 459
95% 525
EP 545
API Gravity 41.2*
WT% Aromatics Less than 1
ppm Sulfur 1 ppm or less
P-M Flash, (degrees)F Min 200 to 210
Nitrogen, Total ppm Less than .5
</TABLE>
*Reported only, not a final specification.
24
<PAGE> 87
Conoco Inc. REQUEST FOR FACSIMILE
[CONOCO LOGO] TRANSMISSION
- -------------------------
Date
5-12-89
- -------------------------
FROM
- --------------------------------------------------------------------------------
Employee Ext.
Mike R. Mitchell 1542
- --------------------------------------------------------------------------------
City, State, Country Room No.
Houston, Texas 2108
- --------------------------------------------------------------------------------
Acct No.
- --------------------------------------------------------------------------------
TO
- --------------------------------------------------------------------------------
Name Phone No.
Dick Croin
- --------------------------------------------------------------------------------
Department Room No.
SHR
- --------------------------------------------------------------------------------
City, State, Country
- --------------------------------------------------------------------------------
- -------------------------
No. of Pages
21 + cover
- -------------------------
NOTE
1. Your originals must have good contrast (dark detail on light background).
2. Legible
3. 1/2-inch margin on all sides of sheet
4. Number all pages
SPECIAL INSTRUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11-11 PB. 10-86
<PAGE> 88
SOUTH HAMPTON REFINING CO.
PROCESSING AGREEMENT
THIS AGREEMENT is entered into this __ day of __________, 1989, by and between
CONOCO INC., a DELAWARE corporation (hereinafter referred to as "Conoco"), whose
address is P.O. Box 4784, Houston, Texas 77210-4784, and SOUTH HAMPTON REFINING
CO., a Texas corporation (hereinafter referred to as "South Hampton"), whose
address is P.O. Box 1636, Silsbee, Texas 77656.
WITNESSETH:
WHEREAS, South Hampton has the ability to process Catalytic Polymerization
Gasoline ("Feedstock") for Conoco at South Hampton's Silsbee, Texas plant
("Plant"); and
WHEREAS, Conoco desires to have its Feedstock processed through processing
equipment constructed by South Hampton at its Plant;
NOW, THEREFORE, for and in consideration of the mutual covenants and promises
set forth herein, the parties hereto agree as follows:
<PAGE> 89
1. TERM OF AGREEMENT
This Agreement shall be for a primary term of one (1) year, commencing
on _____________, 1989 ("Commencement Date"), and shall automatically
continue thereafter until cancelled by either party by giving the other
party six (6) months written notice after the end of the primary term
or at any time thereafter.
2. FEEDSTOCK
2.1 The Feedstock to be processed by South Hampton shall be
Catalytic Polymerization Gasoline, having the typical
specifications set forth in Exhibit A, attached hereto and
made a part hereof.
2.2 Conoco, at its sole expense, shall supply and deliver
Feedstock to South Hampton's Plant from Conoco's Refinery at
an average minimum rate of 500 barrels per day for the first
six (6) months of this Agreement, and at an average minimum
rate of 250 barrels per day for the remainder of the Agreement
term.
2.3 South Hampton shall provide a clean 25,000-barrel tank and a
clean 10,000-barrel tank dedicated to Conoco's exclusive use
for bulk storage of the Feedstock prior to processing.
2
<PAGE> 90
2.4 South Hampton will, sample and test the Feedstock in tankage
at its Plant once every twenty-four (24) hours while receiving
Feedstock to determine its sulfur and distillation
characteristics and to verify that it meets the specifications
described in Exhibit A. South Hampton must notify Conoco
within two (2) working days after delivery of any off
specification Feedstock. If Conoco receives no notice during
the two (2) working day period, then the Feedstock will be
deemed to meet the specifications on Exhibit A. A laboratory
analytical report will be forwarded to Conoco on all
Feedstock each week. An independent laboratory analysis shall
be used to resolve any discrepancies between Conoco and South
Hampton concerning the specifications of the Feedstock.
2.5 The amount of Feedstock received shall be determined by South
Hampton scale tickets showing the difference between the
certified full weight and the certified empty weight of tank
trucks.
3. PROCESSING FACILITY
3.l South Hampton shall construct a process facility for the
processing of Conoco's Feedstock ("Facility") at South
Hampton's Plant. In consideration for the
3
<PAGE> 91
Construction Funding ($150,000) supplied by Conoco as set
forth in Section 3.2 below, South Hampton will not use the
Facility for any purpose which will interfere with the
processing of Conoco's Feedstock nor will it sell, dismantle,
relocate or in any other manner decommission the Facility,
during the term of this Agreement.
3.2 Conoco agrees to pay to South Hampton on the Commencement Date
of this Agreement Construction Funding ($150,000) to be used
by South Hampton to finance the construction of the Facility.
South Hampton agrees to refund this amount to Conoco from the
fees for the first 50,000 barrels of Feedstock that are
processed, by subtracting the maximum Construction Funding
($150,000) from the invoices associated with the first 50,000
barrels of Feedstock processed. South Hampton agrees to issue
an Irrevocable Standby Letter of Credit covering the
Construction Funding ($150,000) until the obligation to Conoco
is paid in full. Conoco agrees to maintain the U.S. dollar
value of the Letter of Credit in an amount equal to the
unrefunded portion of the Construction Funding. The Letter of
Credit must be issued by a bank acceptable to Conoco.
4
<PAGE> 92
3.3 South Hampton agrees to make best efforts to have the Facility
operational and capable of processing Feedstock into the
streams described in Section 4 below (collectively
"Operational") within three (3) months from the Commencement
Date of this Agreement. If the Facility is not Operational
within three (3) months after the Commencement Date, or ceases
to be Operational at any time for longer than thirty (30) days
despite repair efforts by South Hampton, Conoco, at its sole
option, may terminate this Agreement with no further
liability hereunder or may extend the time for the Facility
to be Operational to a date acceptable to both parties. If
Conoco elects to terminate the Agreement prior to the
Construction Fundind being totally refunded, South Hampton
shall immediately refund to Conoco the unrefunded portion of
the Construction Funding provided by Conoco to South Hampton
under this Agreement.
3.4 South Hampton agrees to manufacture under and keep records
of statistical process control. South Hampton shall make all
such records. available to Conoco upon request.
3.5 In the event that Conoco elects not to have South Hampton
produce nonene and tetramer, the tanks and
5
<PAGE> 93
equipment designated for those Products will be dedicated to
other processing for Conoco.
4. FINISHED PRODUCTS
4.1 South Hampton shall process Feedstock into streams
in accordance with the following fractionation plan:
1) First pass: a) Initial Boiling Point ("IBP") - 275 Deg. F.,
b) 275-295 Deg. F. (nonene), and c) 295 + Deg. F.; and
2) Second pass using 1c: a) 295-350 Deg. F., b) 350-400 Deg.
F. (tetramer), and c) 400 + Deg. F. (collectively "Products").
The nonene (lb above) and tetrainer (2b above) shall meet the
specifications set forth in Exhibit B, which is attached
hereto and made a part hereof. For every gallon of Feedstook
received by South Hampton, South Hampton shall return
ninety-nine (99) liquid volume percent Products.
5. SAMPLING AND ANALYSIS
5.1 South Hampton will sample and conduct laboratory analysis in
its own laboratory for each batch of the nonene and tetramer
manufactured hereunder to
6
<PAGE> 94
determine if they meet the specifications set forth in
Exhibit B.
5.2 South Hampton shall provide Conoco with a weekly laboratory
analytical report on all Products manufactured.
5.3 All off specification Product caused by South Hampton shall
be rerun through the process at South Hampton's expense.
6. STORAGE/DELIVERY
6.1 South Hampton shall store the Products in clean segregated
tankage, not commingled with any product not owned by Conoco,
until release to Conoco customers as scheduled by Conoco. Such
storage shall be appropriate for loading of Products into rail
cars or tank trucks.
6.2 Each week South Hampton shall forward to Conoco's Sales
Manager, Wax and Specialty Products, North American Marketing,
a report of inventory of Products in storage.
6.3 South Hampton agrees to keep confidential any Conoco customer
information which it receives from Conoco because of the
direct shipment of Products from South Hampton's Plant to
Conoco customers.
7
<PAGE> 95
7. FEES
7.1 Conoco shall pay South Hampton a fee for all of the services
performed hereunder at the rate of twelve cents (12 cents) per
gallon of Feedstock processed.
7.2 Included in this fee is South Hampton's profit and other costs
including, without limitation, insurance, storage space, labor
and overhead, all Federal, State, and local excise taxes, and
any other charges assessed by or to South Hampton in the
performance of this Agreement.
7.3 If during the term of this Agreement there should be a change
in the cost of fuel gas (natural gas) to South Hampton,
Conoco agrees to adjust the fee set forth in Section 7.1
above by an appropriate amount to cover such cost changes.
South Hampton shall provide documentation to substantiate
these cost changes.
7.4 The two Feedstock tanks and the tankage containing nonene and
tetramer shall be blanketed with nitrogen for the flat fee
of $2,000 per month for the first eighteen (18) months of
this Agreement, and at no cost to Conoco for any subsequent
months that this Agreement is in effect.
8
<PAGE> 96
8. PAYMENT
8.1 South Hampton shall invoice Conoco semi-monthly (first and
fifteenth) at the appropriate rate based on past volume of
Feedstock processed as of the invoice date. South Hampton
shall provide to Conoco, along with each invoice, a Plant
Operation Report, in a mutually agreed upon form, showing
semi-monthly activity under this Agreement. Conoco shall pay
each invoice by check upon receipt.
8.2 On the date of this Agreement, there is in effect between
Conoco and South Hampton a Promissory Note dated September 23,
1988 covering the repayment of a debt owed to Conoco by South
Hampton. In the event of South Hampton's default under said
Promissory Note, South Hampton agrees that Conoco may offset
against the fees due to South Hampton under this Agreement,
any amounts which are or become due and payable under said
Promissory Note, until said Promissory Note is fully paid.
9. PRODUCT TRANSFERS
When jointly agreed to, Conoco will transfer to South Hampton from
time to time volumes of the streams designated (1a), (2a), and (2c)
in Section 4.1 above and manufactured under this Agreement at an
agreed value to
9
<PAGE> 97
be negotiated. The agreed value for these streams will be credited
against the fee charged pursuant to Section 7.1 above at the time of
transfer.
10. TITLE
10.1 Title to all Feedstock delivered to South Hampton and all
Products manufactured therefrom shall remain in Conoco. South
Hampton shall at all times be responsible for Conoco's
property in its care, custody, and control, and shall
reimburse Conoco for any unaccounted for loss of property
(excluding loss allowance if applicable), contamination or
damage thereto.
10.2 At Conoco's request, South Hampton will execute any document
which shows title as referenced herein to be in Conoco,
including, but not limited to a UCC-1 form.
11. LOSS AND DAMAGE
11.1 South Hampton shall be responsible for any loss of, or damage
to Conoco property, as set forth in Section 10 hereof, within
its possession. South Hampton will take title to and be
responsible for legally disposing of any contaminated
Feedstock or Products or any off specification Products which
10
<PAGE> 98
cannot be rerun pursuant to Section 5.3 above, which occurred
while the Feedstock or Products were in South Hampton's care.
11.2 Reimbursement for loss or contamination of Feedstock
shall be at the Gulf Coast unleaded gasoline (waterborne)
price posted in Platt's Oilgram, plus freight from Conoco's
Refinery to South Hampton's Plant. Reimbursement for loss or
contamination of Products or for any off specification
Products which cannot be rerun shall be at Conoco's cost as
stated in the previous sentence, plus any fees paid to South
Hampton pursuant to Section 7 hereof. Conoco will invoice
South Hampton for any losses within sixty (60) days after
determination of the loss or contamination.
12. INDEMNITY
12.1 South Hampton hereby agrees to indemnify, defend, and save
Conoco, and its officers, directors, and employees, harmless
from any and all loss or liability, including legal expenses,
arising out of any claim or cause of action for loss, loss of
use of or damage to property or natural resources, personal
injuries, violation of any governmental laws, or patent or
trademark infringement caused by
11
<PAGE> 99
or arising in any manner from South Hampton's operations or
ownership of its Plant and the Facility and performance of the
services under this Agreement.
12.2 Conoco hereby agrees to indemnify, defend, and save South
Hampton, and its officers, directors, and employees, harmless
from any and all loss or liability including legal expense
arising out of any claim or cause of action for loss, loss of
use of, or damage to property or natural resources, personal
injuries, violation of any governmental laws, or patent or
trademark infringement caused by or arising in any manner from
Conoco's sale or use of the Products produced under this
Agreement, except to the extent caused by South Hampton's sole
negligence.
13. INSURANCE
South Hampton shall maintain in full force and effect the following
forms and amounts of insurance and shall furnish to Conoco current
certificates evidencing the insurance maintained. Such certificates
must provide for not less than ten (10) days' prior written notice to
Conoco in the event of cancellation or material change affecting
Conoco's interests. The insurance requirements
12
<PAGE> 100
below are Conoco's minimum requirements and shall not be considered
indicative of the ultimate amounts and types of insurance needed by
South Hampton. Neither failure to comply nor full compliance with the
insurance provisions of this Agreement shall limit or relieve South
Hampton from indemnifying and holding Conoco harmless in compliance
with the provisions of this Agreement.
a. Worker's Compensation Insurance covering all employees in
accordance with the statutory requirements of the state in
which the services hereunder are rendered.
b. Employer's Liability Insurance in an amount not less than
$1,000,000 per occurrence.
c. Comprehensive General Liability insurance, including Product
Liability, completed operations, blanket contractual,
contractors protection, with a combined single limit for
bodily injury and property damage of not less than $1,000,000
per occurrence.
d. Named Peril Property Insurance of not less than $1,000,000 per
occurrence to cover the loss of Conoco's Feedstock and
Products in South Hampton's care, custody, and control. Such
coverage shall name Conoco as an additional named insured and
loss payee with respect to Conoco's interest.
13
<PAGE> 101
14. FORCE MAJEURE
Neither party hereto shall be responsible or liable for failure to
perform its obligations under this Agreement or losses resulting from
any such failure to perform, or failure to make delivery, if
prevented from doing so by acts of God, floods, fires, explosions,
storms, vandalism, transportation difficulties, inability to obtain
the necessary supplies or other required raw materials, strikes,
lockouts, or other industrial disturbances, wars, or any law, rule, or
action of any court or instrumentality of the federal, state or local
government, or any other cause or causes beyond its reasonable control
whether similar or dissimilar to those above stated, provided only
that the same is not willfully done or brought about for the purpose
of excusing failure or omission to perform under this Agreement. In
the event either party hereto is rendered unable to perform in whole
or in part, such party shall give notice in writing to the other
party of the full particulars of such force majeure as soon as
possible after the occurrence of such cause relied on, and the
obligation of such party to perform under this Agreement shall be
suspended during the continuance of any inability so caused, but no
longer period, and such cause shall insofar as possible be remedied
with all reasonable
14
<PAGE> 102
dispatch. If any of the events specified in this paragraph shall have
occurred, South Hampton shall allocate its available services to the
extent it is capable in a fair and equitable manner among its own
needs and its customers.
15. INSPECTION AND AUDIT
Conoco reserves the right to inspect South Hampton's Facility, Plant
and operations, inventory Conoco Feedstock and Products therein, or
audit South Hampton's business records pertaining to South Hampton's
performance of the terms and conditions of this Agreement, at any time
during South Hampton's operating hours, by giving reasonable notice of
its intent to do so and by doing so in a manner which will not
interfere with South Hampton's normal business routine.
16. TERMINATION
16.1 If any provision of this Agreement is or becomes violate of
any law, or any rule, order, or regulation issued thereunder,
either party shall have the right, upon notice to the other to
terminate such provision, without affecting other provisions
of the Agreement, or to terminate the Agreement in its
entirety.
15
<PAGE> 103
16.2 In the event of the failure of South Hampton to perform any of
its obligations hereunder, and the continuance of such failure
after fifteen (15) days' written notice from Conoco, Conoco
may terminate this Agreement upon written notice to South
Hampton. In the event of insolvency, assignment for the
benefit of creditors, or impending bankruptcy proceedings by
or against South Hampton, Conoco may, at its option, terminate
this Agreement upon written notice to South Hampton. South
Hampton hereby agrees to give Conoco prompt written notice of
the occurrence of the aforesaid events. Termination of this
Agreement in accordance with this Paragraph shall not affect
any obligations accruing hereunder prior to such termination,
including, but not limited to, South Hampton's obligations
under Section 12 (Indemnity). Additionally, should Conoco
terminate this Agreement due to South Hampton's failure to
perform any of its obligations hereunder, South Hampton
shall immediately refund to Conoco the unrefunded portion
of the Construction Funding provided by Conoco to South
Hampton under Section 3.2 of this Agreement.
16.3 In the event of the failure of Conoco to perform any of its
obligations hereunder, and the continuance
16
<PAGE> 104
of such failure after fifteen (15) days' written notice from
South Hampton, South Hampton may terminate this Agreement upon
written notice to Conoco. In the event of insolvency,
assignment for the benefit of creditors, or impending
bankruptcy proceedings by or against Conoco, South Hampton
may, at its option, terminate this Agreement by written notice
to Conoco. Conoco hereby agrees to give South Hampton prompt
written notice of the occurrence of the aforesaid events.
Termination of this Agreement in accordance with this
Paragraph shall not affect any obligations accruing hereunder
prior to such termination, including, but not limited to,
Conoco's obligations under Paragraph 12 (Indemnity).
Additionally, should South Hampton terminate this Agreement
due to Conoco's failure to perform any of its obligations
hereunder, the unrefunded portion of the Construction Funding
provided by Conoco under Section 3.2 will be forfeited to
South Hampton.
17. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however, neither party
17
<PAGE> 105
may assign this Agreement without the prior written consent of the
other party.
18. NOTICES
All notices required to be given hereunder shall be in writing, by
telegram, air express service or by certified mail; and shall be
addressed as follows:
CONOCO: Conoco Inc.
P.O. Box 4784, TA 2108
Houston, Texas 77210-4784
Attention: Michael R. Mitchael
SOUTH HAMPTON: South Hampton Refining Co.
P.O. Box 1636
Silsbee, Texas 77656
Attention: Richard N. Crain
29. WAIVER
The failure of either South Hampton or Conoco to enforce at any time
any provisions of this Agreement shall not be construed to be a waiver
of those provisions or the right thereafter to enforce any such
provisions.
20. SAFETY AND HEALTH INFORMATION
Conoco has furnished to South Hampton information (including Material
Safety Data Sheet(s)) concerning the safety and health aspects of the
feedstock and Products handled by South Hampton hereunder, including
safety and health warnings. South Hampton acknowledges receipt of
18
<PAGE> 106
such information and agrees to communicate such warnings and
information to South Hampton's employees, agents and contractors.
21. RELATIONSHIP OF THE PARTIES
21.1 Conoco and South Hampton are completely separate entities.
They are not partners, general partners, limited partners,
joint venturers, nor agents of each other in any sense
whatsoever and neither has the power to obligate or bind the
other.
21.2 South Hampton is an independent contractor and shall be solely
responsible at all times for the safe and prudent operation
and maintenance of its Plant and the Facility. South Hampton
shall always be, and Conoco shall never be, in charge of all
equipment, including the Facility owned by South Hampton,
direction of all employees and other persons who may be on
South Hampton's premises at any time. Conoco, its employees,
and agents shall always abide by instruction and direction of
South Hampton while on South Hampton's premises. South Hampton
shall take all necessary precautions including adoption of and
compliance with all reasonable and customary fire prevention
and safety measures to avoid property damage and bodily
injury.
19
<PAGE> 107
21.3 If for United States tax purposes operations hereunder are
regarded as a partnership, each of the parties elects to be
excluded from the application of all of the provisions of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue
Code of 1986 as amended, as permitted and authorized by
Section 761 of the Code and regulations thereunder. Each party
will provide such evidence of this election as may be required
by law.
Should there by any requirement that each party further
evidence such election, such party shall execute such
documents and furnish such other evidence as may be required
to evidence such election. Each party shall not give any
notices or take any other action inconsistent with the
election made hereby. If any present or future income tax laws
of the state or states which are applicable to the
transactions of this Agreement, or any future income tax law
of the United States, shall contain a provision similar to
that in Section 761 of the Internal Revenue Code of 1986, as
amended, each party shall make such election as may be
permitted or required by such law.
20
<PAGE> 108
In making such election, each party states that income or loss
derived by such party from operations under this Agreement can
be adequately determined without the computation of
partnership taxable income or loss.
22. GOVERNING LAW
This Agreement shall be governed by and interpreted according to the
laws of the State of Texas.
23. ENTIRE AGREEMENT
This Agreement constitutes and embodies the entire agreement and
understanding between South Hampton and Conoco. There are no
agreements, understandings or conditions, oral or written, or implied,
that are not included herein. No alteration or amendment of this
Agreement shall be effective unless it is in writing and signed by
South Hampton and Conoco.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
CONOCO INC. SOUTH HAMPTON REFINING CO.
By: By:
------------------------------ -----------------------------
Title: Title:
--------------------------- --------------------------
21
<PAGE> 109
EXHIBIT A
TYPICAL FEEDSTOCK SPECIFICATIONS
CATALYTIC POLYMERIZATION GASOLINE
<TABLE>
<CAPTION>
TEST SPECIFICATION
---- -------------
<S> <C>
Distillation, (degree)F
10% 226
50% 288
90% 391
Gravity (degree)API 63
Sulfur, ppm 2000
Reid Vapor PresBure, psi 6-9
</TABLE>
<PAGE> 110
Page 1 of 2
EXHIBIT B
NONENE SPECIFICATIONS
<TABLE>
<CAPTION>
TEST ASTM TEST METHOD SPECIFICATION
- ---- ---------------- -------------
<S> <C> <C>
Appearance Visual Clear and free
of suspended
matter
Specific Gravity D-1298 0.738-0.743
Distillation, (degree)F D-86
IBP 275 min.
EP 295 max.
Olefins, Vol% D-1319 98 min.
Color, (Pt-Co) D-1209 15 max.
Sulfer, ppm D-3120 10 max.
Water, Vol% D-1744 0.1 max.
Inhibitor, ppm (BHT) 15 min.
Peroxides, Active
Oxygen, ppm D-1563 10 max.
</TABLE>
<PAGE> 111
Page 2 of 2
EXHIBIT B
TETRAMER SPECIFICATIONS
<TABLE>
<CAPTION>
TEST ASTM TEST METHOD SPECIFICATION
- ---- ---------------- -------------
<S> <C> <C>
Appearance Visual Clear and free
of suspended
matter.
Specific Gravity D-1298 0.770-0.785
Distillation, (degree)F D-86
IBP 350 min.
EP 400 max.
Olefins, Vol% D-1319 98 min.
Color Pt-Co D-1209 45 max.
Sulfer, ppm D-3120 10 max.
Water, Vol% D-1744 0.1 max.
Peroxides, Active
Oxygen, ppm D-1563 10 max.
</TABLE>
<PAGE> 1
EXHIBIT 10(h)
ADDENDUM TO THE AGREEMENT
RELATING TO AROMAX PROCESS
SECOND COMMERCIAL DEMONSTRATION
THIS ADDENDUM, effective as of the 13th day of June, 1989, is between Chevron
Research Company, a Delaware corporation, hereinafter referred to as "CHEVRON
RESEARCH", and South Hampton Refining Company, a Texas corporation, hereinafter
referred to as "SOUTH HAMPTON";
W I T N E S S E T H:
WHEREAS, CHEVRON RESEARCH and SOUTH HAMPTON have entered into an "Agreement
Relating to AROMAX Process" effective March 10, 1988 ("Agreement"), pursuant to
which SOUTH HAMPTON carried out a demonstration of the AROMAX Process using an
existing unit converted to reforming operations located at SOUTH HAMPTON's
Silsbee, Texas, refinery ("Refinery") and which shall have a design capacity of
420 Barrels of Demonstration Feed per operating day ("BPOD") at an operating
factor of 0.9 for purposes of the Long-Term Demonstration contemplated by this
ADDENDUM ("Licensed Unit"); and
WHEREAS, CHEVRON RESEARCH is interested in supporting a long-term second
commercial demonstration of the AROMAX process in Licensed
<PAGE> 2
Unit processing only Demonstration Feed in a multi-reactor system with at least
one full catalyst regeneration; and
WHEREAS, SOUTH HAMPTON as CHEVRON RESEARCH's first non-affiliated licensee is
willing to carry out a long-term commercial demonstration meeting CHEVRON
RESEARCH's objectives on the terms and conditions set forth in this ADDENDUM;
NOW, THEREFORE, in consideration of the premises and covenants herein, CHEVRON
RESEARCH and SOUTH HAMPTON agree as follows:
ARTICLE 1-0 DEFINITIONS
1.1 Whenever used in this ADDENDUM, any term which has been defined in the
AGREEMENT shall have the same definition. In addition, the following terms
shall have the definitions prescribed in Schedule I attached hereto and a
part hereof: "Rheniforming Unit", "AROMAX Equipment", "Rheniforming
Equipment", "Long-Term Demonstration", "Demonstration Feed", "Rheniforming
Catalyst", "AROMAX Product", "Support Price and "Received Price".
-2-
<PAGE> 3
ARTICLE 2-0 TECHNICAL ASSISTANCE
2.1 In order to support the Long-Term Demonstration of the AROMAX Process in
Licensed Unit, Licensed Unit must be modified by the addition of AROMAX
Equipment and new AROMAX Catalyst must be installed in Licensed Unit. In
addition, since Licensed Unit will not provide the estimated hydrogen
requirements for SOUTH HAMPTON's hydrotreating operations at the Refinery,
based upon SOUTH HAMPTON's planned expansion of such operations, it will be
necessary to return the Rheniforming Unit to service. Accordingly, as part
of the Long-Term Demonstration contemplated by this ADDENDUM, the
Rheniforming Unit must be modified by the addition of Rheniforming
Equipment and new Rheniforming F Catalyst must be installed in the
Rheniforming Unit. CHEVRON RESEARCH and SOUTH HAMPTON agree that the
relative responsibilities and obligations of the parties during the
Long-Term Demonstration relating to assistance during pre-startup, startup,
normal, and regeneration operations for Licensed Unit and for the
Rheniforming Unit shall be as follows:
2.1.1 (Pre-Startup) CHEVRON RESEARCH will specify the equipment
modifications required for the Long-Term Demonstration, and will
assist SOUTH HAMPTON to
-3-
<PAGE> 4
locate, inspect, and install AROMAX Equipment and Rheniforming
Equipment. Following installation and inspection of the AROMAX
Equipment and Rheniforming Equipment, CHEVRON RESEARCH will specify
cleanup and dryout procedures to ready Licensed Unit and the
Rheniforming Unit for catalyst loading, and will advise and assist
SOUTH HAMPTON during cleanup and dryout. CHEVRON RESEARCH will specify
and supply the initial charges of new AROMAX Catalyst, Rheniforming
Catalyst, and sorbents required for the Long-Term Demonstration and
will assist SOUTH HAMPTON during loading of such Catalysts and
sorbents. The extent of pre-startup assistance for Licensed Unit and
the Rheniforming Unit to be provided by CHEVRON RESEARCH will be
determined by CHEVRON RESEARCH as required to carry out the Long-Term
Demonstration after consultation with SOUTH HAMPTON. SOUTH HAMPTON
will be responsible for and will carry out pre-startup of Licensed
Unit and the Rheniforming Unit. CHEVRON RESEARCH will perform or have
performed cleanup of Licensed Unit for sulfur removal. When requested
by CHEVRON RESEARCH, SOUTH HAMPTON will provide reasonable assistance
during cleanup and dryout of Licensed Unit. CHEVRON RESEARCH will
reimburse SOUTH HAMPTON for the agreed actual out-of-pocket expenses
-4-
<PAGE> 5
incurred if SOUTH HAMPTON contracts with a third party approved by
CHEVRON RESEARCH for assistance during the cleanup, and will reimburse
SOUTH HAMPTON for the actual cost of any nitrogen purchased at CHEVRON
RESEARCH'S request during the initial dryout of Licensed Unit.
2.1.2 (Startup) The Rheniforming Unit will be returned to service before
starting up Licensed Unit. CHEVRON RESEARCH has previously provided
startup procedures for the Rheniforming Unit and will advise and
assist SOUTH HAMPTON during startup of the Rheniforming Unit. However,
SOUTH HAMPTON will be responsible for carrying out the startup,
including the supply of required feed and all chemicals. Following
startup of the Rheniforming Unit, SOUTH HAMPTON will startup Licensed
Unit with the advice and assistance of CHEVRON RESEARCH. Startup
procedures for Licensed Unit will be specified by CHEVRON RESEARCH.
CHEVRON RESEARCH will also specify the Demonstration Feed, the feed
rate(s), and operating conditions for Licensed Unit during startup.
The extent of startup assistance for Licensed Unit and the
Rheniforming Unit to be provided by CHEVRON RESEARCH will be
determined by CHEVRON RESEARCH as required to carry
-5-
<PAGE> 6
out the Long-Term Demonstration after consultation with SOUTH HAMPTON,
and will include full shift coverage during startup of Licensed Unit.
CHEVRON RESEARCH will reimburse SOUTH HAMPTON for the actual cost of any
nitrogen or electrolytic hydrogen purchased at CHEVRON RESEARCH's
request during startup of Licensed Unit.
2.1.3 (Operation) Operations of the Rheniforming Unit will be controlled by
and will be the sole responsibility of SOUTH HAMPTON. Rheniforming
Process operations will be carried out by SOUTH HAMPTON pursuant to the
terms and conditions of the "Agreement Relating to Rheniforming Process"
dated May 16, 1978, as supplemented and amended by subsequent written
agreements entered into by CHEVRON RESEARCH and SOUTH HAMPTON.
Operations of Licensed Unit during the Long-Term Demonstration will be
controlled by and will be the sole responsibility of SOUTH HAMPTON.
SOUTH HAMPTON will operate Licensed Unit during the Long-Term
Demonstration to process only Demonstration Feed under operating
conditions to be specified by CHEVRON RESEARCH. Feed rate(s) to Licensed
Unit will be specified by CHEVRON RESEARCH in consultation with SOUTH
HAMPTON. However, once established, feed rate
-6-
<PAGE> 7
will be held relatively constant for at least seven (7) days, and
subsequent changes will be limited to twenty-five percent (25%) of the
rate of the previous period, unless otherwise agreed to by CHEVRON
RESEARCH. At no time will the feed rate to Licensed Unit exceed 420
BPOD.
2.1.4 (Regeneration) At times specified by CHEVRON RESEARCH, SOUTH HAMPTON
will regenerate AROMAX Catalyst in Licensed Unit with the advice and
assistance of CHEVRON RESEARCH. AROMAX Catalyst regeneration procedures
will be specified by CHEVRON RESEARCH. CHEVRON RESEARCH will reimburse
SOUTH HAMPTON for the actual cost of any nitrogen or electrolytic
hydrogen purchased at CHEVRON RESEARCH's request during regeneration of
AROMAX Catalyst.
2.2 Neither CHEVRON RESEARCH nor SOUTH HAMPTON will be obligated to
compensate or reimburse the other for services performed or expenses
incurred as a result of the Long-Term Demonstration except as expressly
provided for in this Addendum.
-7-
<PAGE> 8
ARTICLE 3-0 CATALYSTS AND SORBENTS
3.1 The initial charge of AROMAX Catalyst and sorbents for use in Licensed Unit
for the Long-Term Demonstration will be supplied by and delivered to the
Refinery by CHEVRON RESEARCH. CHEVRON RESEARCH will retain ownership and
risk of loss at all times. At the conclusion of the Long-Term Demonstration
CHEVRON RESEARCH will assist SOUTH HAMPTON to unload AROMAX Catalyst and
Sorbents and CHEVRON RESEARCH may then use and/or dispose of the AROMAX
Catalyst and sorbents in any manner without accounting to SOUTH HAMPTON.
3.2 The initial charge of Rheniforming Catalyst, not to exceed Two Thousand
(2,000) pounds, for the Rheniforming Unit will be supplied by and delivered
to the Refinery by CHEVRON RESEARCH. Title and risk of loss will pass to
SOUTH HAMPTON upon delivery to the Refinery gate. Rheniforming Catalyst
supplied hereunder, upon transfer of title to SOUTH HAMPTON, will be deemed
subject to the terms and conditions of the "Rheniforming Catalyst Supply
Contract", dated May 6, 1978 entered into by CHEVRON RESEARCH and SOUTH
HAMPTON. Accordingly, SOUTH HAMPTON will not resell or otherwise transfer
ownership, possession, or control of any portion of Rheniforming Catalyst
without CHEVRON RESEARCH's prior written approval.
-8-
<PAGE> 9
3.3 Licensed Unit presently contains Rheniforming Catalyst which will be
removed during pre-startup in order to convert to the practice of the
AROMAX Process for the Long-Term Demonstration. SOUTH HAMPTON owns such
Rheniforming Catalyst and will deliver same to CHEVRON RESEARCH at the
Refinery gate immediately upon removal. Title and risk of loss will pass to
CHEVRON RESEARCH upon such delivery. CHEVRON RESEARCH may use and/or
dispose of the Rheniforming Catalyst acquired hereunder in any manner
without accounting to SOUTH HAMPTON.
ARTICLE 4-0 LOAN AND SECURITY INTEREST
4.1 CHEVRON RESEARCH will loan to SOUTH HAMPTON up to One Hundred Thirty-five
Thousand Dollars ($135,000.00) for the sole purpose of purchasing
Rheniforming Equipment and covering the expenses of SOUTH HAMPTON related
to Rheniforming Unit cleanup and startup as per the following terms and
conditions:
4.1.1 SOUTH HAMPTON will purchase only such Rheniforming Equipment as has
been previously approved by CHEVRON RESEARCH, which approval will not
be unreasonably withheld.
-9-
<PAGE> 10
4.1.2 CHEVRON RESEARCH will loan to SOUTH HAMPTON the purchase price of
Rheniforming Equipment delivered to the Refinery and funds necessary
to cover SOUTH HAMPTON's actual out-of-pocket expenses related to
Rheniforming Unit cleanup and nitrogen and electrolytic hydrogen
requirements for startup. However, in no event will CHEVRON
RESEARCH's loan obligation hereunder exceed $135,000.00.
4.1.3 CHEVRON RESEARCH will lend the purchase price as stated above and
SOUTH HAMPTON will execute and record a Security Agreement(s) in the
form attached hereto at the time of sale to SOUTH HAMPTON of any
equipment within Rheniforming Equipment.
4.1.4 SOUTH HAMPTON will pay to CHEVRON RESEARCH the full amount loaned to
SOUTH HAMPTON hereunder by CHEVRON RESEARCH without interest or
penalty in three equal consecutive monthly payments due on the first
day of each of the first three calendar months following the calendar
month during which the average feed rate of penhex fed to the
Refinery over thirty (30) consecutive operating days equals or
exceeds 2000 Barrels
-10-
<PAGE> 11
per day. The foregoing payment obligation will apply during and/or
after completion of the Long-Term Demonstration.
4.2 CHEVRON RESEARCH will loan to SOUTH HAMPTON up to Two Hundred
Ninety-seven Thousand Dollars ($297,000) for the sole purpose of
purchasing AROMAX Equipment as per the following terms and
conditions:
4.2.1 SOUTH HAMPTON will purchase only such AROMAX Equipment as has
been previously approved by CHEVRON RESEARCH, which approval
will not be unreasonably withheld.
4.2.2 CHEVRON RESEARCH will loan to SOUTH HAMPTON the purchase price
of AROMAX Equipment delivered to the Refinery. However, in no
event will CHEVRON RESEARCH'S loan obligation hereunder exceed
the aggregate price F.O.B. the Refinery for all AROMAX Equipment
purchased by SOUTH HAMPTON or $297,000.00 whichever is the
lesser amount.
4.2.3 CHEVRON RESEARCH will lend the purchase price as stated above
and SOUTH HAMPTON will execute and record a Security
Agreement(s) in the form attached
-11-
<PAGE> 12
hereto at the time of sale to SOUTH HAMPTON of any equipment
within AROMAX Equipment.
4.2.4 SOUTH HAMPTON will pay to CHEVRON RESEARCH the full amount
loaned to SOUTH HAMPTON hereunder by CHEVRON RESEARCH without
interest or penalty in nine (9) equal consecutive monthly
payments due on the first day of each calendar month starting on
the first day of the calendar month following the first seventy-
five (75) days of operations of Licensed Unit after startup of
the Long-Term Demonstration. If the Long-Term Demonstration
terminates before or during the nine (9) month payment period,
SOUTH HAMPTON'S obligation to make money payments ceases with
the first payment due following such termination.
ARTICLE 5-0 AROMAX PRODUCT AND CONTRACT OF SALE
5.1 All AROMAX product will be sold by SOUTH HAMPTON at the highest available
price on a monthly basis.
5.2 CHEVRON RESEARCH will arrange with its affiliated company, Chevron Chemical
Company ("CHEVRON CHEMICAL), to enter into a Contract of Sale with SOUTH
HAMPTON for AROMAX product
-12-
<PAGE> 13
which SOUTH HAMPTON cannot within a reasonable time sell to a third party
purchaser. Such Contract of Sale acceptable to CHEVRON CHEMICAL and SOUTH
HAMPTON is attached hereto.
ARTICLE 6-0 PRICE SUPPORT, CREDIT, AND REFUND
6.1 In the event that the Received Price for AROMAX Product sold during any
calendar month in which SOUTH HAMPTON has a payment obligation to CHEVRON
RESEARCH pursuant to Section 4.2.4 is less than the Support Price for the
same calendar month, CHEVRON RESEARCH will grant to SOUTH HAMPTON a credit
which will be applied against SOUTH HAMPTON's next monthly payments due
pursuant to Sections 4.1.4 and 4.2.4. The amount of such credit will be the
lesser of either the amount of the payments due to CHEVRON RESEARCH or the
arithmetic product obtained by multiplying the number of gallons of AROMAX
Product sold by SOUTH HAMPTON during the month in question times the
arithmetic difference obtained by subtracting the Received Price from the
Support Price.
6.2 Following completion of the Long-Term Demonstration or at the end of the
twelfth month of the Long-Term Demonstration, whichever occurs first, if
the Received Price averaged over such period is equal to or greater than
the Support Price averaged over such period, within thirty (30) days of the
-13-
<PAGE> 14
completion of the Long-Term Demonstration or the end of the twelfth month
of the Long-Term Demonstration as the case may be SOUTH HAMPTON will pay
to CHEVRON RESEARCH a refund in the amount of the total of all the credits
taken by SOUTH HAMPTON pursuant to Section 6.1 above.
6.3 SOUTH HAMPTON will keep, and on request provide to CHEVRON RESEARCH,
verified copies of all books and records required to establish the amount
of and the schedule of, any credit(s) or payment(s) due hereunder.
ARTICLE 7-0 MISCELLANEOUS
7.1 The provisions of this ADDENDUM are in addition to the provisions in the
Agreement. This ADDENDUM is not intended to amend, modify, or delete any
right or obligation of either CHEVRON RESEARCH or SOUTH HAMPTON under the
Agreement.
7.2 This ADDENDUM upon full execution will be deemed appended to the Agreement
and will be deemed a part thereof. Any provision of the Agreement which by
reasonable interpretation relates to the conduct of the Long-Term
Demonstration will be so applied. In particular, the provisions of Article
4-0, Article 7-0, and Article 9-0 will apply to this ADDENDUM and the
Long-Term Demonstration hereunder.
-14-
<PAGE> 15
7.3 The Long-Term Demonstration will terminate when one of the following events
occurs: (1) the initial charge of AROMAX Catalyst provided hereunder is
spent and no longer regenerable, or, (2) the initial charge of AROMAX
Catalyst has produced AROMAX Product for twelve (12) calendar months, or,
(3) CHEVRON RESEARCH terminates the Long-Term Demonstration, which it may
do at its sole discretion; provided, however, that by mutual agreement of
the parties the Long-Term Demonstration may continue for an additional
period(s). During any such additional period(s) the terms of Article 5-0
of this ADDENDUM shall not apply.
7.4 Upon completion of the Long-Term Demonstration, CHEVRON RESEARCH shall
remove its AROMAX Catalyst from Licensed Unit at the earliest reasonable
opportunity.
7.5 At no time prior to, during, or after the Long-Term Demonstration will
CHEVRON RESEARCH have any responsibility or liability to supply or
compensate SOUTH HAMPTON for purchased hydrogen supplied for use in the
Refinery.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused their respective corporate
names to be subscribed hereto by the respective officers or agents thereunto
duly authorized.
CHEVRON RESEARCH COMPANY
By /s/ [ILLEGIBLE]
--------------------------------------
Title President
------------------------------------
Date 6/13/89
------------------------------------
SOUTH HAMPTON REFINING COMPANY
By /s/ [ILLEGIBLE]
----------------------------------
Title President
-------------------------------
Date 6/7/89
-------------------------------
Attachments Schedule I and Exhibit A
Security Agreement
Financing Statements
Contract of Sale
-16-
<PAGE> 17
SCHEDULE I
1. "Rheniforming Unit" means SOUTH HAMPTON'S existing 4,000-Barrel per
operating day reforming unit located at its Silsbee, Texas, refinery. The
Rheniforming Unit is presently out of service but has operated under
license from CHEVRON RESEARCH using Rheniforming F Catalyst.
2. "AROMAX Equipment" means new and/or used equipment specified by CHEVRON
RESEARCH as additional equipment for AROMAX Process operations in Licensed
Unit necessary for the Long-Term Demonstration.
3. "Rheniforming Equipment" means new and/or used equipment specified by
CHEVRON RESEARCH as additional equipment necessary for Rheniforming Process
operations in the Rheniforming Unit.
4. "Long-Term Demonstration" means SOUTH HAMPTON'S commercial demonstration
of AROMAX Process operations in Licensed Unit on feeds and at feed rates
and under operating conditions specified by CHEVRON RESEARCH carried out
under this ADDENDUM.
I-1
<PAGE> 18
5. "Demonstration Feed" means a feed to Licensed Unit which is a refinery
produced isohexane stream having typical inspections as set forth in
Exhibit A attached hereto and a part hereof, or such other feed(s) as may
be specified by CHEVRON RESEARCH from time-to-time to be processed during
the Long-Term Demonstration.
6. "Rheniforming Catalyst" means Rheniforming F Catalyst supplied by CHEVRON
RESEARCH.
7. "AROMAX Product" means the liquid reformate product from Licensed Unit
produced during the Long-Term Demonstration.
8. "Support Price" means the average of high and low values of the daily
estimated U.S. Gulf Coast pipeline price in cents per gallon of regular
unleaded gasoline as reported in Platts Oilgram Price Report plus cents ( )
per gallon averaged over a calendar month.
9. "Received Price" means the price in cents per gallon of AROMAX Product sold
by SOUTH HAMPTON and averaged over a calendar month.
I-2
<PAGE> 19
EXHIBIT A
ISOHEXANE FEED COMPOSITION
Composition, LV %
iC5 1.0
nC5 2.2
CP 10.5 (max.)
2-2 DMB 2.3
2-3 DMB 12.1
2-MP 54.0 (min.)
3-MP 16.1 (min.)
N-C6 1.5
MCP 0.1
C7+ 0.2 (min.)
<PAGE> 1
EXHIBIT 10(i)
VEHICLE LEASE SERVICE AGREEMENT
Silsbee Trading and Transportation Corp., a Texas Corporation, (hereinafter
"STTC", with an address at P. O. Box 695, Silsbee, Texas 77656, agrees to lease
to South Hampton Refining Co., a Texas Corporation, (hereinafter "SHRCO"), with
an address at P. O. Box 1636, Silsbee, Texas 77656, which agrees to lease from
STTC the Vehicles and equipment described in Schedule "A" attached hereto. The
term of the lease shall begin on October 1, 1989, and shall continue for a
period of five (5) years unless terminated early as provided in the lease.
Upon expiration or termination of the Vehicle lease, SHRCO shall return the
vehicles to STTC at its location at Highway 418 in Hardin County, Texas, in the
same condition and appearance as when received, ordinary wear and tear excepted.
Any holding over after the expiration of the Vehicle lease shall be on a
week-to-week basis and subject to all the terms of this Lease.
1. MAINTENANCE AND REPAIR. STTC agrees, at its own cost and expense,
to provide with respect to the Vehicles leased, at STTC facilities: (a) all
preventive maintenance, replacement parts, and repairs to keep the Vehicles in
good repair and operating condition; (b) oil and lubricants necessary for the
efficient operation of the Vehicles; (c) all necessary tires and tubes; (d) road
service due to mechanical and tire failures; (e) periodic exterior washing; (f)
initial painting and lettering of each Vehicle according to SHRCO specifications
at the time the Vehicle is placed into service, at a cost not exceeding the
per-vehicle allowance specified in Schedule "A". In the event any Vehicle shall
be disabled for any reason, SHRCO and/or its driver shall immediately notify
STTC. SHRCO agrees that it will not cause or permit any person other than STTC
or persons authorized by STTC to make any repairs or adjustments to a Vehicle,
and shall abide by its directions concerning emergency repairs. In the event a
Vehicle is disabled due to mechanical or tire failure, STTC shall, within a
reasonable period of time after receipt of notification, properly repair, or
cause the repair of, the Vehicle. STTC shall have no responsibility for any
repair or service to a Vehicle away from its facilities unless authorized by
STTC and documented by a properly receipted and itemized bill for such repairs
or services, listing the Vehicle number.
SHRCO will cause its drivers to report any trouble concerning the
Vehicle not later than the date of occurrence on forms provided by STTC and to
check oil and coolant levels in each Vehicle on a daily basis to prevent damage.
<PAGE> 2
VEHICLE LEASE SERVICE AGREEMENT PAGE 2
STTC will provide for inspections, preventive maintenance, and routine
repairs in such a manner and at such times as to minimize the disruption of the
normal use of the Vehicle. STTC will pick up the Vehicles at SHCRO's location on
Highway 418 in Hardin County, Texas, and return them to the same location after
repairs or maintenance is completed.
2. FUEL. STTC will provide all fuel required for the operation of the
Vehicles and will rebill the costs to SHRCO, prepare and file fuel tax returns,
provided SHRCO submits weekly to STTC all driver trip records, original fuel
receipts or invoices, and any other information necessary for the preparation of
such fuel tax returns. SHRCO shall reimburse STTC for any additional charges,
assessment, tax, penalty, or credit disallowed as a result of untimely or
improper submission of such information by SHRCO.
3. LICENSES, TAXES AND PERMITS. STTC shall, at its own expense,
register and title each Vehicle, and pay for any Vehicle inspection fees, in the
state of domicile of such Vehicle for the licensed weight. STTC shall also pay
the Federal Highway Use Tax and all personal property tax applicable to such
Vehicle in that domicile state. If permitted by law, STTC shall obtain, at
SHCRO's expense, other vehicle licenses, registrations, or pro-rate or state
reciprocity plates, as SHRCO may request. Any increase in these rates or fees or
change in the method of assessment over the allowance shown in Schedule "A" will
be paid for by SHRCO.
Other than as set forth above, SHRCO shall pay for all permits,
plates, special licenses, fees, or taxes (including any penalties or interest)
required by SHRCO's business or now or hereafter imposed upon the operation or
use of the Vehicles, or on this lease or on the charges accruing under this
lease, including, but not limited to, sales or use taxes, mileage or ton mileage
taxes, highway and bridge tolls, and any new and/or additional taxes and fees.
SHRCO shall also pay for all fuel taxes paid by STTC in excess of the fuel taxes
which would have been payable with respect to the fuel used by SHRCO had such
fuel been purchased in the state of consumption.
4. LEASE CHARGES. SHRCO agrees to pay STTC the charges provided for
under this lease within fifteen (15) days of STTC's rendering of an invoice,
without deduction or offset. STTC will invoice SHRCO on a semi-monthly basis,
including the billing of fixed charges in advance, and payment shall be made to
the location designated by STTC. Unless SHRCO shall protest the correctness of
any invoice within seven (7) days of its receipt, SHRCO agrees that such
<PAGE> 3
VEHICLE LEASE SERVICE AGREEMENT PAGE 3
invoice shall be presumed to be correct. SHRCO shall provide STTC with mileage
readings for each Vehicle within twenty-four (24) hours after the end of each
week or as otherwise agreed upon. Mileage shall be determined by means of a
standard mileage recording device attached to the Vehicle. In the event such
device fails to function or becomes detached, the mileage shall be determined on
the basis of the fuel consumed and the average daily mileage for the preceding
thirty (30) days or by another reasonable method. Should SHRCO fail to pay any
charges when due, SHRCO shall pay interest on such delinquent amounts at one and
one-half percent (1-1/2%) per month or the maximum permissible rate allowed in
the jurisdiction in which SHRCO's principal place of business is located,
whichever is lower, from the date on which payment was due until paid, together
with all expenses of collection and reasonable attorneys' fees. This interest
charge shall not be construed as an agreement to accept late payments.
5. VEHICLE USE AND DRIVERS. SHRCO shall use the Vehicle only in the
normal and ordinary course of its business and operations and in a careful,
non-abusive manner, and not beyond its capacity, and SHRCO shall not make any
alterations to the Vehicle without STTC's prior written consent.
Subject to the terms of this lease, from the time of delivery to SHRCO
of any Vehicle covered by this lease, SHRCO shall have exclusive possession,
control, supervision and use of the Vehicle until its return to STTC. SHRCO
agrees that all Vehicles shall be operated by safe, qualified, properly licensed
drivers, who shall conclusively be presumed to be SHRCO's agent, servant or
employee only, and subject to its exclusive direction and control. The Vehicles
shall not be operated: (a) by a driver in possession of or under the influence
of alcohol or any controlled drug, substance, or narcotic; (b) in a reckless or
abusive manner; (c) off an improved road; (d) on an underinflated tire; (e)
improperly loaded or loaded beyond maximum weight; or (f) in violation of any
applicable laws, ordinances, or rules; and SHRCO shall protect, defend,
indemnify and hold STTC harmless from and against all fines, claims,
forfeitures, judgements, seizures, confiscations or penalties arising out of any
such occurrence. SHRCO will be responsible for all expenses for removing or
towing any mired or snowbound Vehicle. SHRCO agrees not to use or cause any
Vehicle to be used for the transportation of hazardous materials as defined by
regulations promulgated by the United States Department of Transportation,
unless otherwise agreed to in writing by STTC, nor for any illegal purpose.
SHRCO will cause each Vehicle to be stored in a safe location.
<PAGE> 4
VEHICLE LEASE SERVICE AGREEMENT PAGE 4
Upon receipt of a written complaint from STTC specifying any reckless,
careless or abusive handling by any driver of the Vehicle(s), SHRCO shall
prohibit the driver so identified from operating the Vehicle(s). In the event
that SHRCO shall fail to do so or shall be prevented from so doing by any
agreement with anyone on the driver's behalf, SHRCO shall reimburse STTC in full
for any loss and expense incurred by STTC as a result of operation or use of the
Vehicle(s) by such driver; and SHRCO shall protect, defend, indemnify and hold
STTC and its partners harmless from and against any costs, expenses or damages
arising out of the operation of any Vehicle(s) by such driver, notwithstanding
that STTC may be designated in this lease as responsible for extending liability
coverage or assuming the risk of loss of, or damage to, the Vehicle. SHRCO
authorizes STTC to investigate the driving record of each driver and test such
driver with respect to his ability to operate the Vehicle to which he will be
assigned, without prejudice to any right or remedy of STTC under this lease. The
drivers shall be selected and employed by SHRCO. STTC will have no
responsibility for compensation, supervision or control of such drivers.
6. PHYSICAL DAMAGE TO VEHICLES. SHRCO assumes the risk of loss of, or
damage to, the Vehicle(s) covered by this lease from any and every cause
whatsoever, including, but not limited to, casualty, collision, upset, fire,
theft, malicious mischief, vandalism, graffiti, glass breakage, and mysterious
disappearance, except as otherwise provided in this lease. SHRCO shall, at its
sole cost, procure and maintain an automobile collision and comprehensive
insurance policy protecting STTC against any and all loss or damage to the
Vehicles covered by this lease, in form and amount satisfactory to STTC, which
policy shall provide that losses, if any, shall be payable to STTC and/or its
assignee. SHRCO shall deliver to STTC all policies of insurance, or evidence
satisfactory to STTC of such coverage, prior to delivery to SHRCO of any Vehicle
covered by this lease. Each insurer shall agree, by endorsement upon the policy
issued by it, or by an independent document provided to STTC, that it shall give
STTC thirty (30) days' prior written notice of the effective date of any
alteration or cancellation of such policy, and that such notice shall be sent by
registered or certified mail postage prepaid, return receipt requested, to STTC,
P. O. Box 695, Silsbee, Texas 77656.
7. LIABILITY COVERAGE. SHRCO shall, at its sole cost, provide
liability coverage for SHRCO and STTC and their respective agents, servants and
employees, in accordance with the standard provisions of a basic automobile
liability insurance policy as required in the jurisdiction in which the Vehicle
is operated, against liability for bodily injury, including death, and property
damage arising out of
<PAGE> 5
VEHICLE LEASE SERVICE AGREEMENT PAGE 5
the ownership, maintenance, use and operation of the Vehicle(s) with limits of
at least a combined single limit of $5,000,000 per occurrence (except that STTC
shall not be liable for damage to property left, stored, loaded, or transported
in, upon, or by the Vehicle). Such coverage shall be primary and not excess or
contributory and shall be in conformity with the basic requirements of any
applicable No-Fault or uninsured motorist laws, but does not include "Uninsured
Motorist" or supplementary "No-Fault", or optional coverage. Such coverage, if
the obligation of SHRCO, shall be in a form acceptable to STTC and SHRCO shall
deliver all policies of insurance, or evidence satisfactory to STTC of such
coverage, prior to delivery to SHRCO of any Vehicle covered by this lease. Each
insurer shall agree, by endorsement upon the policy issued by it, or by an
independent document provided to STTC, that it shall give STTC thirty (30) days'
prior written notice of the effective date of any alteration or cancellation of
such policy and that such notice shall be sent in the manner contemplated by
Article 6.
SHRCO shall notify STTC as well as SHRCO's insurance company, of any
loss of, or damage to, or accident involving any Vehicle, immediately by
telephone, and in writing as soon as practicable thereafter, and to cooperate
fully in the investigation, prosecution and/or defense of any claim or suit and
to do nothing to impair or invalidate any applicable liability, physical damage
or cargo coverage.
SHRCO shall provide in each vehicle proof of financial responsibility.
8 . INDEMNIFICATION. SHRCO shall protect, defend, indemnify and hold
harmless STTC and its partners and its agents, servants and employees from any
and all claims, suits, costs, damages, expenses and liabilities arising from:
(a) SHRCO's failure to comply with its obligations to governmental bodies having
jurisdiction over SHRCO and the Vehicles or its failure to comply with the terms
of this lease, or the use, selection, possession, maintenance, and/or operation
of the Vehicle; (b) any liability imposed upon or assumed by SHRCO under any
Workers' Compensation Act, plan or contract and any and all injuries (including
death) or property damage sustained by SHRCO or any driver, agent, servant or
employee of SHRCO; or (c) SHRCO's failure to properly operate or maintain a
trailer or other equipment not leased by STTC under this lease, or properly
connect any trailer or other equipment. Where the Vehicle is operated with a
trailer or other equipment not leased by STTC under this lease, then SHRCO
warrants that such trailer or other equipment shall be in good operating
condition compatible in all respects with the Vehicle with which it is to be
used and in compliance with all laws and regulations covering the trailer or
other equipment.
<PAGE> 6
VEHICLE LEASE SERVICE AGREEMENT PAGE 6
9. ACCEPTANCE OF VEHICLES. If subsequent to the date of preparation of
the Schedule "A", any law, rule, or regulation shall require the installation of
any additional equipment or accessories, including, but not limited to,
anti-pollution and/or safety devices, or in the event that any modification of
the Vehicle shall be required by virtue of such law, rule or regulation, STTC
and SHRCO agree to cooperate in arranging for the installation of such equipment
or the performance of such modifications and SHRCO agrees to promptly pay the
full cost thereof, including any additional maintenance expenses upon receipt of
an invoice for same.
10. FORCE MAJEURE. STTC shall incur no liability to SHRCO for failure
to perform any obligation under this lease caused or contributed to by events
beyond STTC's reasonable control, such as, but not limited to, war, fire,
governmental regulations, labor disputes, manufacturer, supplier or
transportation shortages or delays, or fuel allocation programs.
11. VEHICLE TITLE. Title to the Vehicles and all equipment delivered
to SHRCO under this lease shall remain in STTC or its designee. SHRCO shall, at
all times, at its sole cost, keep the Vehicles and related equipment free and
clear from all liens, encumbrances, levies, attachments or other judicial
process from every cause whatsoever, (other than a claimant through an act of
STTC), and shall give STTC immediate written notice thereof and shall indemnify
and hold STTC harmless from any loss or damage, including attorneys' fees,
caused thereby.
12. DEFAULT BY SHRCO AND REMEDIES. In the event SHRCO shall fail or
refuse to pay any charges under this lease when due, or perform or observe any
other term of this lease for five (5) days after written notice is sent to SHRCO
by STTC, or if SHRCO or any guarantor of SHRCO'S obligations shall become
insolvent or make a bulk transfer of its assets or make an assignment for the
benefit of creditors, or if SHRCO or any guarantor of SHRCO's obligations shall
file or suffer the filing against it of a petition under the Bankruptcy Act or
under any other insolvency law or law providing for the relief of debtors, or if
any representation or warranty made by SHRCO herein or any document furnished by
SHRCO or a guarantor of SHRCO's obligations shall prove to be incorrect in any
material respect, STTC shall be entitled to pursue the remedies specified in the
following paragraph.
Upon the happening of one of the preceding Events of Default, STTC
may, with or without terminating this lease, with or without demand or notice to
SHRCO, and with or without any court order or process of law, take immediate
possession of, and remove, any and all
<PAGE> 7
VEHICLE LEASE SERVICE AGREEMENT PAGE 7
Vehicles covered by this lease wherever located, and/or retain and refuse to
deliver, and/or re-deliver to SHRCO, the Vehicle(s), without STTC being liable
to SHRCO for damages caused by such taking of possession.
In addition, STTC may proceed by appropriate court action to enforce
the terms of this lease or to recover damages for the breach of any of its
terms.
In the event STTC takes possession of or retains any Vehicle and there
shall, at the time of taking or retention, be in, upon or attached to the
Vehicle any property or things of a value belonging to SHRCO or in SHRCO's
custody or control, STTC is authorized to take possession of such items and
either hold the items for SHRCO or place them in public storage for SHRCO, at
SHRCO's sole cost and risk of loss or damage.
13. ADJUSTED COST. The parties hereto recognize that the lease rates
provided for in this lease are based upon STTC's current costs and that such
costs may fluctuate. Accordingly, STTC and SHRCO agree that for each rise or
fall of one percent (1%) in the Consumer Price Index for All Urban Consumers for
the United States, published by the United States Department of Labor, Bureau of
Labor Statistics, or any successor index designated by STTC, above or below the
Consumer Price Index figure applicable for each leased Vehicle as shown on
Schedule "A", the fixed lease charges and the basic mileage charges (excluding
fuel) shall be adjusted upward or downward.
All increases under this Article shall be cumulative and shall be
calculated only on the charges initially shown on the Vehicle's Schedule "A".
Upon adjustment, the fixed lease charge shall be rounded off to the nearest
whole cent.
14. NON-LIABILITY FOR CONTENTS. STTC shall not be liable for loss of,
or damage to, any cargo or other property left, stored, loaded or transported
in, upon, or by any vehicle furnished to SHRCO pursuant to this lease at any
time or place, and SHRCO agrees to protect, indemnify, defend and hold STTC and
its partners harmless from and against any claims for such loss or damage.
15. ASSIGNMENT AND SUBLETTING. Without prior written consent of STTC,
which consent will not be unreasonably withheld, SHRCO shall not voluntarily or
involuntarily assign or pledge this lease or the Vehicles, or sublet, rent or
license the use of the Vehicles, or cause or permit the Vehicles to be used by
anyone other than SHRCO or its agents, servants or employees.
<PAGE> 8
VEHICLE LEASE SERVICE AGREEMENT PAGE 8
This lease and any Vehicles, rent or other sums due or to become due
hereunder may be assigned or otherwise transferred, either in whole or in part,
by STTC, without affecting any obligations of SHRCO and, in such event, the
right of SHRCO shall be subject to any lien, security interest or assignment
given by STTC in connection with the ownership of the Vehicle(s), and the
transferee or assignee shall have all of the rights, powers, privileges and
remedies of STTC.
16. DISCLAIMER. STTC MAKES NO WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY
VEHICLE COVERED BY THIS LEASE. STTC SHALL NOT BE LIABLE FOR LOSS OF SHRCO'S
PROFITS OR BUSINESS, LOSS OR DAMAGE TO CARGO, DRIVER'S TIME, OR ANY INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES.
17. MISCELLANEOUS. This lease and the schedules and/or riders attached
hereto shall constitute the entire agreement between the parties and to be
binding on STTC must be signed by an officer of STTC. This document shall
constitute an agreement of lease and nothing shall be construed as giving to
SHRCO any right, title or interest in any of the Vehicles or related equipment,
except as lessee only. Upon execution of this lease by STTC and SHRCO, the lease
shall be binding on the respective parties and their legal representative,
successors and assigns. Its terms shall not be amended or altered by failure of
either party to insist on performance, or failure to exercise any right or
privilege, or in any manner unless such amendment or alteration is in writing
and signed on behalf of the parties hereto. This lease shall supersede any and
all proposals or agreement, written or verbal, between the parties, relating to
the subject matter of this lease and may not be modified, terminated or
discharged, except in writing and signed by the party against whom the
enforcement of the discharge, modification or termination is sought. Any notice
given under this lease shall be in writing and sent by registered or certified
mail to STTC or to SHRCO, as the case may be, to the addresses set forth in this
lease, or to such other addresses as are designated in writing by either party.
This lease is to be interpreted, construed and enforced in accordance with the
laws of the State of Texas. In the event any of the terms and provisions of this
lease are in violation of or prohibited by any law, statute, regulation or
ordinance of the United States and/or state or city where the lease is
applicable, such terms and provisions shall be deemed amended to conform to such
law, statute, regulation or ordinance without invalidating any of the other
terms and provisions of this lease.
<PAGE> 9
VEHICLE LEASE SERVICE AGREEMENT PAGE 9
IN WITNESS WHEREOF, the parties shall cause this lease to be executed
by their authorized representative this 28th day of September, 1989.
SILSBEE TRADING & TRANSPORTATION SOUTH HAMPTON REFINING CO.
CORPORATION
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
------------------------------ -------------------------------
Its Vice President Its President
----------------------------- ------------------------------
WITNESSED OR ATTESTED BY: WITNESSED OR ATTESTED BY:
/s/ SANDRA J. BARNES /s/ EVELYN SIMS
- -------------------------------- ---------------------------------
<PAGE> 10
VEHICLE AND EQUIPMENT LEASE
SCHEDULE "A"
6 Trucks; 3 W/Sleepers, 3 WO/Sleepers @ $ 2,200 $ 13,200
I.D.# Description VIN
----- ----------- ---
104 `78 Mack Truck R686ST 20724
105 `78 Mack Truck R686ST 20725
106 `80 Mack Truck R686ST 34834
107 `80 Mack Truck R686ST 34835
108 `81 Mack Truck 1M2N178Y6BA073629
109 `89 Mack Truck 1M2N188Y9KW028029
4 #306 Trailers @ $ 885 $ 3,540
A2 `73 Trailmaster Trailer 73018
A3 `74 Trailmaster Trailer 74067
A4 `77 Trailmaster Trailer 77030
A5 `77 Trailmaster Trailer 77182
4 #307 Trailers @ $ 885 $ 3,540
AP22 `70 Gorbett Trailer 70089F
AP25 `73 Trailmaster Trailer 73014
AP26 `73 Trailmaster Trailer 73015
AP27 `73 Trailmaster Trailer 73028
3 LPG Trailers @ $ 1,200 $ 3,600
SP182 `72 Dalworth Trailer TP51480
SP183 `86 Enderby Anderson 1DZTA442XGG451111
SP184 `69 Lubbock LPG Trailer 57124
Tanks # 62 and # 63 2,500 Barrels Each (Cone Roof) $ 600
Tank 47 1,000 Barrels (Pressure) $ 160
Tank B-1 25,000 Gallons (Pressure) $ 85
2 Mole Sieve Vessels $ 300
------
Per Month $ 25,000
======
Other services to be provided and covered by the Lease payments
include:
(1) Equipment will be picked up and returned to SHRCO yard on Highway
418. Maintenance will be scheduled around operating requirements
where possible.
<PAGE> 11
VEHICLE AND EQUIPMENT LEASE PAGE 2
SCHEDULE "A"
(2) Painting and lettering allowance of $3300.00 annually in total is included
in the above figures. Any excess will be charged SHRCO.
(3) License and Taxes allowance of:
(a) $2005.00 each annually for tractors
(b) $420.00 each annually for 307 trailers
(c) $600.00 each annually for LPG trailers
License and Taxes allowance is included in the above charges. Amounts
in excess shall be charged SHRCO.
(4) None of the above vehicles are subject to any other lease, memo, or
agreement which has been filed with the Department of Public Safety.
(5) The above vehicles are for the transportation of petroleum products.
<PAGE> 1
EXHIBIT 10(j)
[ARABIAN SHIELD DEVELOPMENT COMPANY LETTERHEAD]
May 3, 1991
His Excellency Sheikh Kamal Adham
Jeddah - Saudi Arabia
This letter is to acknowledge receipt from your Excellency of a loan amounting
to US 250,000 subject to and in accordance with the following conditions:
Amount :USD 250,000 (Two Houndred Fifty Thousand Dollars)
Interest :Libor plus 3% per annum, to be added to the principal at
the end of each month to make integral part of it.
Maturity date :31/12/1991 or the date of the payment to us by the National
Mining Company Limited to any amount due under the
Agreement dated 6 Jumada 2nd 1391 H. corresponding to 29
July, 1971 between General Petroleum and Mineral
Organization (Petromin) and the National Mining Company
Limited and Arabian Shield Development Company, Whichever
is the earliest.
This loan shall also mature at the date of any loan granted
in the meantime to us by the National Mining Company or by
its shareholders.
Place of Payment :SAUDI AMERICAN BANK
(Jeddah Branch), Jeddah, Saudi Arabia
ARABIAN SHIELD DEVELOPMENT COMPANY
ACCT: NO. 5401623
Late Payment :Should the amount due (principal and interest) not be paid
when due, it shall thereafter bear interest at the rate of
Libor plus 5% per annum until full payment and discharge.
In accordance with the above mentioned conditions, we hereby
undertake to pay you the amount of the loan plus all accrued
interest at the maturity date set herein.
Sincerely, ARABIAN SHIELD DEVELOPMENT COMPANY
/s/ HATEM EL-KHALIDI
By: Hatem El-Khalidi, President
<PAGE> 2
ARABIAN SHIELD DEVELOPMENT COMPANY
CERTIFICATE OF SECRETARY
I, Drew Wilson, Secretary of Arabian Shield Development Company do hereby
certify as follows:
At a meeting of the Board of Directors, duly and legally held on May 3, 1991, at
which a quorum was present and voting throughout, the following Resolution was
adopted:
RESOLVED, that the Board of Directors hereby approves of a loan of
$250,000.00 from Sheikh Kamal Adham, Vice-Chairman of National Mining
Company Limited, under the terms and conditions as outlined in the attached
letter agreement. Mr. Hatem El-Khalidi is hereby authorized to sign the
letter agreement as President of the Company.
In witness hereof, I hereunto set my hand this 3rd day of May, 1991,
/s/ DREW WILSON
----------------------
Drew Wilson, Secretary
<PAGE> 1
EXHIBIT 10(k)
PROMISSORY NOTE
$126,000.00 Dallas, Texas February 17, 1994
FOR VALUE RECEIVED, the undersigned HATEM EL-KHALIDI ("Maker"), promises
to pay to the order of ARABIAN SHIELD DEVELOPMENT COMPANY, a Delaware
corporation (the "Company"), in the City of Dallas, Dallas County, Texas, the
sum of One Hundred Twenty Six Thousand Dollars ($126,000.00) in legal and lawful
money of the United States of America, together with interest on the unpaid
principal balance at the rate of six percent (6%) per annum from the date hereof
until paid. Principal and accrued interest on this Note shall be due and payable
in one installment on December 31, 1995.
Upon default in the punctual payment of this Note, the entire unpaid
principal balance and accrued interest may, at the option of the holder hereof,
be accelerated and matured and become immediately due and payable.
The unpaid principal balance of this Note may be prepaid at any time in
whole, or from time to time in part, without premium or penalty, provided that
all accrued interest on the principal amount so prepaid is likewise paid.
Each maker, surety, guarantor and endorser of this Note waives all
notices of dishonor, demands for payment, presentments for payment, notices of
intention to accelerate maturity, protests and notices of protest with respect
to this Note and each, every and all installments hereunder and agrees to all
renewals, extensions or partial payments hereof, with or without notice and
before or after maturity.
If this Note be placed in the hands of an attorney for collection or be
collected through probate, bankruptcy or other judicial proceedings, the holder
hereof shall be entitled to reasonable attorney's fees for collection.
This Note is given in replacement of, and substitution for, two
Promissory Notes dated January 28, 1987 in the principal amounts of $99,000.00
and $27,000.00 payable by Maker to the order of the Company.
In order to secure payment of this Note and all sums that may become due
hereunder, Maker hereby grants to the Company a security interest in the 57,000
shares of the Common Stock, $.10 par value, of the Company for which, in
connection which Maker's purchase of such shares from the Company, Maker
delivered the Original Promissory Note as part of the purchase price.
/s/ HATEM EL-KHALIDI
-------------------------
HATEM EL-KHALIDI
<PAGE> 1
EXHIBIT 10(L)
ARABIAN SHIELD DEVELOPMENT COMPANY
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175
DALLAS, TEXAS 75231
(214) 692-7872
15 August, 1995
Mr. Hatem El-Khalidi
P. O. Box 1516
Jeddah 21441
Saudi Arabia
Dear Mr. El-Khalidi:
This letter serves as the agreement for you to loan Arabian Shield
Development Company, US $53,000 (fifty three thousand). This loan will carry a
libor + 2% interest. In addition, you have the option to transform this loan,
plus all accumulated interest, at any time, within five years from the date of
payment of the above sum to the Company, to shares of this Company's unissued
common stock at the price of one US dollar (US $1.00) per share, that is a
total of 53,000 shares.
The period of the loan, otherwise, is for two years from the date of
its payment to the Company, and will be repaid to you on demand, with all
accumulated interest after that period.
The Company's account number is as follows:
Arabian Shield Development Company
US dollar account no: 5401623
Saudi American Bank, Jeddah Branch
Jeddah, Saudi Arabia
Very truly yours,
Hatem El-Khalidi, President
Agreed to:
By: /s/ HATEM EL-KHALIDI
_______________________________
Date: August 15, 1995
_____________________________
<PAGE> 1
ARABIAN SHIELD DEVELOPMENT COMPANY
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175
DALLAS, TEXAS 75231
(214) 692-7872
24 August, 1995
His Excellency Sheikh Kamal Adham
Your Excellency:
In accordance with instructions of HRH Prince Talal Ben Abdulaziz to
me on 10 July, 1995, who approved my proposal for raising the funds urgently
needed now for working capital from the biggest concerned shareholders of the
company, as presented to His Highness in my letter to him of 7 July, 1995
(attached here), it is requested that you deposit in the company's account
$123,000 (one hundred twenty three thousand). This amount is a loan from you
to the company, and will carry a libor + 2% interest. You have the option to
transform this loan, and all accumulated interest, at any time within five
years from now, to shares of this company's common stock at one dollar ($1) per
share.
If funds are raised form the private placement of one million shares,
as is anticipated shortly, you will be repaid the above loan in full plus all
accumulated interest, immediately upon receipt of those funds. However, your
option to purchase 123,000 shares of the company's common stock during the next
five years will remain in force.
The period of the loan, otherwise, is for two years from now, and will
be paid to you on demand, with all accumulated interest after that period.
The company's account numbers are as follows:
Arabian Shield Development Company
Saudi American Bank, Jeddah Branch
Jeddah, Saudi Arabia
$ account no: 5401623
S.R. account no.: 4400135
Very truly yours,
Hatem El-Khalidi, President
Agreed to:
By: ___________________
Date:__________________
P.S. I have already deposited my share of $53,000 in the company's account in
Jeddah.
<PAGE> 1
ARABIAN SHIELD DEVELOPMENT COMPANY
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175
DALLAS, TEXAS 75231
(214) 692-7872
23 October, 1995
Sheikh Fahad Al-Athel
Dear Sheikh Fahad:
In accordance with instructions of HRH Price Talal Ben Abdulaziz to me
on 10 July, 1995 who approved my proposal for raising the funds urgently needed
now for working capital from the biggest concerned shareholders of the company,
as presented to His Highness in my letter to him on 7 July, 1995 (attached
here), it is requested that you deposit in the company's account $245,000 (two
hundred forty-five thousand). This amount is a loan from you to the company,
and will carry a libor + 2% interest. You have the option to transform this
loan, and all accumulated interest, at any time within five years from now, to
shares of this company's common stock at one dollar ($1) per share.
If funds are raised from the private placement of one million shares,
as is anticipated shortly, you will be repaid the above loan in full plus all
accumulated interest, immediately upon receipt of those funds. However, your
option to purchase 245,000 shares of the company's common stock during the next
five years will remain in force.
The period of the loan, otherwise, is for two years from now, and will
be paid to you on demand, with all accumulated interest after that period.
The company's account numbers are as follows:
Arabian Shield Development Company
Saudi American Bank, Jeddah Branch
Jeddah, Saudi Arabia
$ account no: 5401623
S.R. account no: 4400135
Very truly yours,
Hatem El-Khalidi, President
Agreed to:
By: /s/ SHEIKH FAHAD AL-ATHEL
-------------------------
Date: 10/25/95
-----------------------
P.S. I have already deposited my share of $53,000 in the company's account in
Jeddah.
<PAGE> 1
EXHIBIT 10.(p)
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, dated as of the 25th day of January 2000,
between Spechem, S.A. de. C.V. (referred to as the "Seller") and Texas Oil &
Chemical Co. II, Inc. (the "Purchaser").
RECITALS
A. Seller owns of record and beneficially 45,950,278 Shares with
a par value of $ One Peso, each, fully subscribed and paid for
of the issued and outstanding shares of common stock of
Productos Quimicos Coin, S.A. de. C.V. (the "Company").
B. The Purchaser desires to acquire from the Seller all of the
Shares referred to in recital A., above, which represent
approximately ninety two percent (92%) of the outstanding
capital stock of the Company, and the Seller desires to sell
and transfer such shares to the Purchaser, all upon the terms
and conditions hereinafter set forth.
To accomplish such purposes and in consideration of the Recitals and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" of a person or entity shall mean a person or entity controlling,
controlled by or under common control with such person or entity.
"AGREEMENT" shall mean this Stock Purchase Agreement, including all Exhibits
attached hereto.
"AUDITED FINANCIAL STATEMENTS" shall mean the audited financial statements of
the Company as at and for the fiscal year ended December 31, 1998, consisting of
a balance sheet, a statement of income and retained earnings and a statement of
changes in financial position together with the notes thereto and the opinion of
the Company's auditors thereon, a copy of which is attached hereto as Exhibit
"1".
"BENEFIT PLAN" shall have the meaning set forth in Section 4.39.2 hereof.
"BUSINESS" shall have the meaning set forth in Section 8.1.1 hereof.
"CLAIM" shall have the meaning set forth in Section 10.2 hereof.
"CLOSING" shall mean the consummation of the transactions contemplated by this
Agreement.
"CLOSING DATE" shall mean the date when all of the conditions set forth in
Section 3.3 hereof are met or completed, provided that, unless the parties
hereto otherwise agree, shall not be later than January 30, 2000.
1
<PAGE> 2
"CLOSING FINANCIAL STATEMENTS" means the non audited Financial Statements of
Corporation consisting of a balance sheet, statements of income and retained
earnings and the statement of change in financial position together with the
notes thereto as of October 31, 1999.
"COMPANY" shall mean Productos Quimicos Coin, S.A. de. C.V.
"ENVIRONMENTAL LAWS" shall mean all applicable federal, state, and municipal
laws, regulations and orders, rules, mandatory Mexican Standards ("Normas
Oficiales Mexicanas"), codes, licenses and permits issued by any governmental or
regulatory agency, court, administrative agency, or commission relating to the
environment.
"ESCROW AGREEMENT" shall mean the escrow agreement attached hereto as Exhibit
"2".
"DOLLARS" shall mean the lawful currency of the United States of America.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean the accounting principles
so described and promulgated by the Mexican Institute of Public Accountants
("Instituto Mexicano de Contadores Publicos, A.C."), Mexican GAAP as in effect
as of the issue date, which are applicable on the date as of which any
calculation made hereunder is to be effective or as at the date of any financial
statements referred to herein, as the case may be.
"GOVERNMENTAL CHARGES" means and includes all taxes, customs duties, rates,
levies, assessments, reassessments and other charges (including any and all
social security contributions and retirement fund contributions), together with
all penalties, interest and fines with respect thereto, payable to any federal,
state, municipal or other government or governmental agency, authority, board,
bureau or commission.
"HAZARDOUS MATERIALS" shall mean any material or substance that has been
designated by any governmental entity or applicable federal, state or municipal
law to be radioactive, toxic, hazardous, carcinogenic, mutagenic, or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde, trichloroethylene, other aromatic and/or
halogenated hydrocarbons, pesticides, defoliants, lead, chromium, radon gas or
other radioactive substances, and all substances listed as Hazardous Materials
pursuant to any applicable Law.
"INDEMNIFIED PARTY" shall mean the party or parties entitled to indemnity under
Article X hereof.
"INDEMNIFYING PARTY" shall mean the party or parties obligated to indemnify the
Indemnified Party under Article X hereof.
"LAWS" shall mean all federal, state and municipal laws, regulations, orders or
decrees as well as all other administrative mandatory provisions of Mexico
issued by the governmental authorities of Mexico, regardless of their
description.
"LIEN" shall mean any and all liens, mortgages, pledges, conditional sale
agreements, security interests, restrictions, claims, options, encumbrances, or
rights of third parties of every kind and nature.
2
<PAGE> 3
"LICENSES" means all of the governmental licenses, certificates, registrations
and qualifications to do business (including operating its assets and
distributing its products) held by the Company.
"LOSSES" shall have the meaning set forth in Section 10.1.2 hereof
"PURCHASE PRICE" shall mean the sum of $2,475,000 Dollars;
"Purchaser" shall mean Texas Oil & Chemical Co. II, Inc..
"RELEASE" means any spill, leak, emission, discharge, abandonment, migration,
incineration, leach, dumping, emission, escape or other disposal
"SELLER" shall mean Spechem, S.A. de. C.V., a commercial company incorporated
under the laws of Mexico.
"SELLER SHARES" shall mean the shares described in Recital A., which represent
ninety-two (92%) percent of the issued and outstanding shares of capital stock
of Company.
ARTICLE II
PURCHASE AND SALE OF SELLER SHARES
2.1. PURCHASE AND SALE. Upon the terms and subject to the conditions set
forth in this Agreement, the Seller hereby sells, assigns, conveys,
transfers and delivers, free of any Liens, encumbrances, charges or
limitations of domain the Seller Shares to the Purchaser, and Purchaser
agrees to purchase the Seller Shares, in consideration of the payment by
the Purchaser to the Seller of the Purchase Price in accordance with the
provisions of Section 2.2.
2.2. PAYMENT OF PURCHASE PRICE. The Purchase Price of Seller Shares payable
by the Purchaser shall be comprised as follows:
(a) The Purchaser pays on the date hereof
$2,250,000.00/100 Dollars, in the aggregate, by
certified check or banker draft payable at par in a
Mexican Bank to or to the order of the Seller.
(b) Seller pays a portion of the Purchase Price, in the
amount of $225,000, by delivery to the Escrow Agent
of a check, to the order of Seller, to be kept in
deposit and to be held and released in accordance
with the terms of the Escrow Agreement annexed hereto
as Exhibit "2".
2.3. EXPENSES.
2.3.1. Seller and Purchaser shall each directly pay their own expenses
(including, without limitation, attorneys' and accountants' fees and
disbursements) incident to this Agreement and the transactions contemplated
hereby. With respect to any litigation relating to this Agreement, the
parties that substantially prevail in such litigation shall have their
costs and expenses (including reasonable attorneys' fees) reimbursed by the
parties who do not so prevail.
3
<PAGE> 4
2.3.2. Seller shall be solely responsible for any sales, use, transfer or
other similar taxes imposed in respect of the sale of the Seller Shares and
on any amounts payable to Spechem under paragraph 2.2. (c) hereof.
2.4. BROKERAGE. Company, Seller and the Purchaser each represents and
warrants that it has not directly or indirectly engaged any broker, finder,
agent or intermediary of any kind to bring about the transactions
contemplated by this Agreement, and that no person or entity is entitled to
any brokerage commission, finder's fee, agent's commission or other similar
compensation in connection with the transactions contemplated by this
Agreement. Each party agrees to indemnify the other against any claims for
any such commissions, fees or similar compensation by any person or entity
claiming to have been retained by such party or any Affiliate thereof.
2.5. INTER-COMPANY OBLIGATIONS. Except as otherwise provided herein, there
are no liabilities of the Company owing to the Seller or any of its
Affiliates or liabilities of the Seller or its Affiliates to the Company as
of the Closing Date.
ARTICLE III
CLOSING AND PLACE OF CLOSING;
CERTAIN TRANSACTIONS TO BE EFFECTED
AT OR PRIOR TO CLOSING
3.1. PLACE OF CLOSING. The Closing shall take place at the offices of
Haynes and Boone, S.C., in Mexico City, or at such other place as the
Seller and the Purchaser may mutually agree upon.
3.2. COOPERATION. At or before the Closing Date, the Seller shall execute,
or cause to be executed, and shall deliver, or cause to be delivered, to
the Purchaser all documents, instruments and things which are to be
delivered by the Seller pursuant to the provisions of this Agreement, and
the Purchaser shall execute, or cause to be executed, and shall deliver, or
cause to be delivered, to the Seller all checks or bank drafts and all
documents, instruments and things which the Purchaser is to deliver or to
cause to be delivered pursuant to the provisions of this Agreement.
3.3. CERTAIN TRANSACTIONS TO BE EFFECTED AT OR PRIOR TO CLOSING. Subject in
each case to the terms and conditions contained in this Agreement, the
following steps shall be taken concurrently at the Closing, except as
otherwise expressly stated:
3.3.1 The Seller shall deliver, or cause to be delivered, to the Purchaser
the following:
(a) Stock certificates representing the Seller Shares,
duly endorsed in favor of Purchaser or its
nominee(s).
(b) The legal opinion mentioned in Section 6.5;
(c) Corporate resolutions duly adopted by the Board of
Directors of the Seller or evidence of any actions
required for Seller for the execution and delivery by
the
4
<PAGE> 5
Seller of this Agreement and the performance by the
Seller of the transactions contemplated hereby, duly
certified by the Secretary or an Assistant Secretary
of the Seller, and an incumbency certificate,
certifying the names and true signatures of the
officers of the Seller authorized to execute and
deliver this Agreement.
(d) Evidence of a shareholders meeting of the Company
wherein, effective as of the date hereof, the
resignation of the directors, officers and statutory
examiner (Comisario) of the Company has been accepted
and appointing the officers, directors, and statutory
examiner (Comisario) so requested by Purchaser.
(e) All corporate minutes, stock and accounting books and
records of the Company, with entries reflecting the
current capital stock distribution of the Company and
an entry, signed by the Secretary of the Board of
Directors of the Company reflecting the transfer of
the Seller Shares as herein contemplated.
(f) Original sets of the Articles of Incorporation and
Bylaws of the Company and any amendments thereto.
(g) A copy of the accounting records for the last fiscal
year of the Company as performed in accordance with
the Federal Fiscal Code.
(h) A certificate signed by Seller stating that all
consents required to be obtained in order to carry
out the transactions contemplated hereby in
compliance with all Laws and agreements binding on
the parties hereto shall have been obtained and a
copy of any such consents.
(i) The compliance certificate required pursuant to
Section 6.3 hereof.
3.3.2. The Purchaser shall deliver, or cause to be delivered, to the
Seller the following:
(a) The payments to be made as set forth in Section 2.2.,
hereof.
(b) Corporate resolutions duly adopted by the Board of
Directors of the Purchaser authorizing the execution
and delivery by the Purchaser of the Agreement and
the performance by the Purchaser of the transactions
contemplated hereby, duly certified by the Secretary
or an Assistant Secretary of the Purchaser, and an
incumbency certificate, certifying the names and true
signatures of the officers of the Purchaser
authorized to execute and deliver this Agreement and
the Purchasers Transaction Documents;
(c) A copy of the Certificate of Incorporation of
Purchaser, certified by the Secretary of State of the
State of Texas;
(d) A copy of the Bylaws of the Purchaser, certified by a
duly authorized officer of the Purchaser to be true,
correct and complete as of the date hereof;
5
<PAGE> 6
(e) A certificate of corporate existence for the
Purchaser issued by the Secretary of the State of
Texas;
(f) The compliance certificate required pursuant to
Section 7.3 hereof;
ARTICLE IV
REPRESENTATION AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows and acknowledges
that the Purchaser is relying on such representations and warranties in
connection with the transactions contemplated by this Agreement:
4.1. DUE ORGANIZATION AND AUTHORITY. Seller is a company duly organized,
validly existing and in good standing under the laws of Mexico, and has
full corporate power and authority to own, lease and operate its
properties and assets, to carry on its business as now conducted and
has good right, full power (corporate or other) and absolute authority,
as the case may be, to enter into this Agreement and to sell, assign
and transfer the Seller Shares to the Purchaser in the manner
contemplated herein and to perform all of its obligations under this
Agreement.
4.2. AGREEMENT AUTHORIZED; BINDING AND ENFORCEABLE. The execution, delivery
and performance of this Agreement by the Seller have been duly
authorized by all required corporate action on the part of the Seller.
This Agreement contains legal, valid and binding obligations of Seller
enforceable against Seller in accordance with its terms.
4.3. TITLE TO SHARES. Seller is the sole record and beneficial owner of the
Seller Shares. All of the Seller Shares are owned free and clear of
Liens or encumbrances and limitations of domain and are not subject to
any proxies, contracts, calls or other commitments.
4.4. NO CONFLICT. The execution, delivery and performance by the Seller of
this Agreement does not conflict with, constitute or result in a breach
of or a default under, or result in the creation of any Lien upon the
Seller Shares under
(a) the Articles of Incorporation or Bylaws of the
Seller, or
(b) any contract, indenture or other instrument or
agreement to which the Seller or the Company are
parties or by which any of the Seller Shares may be
affected, or
(c) any statute, ordinance, judgment, order, decree or
regulation of any court or governmental body
affecting or relating to the Seller, the Company or
the Seller Shares.
4.5. NO REQUIRED CONSENTS. No consent of, waiver from or notice to any
person is required in order for the Seller to execute, deliver and
perform their obligations under this Agreement or to consummate the
transactions contemplated hereby.
6
<PAGE> 7
4.6. CONTRACTUAL AND REGULATORY APPROVALS. Neither the Company nor the
Seller is under any obligation, contractual or otherwise, to request or
obtain the consent of any person, and no permits, licenses,
certifications, authorizations or approvals of, or notifications to,
any federal, state, or municipal government or governmental agency,
board, commission or authority are required to be obtained by the
Company or the Seller:
(a) in connection with the execution, delivery or
performance by the Seller of this Agreement or the
completion of any of the transactions contemplated
herein;
(b) to avoid the loss of any permit, license,
certification or other authorization of the Company;
or
(c) in order that the authority of the Company to carry
on its business activities in the ordinary course and
in the same manner as presently conducted remains in
good standing and in full force and effect as of and
following the Closing Date.
4.7. CAPITALIZATION. The entire authorized capital stock of the Company
consists of 49,945,955 issued and outstanding shares of common stock,
with a par value of $ One Peso per share, of which 45,950,278 shares
are owned of record and beneficially by Seller. The Seller Shares have
been duly authorized and are validly issued, fully paid and
non-assessable, with no liability attaching to the ownership thereof.
There are no authorized, outstanding or existing
(a) voting trusts or other agreements or understandings
with respect to the voting of the Company's capital
stock or securities convertible into or exchangeable
for such stock;
(b) options, warrants or other rights (including, without
limitation, preemptive rights) to purchase or
subscribe for any of the Company's capital stock, any
authorized by un-issued shares of the Company's
capital stock or any securities convertible into or
exchangeable for such shares;
(c) agreements of any kind relating to the issuance of
capital stock of either of the Company, any such
convertible or exchangeable securities or any such
options, warrants or rights; or
(d) agreements of any kind which may obligate the Company
to issue or purchase any of their respective
securities.
4.8. NO OTHER PURCHASE AGREEMENTS. No person has or will have on the Closing
Date any agreement, option, understanding or commitment, or any right
or privilege (whether by law, preemptive or contractual) capable of
becoming an agreement, option or commitment, including convertible
securities, warrants or convertible obligations of any nature, for:
7
<PAGE> 8
(a) The purchase, subscription, allotment or issuance of,
or conversion into, Shares in the capital of the
Company or any securities of the Company.
(b) The purchase from the Seller of any of the Seller
Shares.
(c) The purchase or other acquisition from the Company of
any of its undertaking, property or assets, other
than in the ordinary course of business; non of which
is materially adverse to the Company.
4.9. STATUS, CONSTITUENT DOCUMENTS AND LICENSES.
4.9.1. The Company is duly incorporated and validly existing under the laws of
Mexico. The Company has all necessary corporate power to own its
properties and to carry on its business as it is now being conducted.
4.9.2. The by-laws and other constituent documents of the Company, as amended
to the date hereof, are attached as Exhibit "3".
4.9.3. The Company is duly licensed, registered and qualified as a Company to
do business and is in good standing in all material respects in each
the jurisdiction in which:
(a) it owns or leases property; or
(b) the nature or conduct of its business or any part
thereof, or the nature of its property or any part
thereof, makes such qualification necessary to enable
its business activities to be carried on as now
conducted or to enable its property and assets to be
owned, leased and operated by it.
4.9.4. The Company is in compliance with all terms and conditions of the
Licenses. There are no proceedings in progress, pending or threatened,
which could result in the revocation, cancellation or suspension of any
of the Licenses. The Licenses, which the Company holds, are listed in
Exhibit "4".
4.10. COMPLIANCE WITH CONSTITUENT DOCUMENTS, AGREEMENTS AND LAWS. The
execution, delivery and performance of this Agreement and each of the
other agreements and instruments contemplated herein by the Seller and
the Company, and the completion of the transactions contemplated hereby
and thereby, will not constitute or result in a violation or breach of
or default under, or cause the acceleration of any obligations of the
Company under:
a. any term or provision of its articles, by-laws or other
constituent documents;
b. subject to obtaining the contractual consents referred to in
Exhibit "5", the terms of any agreement (written or oral),
indenture, instrument or understanding or other obligation or
restriction to which the Company, or the Seller is a party or
by which any of them is bound; or
8
<PAGE> 9
c. any term or provision of any of the Licenses or any order of
any court, governmental authority or regulatory body or any
Laws.
4.11. CORPORATE RECORDS. The corporate records and minute books of the
Company contain complete and accurate minute, of all meetings of the
Board of Directors ("Consejo de Administracion") and shareholders of
the Company, and original signed copies of all resolutions duly passed
or adopted by the directors or shareholders of the Company. The Stock
Ledger Book, the Capital Variations Book, the Stockholders Minute Book
and the Board Minute Book and any similar corporate records of the
Company are, in all material respects, complete and accurate.
4.12. DIRECTORS. The current directors, officers and senior management of the
Company are listed in Exhibit "6" hereto.
4.13. FINANCIAL STATEMENTS. The Audited Financial Statements and the Closing
Financial Statements have been prepared in accordance with Generally
Accepted Accounting Principles, applied on a basis consistent with
that of the previous fiscal years. The Audited Financial Statements
and the Closing Financial Statements are true, correct and complete,
and fairly present or will present the financial condition of the
Company as of their respective dates, respectively, including the
assets and liabilities of the Company as of such dates and the
revenues, expenses and results of the operations of the Company for
the fiscal year/interim period ended on their respective dates.
FINANCIAL RECORDS. All financial transactions of the Company have been recorded
in the financial books and records of the Company in accordance with good
business practice, and such financial books and records:
(a) accurately reflect the basis for the financial condition and
the revenues, expenses and results of operations of the
Company shown in the Audited Financial Statements and the
Closing Financial Statements; and
(b) present fairly the financial condition and the revenues,
expenses and results of the operations of the Company as of
and to the dates thereof.
4.14. LIABILITIES OF THE COMPANY. There are no liabilities (contingent or
otherwise) of the Company of any kind whatsoever, and, to the best of
the knowledge of the Seller, there is no basis for assertion against
the Company of any liabilities of any kind, other than:
(a) liabilities disclosed or reflected in or provided for in the
Audited Financial Statements and liabilities disclosed or
reflected in or provided for in the Closing Financial
Statements;
(b) liabilities incurred since the date of Audited Financial
Statements which were incurred in the ordinary course of
business and, in the aggregate, are not materially adverse to
the Business; and
(c) other liabilities expressly disclosed in this Agreement or in
the Exhibits attached hereto.
9
<PAGE> 10
4.15. INDEBTEDNESS. Except as noted in the Audited Financial Statements or
the Closing Financial Statements, the Company has no outstanding bonds,
debentures, mortgages, promissory notes or other indebtedness except
trade and business accounts payable incurred in the ordinary course of
business, and is not under any obligation to create or issue any bonds,
debentures, mortgages, promissory notes or other indebtedness except
trade and business accounts payable incurred in the ordinary course of
business, none of which is or will be adverse to the Company.
4.16. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Audited Financial
Statements Date, the Company has not:
(a) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the
ordinary course of business;
(b) paid or satisfied any obligation or liability (fixed or
contingent), except:
(i) current liabilities included in the Audited Financial
Statements,
(ii) Exhibited payments pursuant to obligations under loan
agreements or other contracts or commitments
described in this Agreement or in the Exhibits
hereto;
(c) created any Lien upon any of its properties or assets, except
as described in this Agreement or in the Exhibits hereto;
(d) sold, assigned, transferred, leased or otherwise disposed of
any of its properties or assets, except in the ordinary course
of business, except as described in this Agreement or in the
Exhibits hereto;
(e) purchased, leased or otherwise acquired any properties or
assets, except in the ordinary course of business;
(f) waived, canceled or written-off any rights, claims, accounts
receivable or any amounts payable to the Company, except in
the ordinary course of business and for which adequate
reserves have been made;
(g) entered into any transaction, contract, agreement or
commitment, except in the ordinary course of business and
except as described in this Agreement or the Exhibits hereto;
(h) terminated, discontinued, closed or disposed of any plant,
facility or business operation; or
(i) agreed to any of the foregoing.
And none of such payments or transactions described in this Section 4.17 is,
individually or in the aggregate, materially adverse to the Company.
10
<PAGE> 11
4.17. COMMITMENTS FOR CAPITAL EXPENDITURES. The Company is not committed to
make any capital expenditures, nor have any capital expenditures been
authorized by the Company at any time, except for capital expenditures
made in the ordinary course of business.
4.18. DIVIDENDS AND DISTRIBUTIONS. Since its incorporation the Company has
not declared or paid any dividend or made any other distribution on any
of its Shares of any class, or redeemed or purchased or otherwise
acquired any of its Shares of any class, or reduced its authorized
capital or issued capital, or agreed to do any of the foregoing.
4.19. TAX MATTERS.
4.19.1. The Company has duly and on a timely basis prepared and filed all tax
returns and other documents required to be filed by it in respect of
all Governmental Charges, and such returns and documents are complete
and correct and reflect accurately all liability for Governmental
Charges of the Company for the periods covered thereby.
4.19.2. The Company has paid on a timely basis all Governmental Charges which
are due and payable by it on or before the date hereof. Adequate
provision was made in the Audited Financial Statements for all
Governmental Charges accrued to October 31, 1999 and adequate provision
will be made for all Governmental Charges accrued to the date hereof;
respectively, including, without limitation, the provisions for current
and deferred taxes and any additional provision or reserve in respect
of potential reassessments. The Company has no liability for
Governmental Charges other than those provided for in the Audited
Financial Statements and in the Closing Financial Statements.
4.19.3. There are no actions, suits, proceedings, investigations, inquiries or
claims now pending or made or, to the best of the knowledge of the
Seller, threatened against the Company in respect of Governmental
Charges, except as set forth in Exhibit "7".
4.19.4. The Company has withheld from each amount paid or credited to any
person the amount of Governmental Charges required to be withheld
therefrom and has remitted such Governmental Charges to the proper tax
or other receiving authorities within the time required under
applicable legislation.
4.20. LITIGATION. Except for the matters referred to in Exhibit "8", there
are no Claims pending or threatened, by or against or affecting the
Company before or by any court or any federal, state, or local or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except for the matters referred
to in Exhibit "8", there are no other matters on which any such Claim
might be commenced. Any pending or threatened Claims against the
Company or in respect of any of its properties or rights if decided
adversely to the Company would not individually or in the aggregate
have a material adverse effect on its business activities as
carried out as of the date hereof
11
<PAGE> 12
4.21. ENVIRONMENTAL MATTERS.
4.21.1. ENVIRONMENTAL LAWS. The Company, the operation of its business
activities, the property and assets owned, leased, occupied or
otherwise used by the Company and the use, maintenance and operation
thereof have been carried out without knowingly violating the
Environmental Laws. The Company has complied to the best of its
knowledge, in all material respects, with all reporting and monitoring
requirements under all Environmental Laws.
4.21.2. PERMITS, ETC. The Company has obtained such permits, certificates,
approvals, registrations and licenses as it has deemed necessary to
conduct the Business and to own, use and operate the properties and
assets of the Company in compliance, to the best of its knowledge, with
all Environmental Laws.
4.21.3. HAZARDOUS MATERIALS, RELEASES. There are no Hazardous Materials located
on or in any of the properties or assets owned, leased, occupied or
otherwise used by the Company knowingly in violation of Environmental
Laws, and no willful Release of any Hazardous Materials or in violation
of any Environmental Laws has occurred on or from the properties and
assets of the Company or has resulted from the operation of the
Business of the Company. The Company has not used any of its properties
or assets to produce, generate, store, handle, transport or dispose of
any Hazardous Materials in violation, to the best of its knowledge, of
the Environmental Laws and none of the real properties or leased
premises has been or is being used as a landfill or waste disposal
site.
4.21.4. STORAGE TANKS. There are no underground or surface storage tanks
located on or in any of the properties or assets owned, leased,
occupied or otherwise used by the Company in breach of the
Environmental Laws. The Company has no knowledge of any basis upon
which the Company could become, responsible for any clean-up or
corrective action under any Environmental Laws.
4.21.5. NOTICES, ETC. Except as disclosed in Section 4.21, the Company has not
received any notice or claim (and to the best of the knowledge of the
Seller there is no basis for such notice or claim) to the effect that
any of them or the operations of its business activities are or have
ever been:
(a) not in full compliance with all applicable
environmental permits, certificates, approvals,
registrations and licenses and Environmental Laws;
(b) the subject of any outstanding written order or
agreement with any governmental authority or private
party respecting any Environmental Laws, any remedial
actions or a Release or threatened Release, or
(c) the subject of any administrative or judicial
proceeding, civil or criminal, alleging the violation
of any Environmental Laws or any environmental
permit, certificate, approval, registration or
license or of any action or investigation by any
governmental authority as to whether any remedial
action is needed to respond to a Release or
threatened Release under any applicable Environmental
Laws.
12
<PAGE> 13
4.22. TITLE TO ASSETS. The Company is the owner of and has good and
marketable title to all of its properties and assets, including,
without limitation, all properties and assets that are reflected in the
Audited Financial Statements and all properties and assets acquired by
the Company are free and clear of all Liens whatsoever, except for:
(a) the properties and assets disposed of, utilized or consumed by
the Company in the ordinary course of business;
(b) the Liens disclosed in Exhibit "9" or reflected in the Audited
Financial Statements;
4.22.1. There are no agreements or commitments to purchase property or assets
by the Company other than in the ordinary course of business.
4.23. DEPOSIT ACCOUNTS AND SAFE DEPOSIT BOXES OF THE COMPANY. The name and
address of each bank, trust company or similar institution with which
the Company has one or more accounts or one or more safe deposit boxes,
the number of each such account and safe deposit box and the names of
all persons authorized to draw thereon or to have access thereto are as
set forth in Exhibit "10".
4.24. ACCOUNTS RECEIVABLE. The accounts receivable of any kind of the Company
are reflected in the Audited Financial Statements and all accounts
receivable of the Company arising arose from bona fide transactions in
the ordinary course of business and are valid, enforceable and fully
collectible accounts.
4.25. INVENTORY. The current inventory of the Company (including but not
limited to (a) all finished goods, work in progress and packing and
shipping supplies; and (b) all new and unused maintenance items and all
other materials and supplies on hand), subject to an allowance for
obsolete inventory (consistent with the basis of calculation of
allowances for obsolete inventory reflected in the Audited Financial
Statements), is good and usable and is capable of being processed and
sold in the ordinary course of business for the specific purpose for
which such inventory was intended to be used at levels sufficient (but
not excessive) for the continuation of the Business.
4.26. REAL PROPERTIES AND LEASED PREMISES.
(a) LISTS. Exhibit "11"lists all real properties and sets forth a
legal description thereof.
(b) TITLE. The Company is the beneficial and registered owner of,
and has good and marketable title to, the real properties,
free and clear of any and all Liens, except for those Liens
described in Exhibit "9".
(c) USE AND ENJOYMENT. The real properties and the leased premises
described in Exhibit "11" and all buildings and structures
located thereon and the conduct of business as presently
conducted do not violate, in any material respects, any Laws
including any zoning or building laws, by-laws, ordinances,
regulations, covenants or official plans. The use of the real
properties and leased premises in the manner in which they are
presently used is not materially adversely affected by any
such laws referred to in the preceding sentence. The Company
has not received any
13
<PAGE> 14
notification alleging any such violation except as set forth
in Exhibit "8" and there is no basis for the Company receiving
such notification. Such buildings and structures (or any
equipment thereon) do not encroach upon any lands not owned by
the Company. There are no encroachments from adjacent lands
unto the real properties. The Company has adequate rights to
ingress and egress to the nearest public street for the
operation of its business activities the ordinary course.
There are no expropriation, condemnation or similar
proceedings pending or threatened, with respect to any of the
real properties or the leased premises or any part thereof.
All public utilities required for the operation of its
business activities connect to the real properties and the
leased premises are through adjacent public streets or by way
of valid, registered easements.
(d) WORK ORDERS AND DEFICIENCIES. No alteration, repair,
improvement or other work has been ordered, directed or
requested in writing to be done or performed by the Company to
or in respect of the real properties, or the leased premises,
or to any of the building and fixtures, by any governmental
entity having jurisdiction, which alteration, repair,
improvement or other work has not been completed. There are no
matters under discussion with any such governmental entity
relating to work orders, non-compliance orders, deficiency
notices or other such notices and there are currently no facts
or circumstances which exist which could be the basis of any
such claim.
(e) CONSTRUCTION LIENS. All accounts for work and services
performed and materials placed or furnished upon or in respect
of any of the real properties or the leased premises at the
request of the Company have been fully paid and satisfied and
no one is entitled to claim a lien or mortgage under the
applicable construction lien legislation of such jurisdiction
in which the relevant property is situated, other than in
respect of accounts for which the payment due date has not yet
passed.
(f) UTILITY CHARGES. There is nothing owing in respect of any of
the real properties or the leased premises by the Company to
any municipality, nor to any other commission owning or
operating a public utility for water, gas, electrical power or
energy, steam or hot water, or for the use thereof; other than
current accounts in respect of which the payment due date has
not yet passed.
(g) MUNICIPAL CHARGES. Real estate and other civic taxes, general
and special, including those levied for the current year and
imposed on any of the real properties, or on the Company in
respect of the use of any of the leased premises, have been
paid to date, save and except in respect of any part thereof
the payment due date for which has not yet passed.
4.27. LEASED PREMISES. Exhibit "11" lists and includes a true and complete
copy of all lease agreements for real properties or other facilities
being used or occupied by the Company ("Leases"). The Company is
exclusively entitled to all rights and benefits as lessee under the
Leases and the Company has not sublet, assigned, licensed or otherwise
conveyed any rights in the leased premises or in the Leases to any
person. All rental and other payments and other material obligations
required to be paid and performed by the
14
<PAGE> 15
Company pursuant to the Leases have been duly paid or performed; the
Company is not in default of any of its material obligations under the
Leases and none of the landlords or other parties to the Leases are in
default of any of their obligations under the Leases. The terms and
conditions of the Leases will not be affected by, nor will any of the
Leases be in default as a result of, the completion of the transactions
contemplated hereunder. No event, occurrence, condition or act has
occurred or exists which, with the giving of notice, the lapse of time
or the happening of another event or condition, would become a material
default by the Company under the Leases.
4.28. LEASES OF PERSONAL PROPERTY. Except as set out in Exhibit "12", the
Company is not the lessee under any lease of personal property in
respect of which the annual financial obligation exceeds ($10,000
Dollars) and have an unexpired term of more than two years.
4.29. INTELLECTUAL PROPERTY/INDUSTRIAL PROPERTY RIGHTS. TITLE, USE AND
ENJOYMENT. The conduct of the business activities of the Company does
not infringe upon the patents, industrial designs, trade-marks,
trade-names, brand names, service marks, logos or copyrights, or the
trade secrets, know-how or confidential proprietary information of any
other person. Except as set out in Exhibit "8", the Company has not
received any notice, complaint, threat or claim alleging infringement
of, any patent, trade mark, trade name, copyright, industrial design,
trade secret or other Intellectual Property or proprietary right of any
other person and there are currently no facts or circumstances which
exist which could be the basis of any such claim.
4.29.1. SOFTWARE. The Company owns, or has valid rights to use the computer
software it uses in the manner in which such software is currently
being used by the Company and, none of the software used infringes any
intellectual properties of another person.
4.29.2. YEAR 2000. All software and hardware used by the Company or sold as
part of any product sold by the Company is Year 2000 compliant in that
it will provide the following functions:
(a) handle date information after January 1, 2000,
including accepting date input, providing date output
and performing calculations on dates or portions of
dates;
(b) function accurately and without interruption after
January 1, 2000, without any change in operations
associated with the advent of the new century;
(c) respond to two-digit year-date input in a way that
resolves the ambiguity as to century in a disclosed,
defined and predetermined manner; and
(d) store and provide output of date information in ways
that are unambiguous as to century and which account
for leap years.
4.30. RESTRICTIONS ON DOING BUSINESS. The Company is not a party to or bound
by any agreement which would restrict or limit its right to carry on
any business or activity or to
15
<PAGE> 16
solicit business from any person or in any geographical area or
otherwise to conduct its business as the Company may determine.
4.31. GUARANTEES, WARRANTIES AND DISCOUNTS. Except as described in the
Audited Financial Statements or as will be described in the Closing
Financial Statements, or as set out in Exhibit "9":
(a) the Company is not a party to or bound by any
agreement of guarantee, indemnification, assumption
or endorsement or any other like commitment of the
obligations, liabilities (contingent or otherwise) or
indebtedness of any person;
(b) the Company has not given any guarantee or warranty
in respect of any of the products sold or the
services provided by it, except warranties made in
the ordinary course of business, and
(c) the Company has established appropriate reserves in
respect of its warranty obligations and the Seller
are not aware of any latent defect or other product
defect with the products it has manufactured or sold
which could result in the Company incurring expenses
which exceed the reserves established for such
purposes.
4.32. GOOD STANDING OF AGREEMENTS.
(a) GOOD STANDING. The Company is not in any material
default or breach of any of its obligations under any
one or more contracts, agreements (written or oral),
commitments, indentures or other instruments to which
it is a party or by which it is bound and there
exists no state of facts which, after notice or lapse
of time or both, would constitute such a default or
breach. All such contracts, agreements, commitments,
indentures and other instruments are in good
standing, in all material respects, and in full force
and effect without amendment thereto, and the Company
is entitled to all benefits thereunder, except as set
forth in Exhibit "8".
(b) MATERIAL COVENANTS. All material covenants to be
performed by the other party thereto have been fully
performed.
(c) SALES AND LOSSES. The Company has no commitments or
agreements for the sale of products or assets at
prices or under conditions involving prospective
losses.
(d) LIST OF MATERIAL CONTRACTS. A list of the Material
Contracts to which the Company is a party is set out
in Exhibit "13". For the purposes of this Agreement,
"Material Contract" means any contract with a dollar
value equal (to or exceeding ($10,000 Dollars) or
with an unexpired term of one year of more.
16
<PAGE> 17
4.33. EMPLOYMENT AGREEMENTS.
(a) SENIOR MANAGEMENT. Set out in Exhibit "6" a list of
the General Manager ("Director General") and the
other Managers ("Directores y/o Gerentes") of the
Company, their salaries, date of hire by the Company,
any termination arrangements and a description of all
benefits to which such executives are entitled.
(b) Except as specified in Exhibit "14", the Company is
not a party to any written or oral employment,
service or consulting agreement relating to any one
or more persons, except for oral employment
agreements which are of indefinite term and without
any special arrangements or commitments with respect
to the continuation of employment or payment of any
particular amount on termination of employment.
(c) The Company has no employee who cannot be dismissed
on such period of notice as is required by law in
respect of a contract of hire for an indefinite term.
4.34. LABOR MATTERS AND EMPLOYMENT STANDARDS.
(a) COLLECTIVE AGREEMENTS. Except as specified in Exhibit
"14", the Company is not subject to any collective or
other agreement with any labor union or employee
association.
(b) COMPLIANCE WITH LAWS. The Company has complied in all
material respects, with all Laws relating to
employment, including those relating to wages, hours,
collective bargaining and representation,
occupational health and safety, workers' hazardous
materials, employment standards, pay equity,
unemployment compensation and workers' compensation.
(c) LIABILITIES TO EMPLOYEES. The Company is not and has
not engaged in any unfair labor practice. The Company
is not liable for any damages to any employee or
former employee resulting from the violation of any
applicable labor or employment Laws or agreement,
including the collective agreements, except to the
extent the Company may be liable under or as a result
of any of the grievances referred to in Exhibit "8".
(d) CLAIMS, COMPLAINTS, GRIEVANCES. Except as disclosed
in Exhibit "8", there are no outstanding claims or
complaints against the Company in respect of:
(i) wrongful dismissal;
(ii) breaches of employment contracts;
(iii) unpaid wages or benefits;
(iv) human rights complaints or inquiries;
(v) employment equity or labor standards
legislation;
17
<PAGE> 18
(vi) other complaints or grievances.
4.34.1. There are no minutes of settlement or decisions which contain or impose
outstanding obligations of the Company in respect of any such claims,
complaints or grievances.
4.35. STRIKES, ETC. There is no labor strike, slowdown or stoppage pending or
involving or threatened against the Company. There has not been any
labor strike, slowdown or stoppage involving the Company during the
past five years.
4.36. OCCUPATIONAL HEALTH AND SAFETY. There are no outstanding inspection
orders or employee claims against the Company under any occupational
health and safety legislation, or regulations thereto.
4.36.1. There are no outstanding directives or rulings made to the Company or
prosecution orders or employee claims against the Company under any
labor, employment or occupational health and safety legislation. Nor is
the Company aware of any pending directives or rulings or threatened
prosecutions or employee claims or grounds upon which any such
directives or rulings may be issued or prosecution or employee claims
may be commenced, except as referred to in Exhibit "8" hereto.
4.36.2. There have been no material accidents or incidents affecting worker
health or safety or workers compensation with respect to the employees
of the Company.
4.37. WORKERS' COMPENSATION. All workers' compensation assessments against
the Company have been timely and fully paid (including workers sharing
in the profits (participacion de los trabajadores en las utilidades) of
the Company).
4.38. EMPLOYEE BENEFIT AND PENSION PLANS.
4.38.1. DESCRIPTION OF BENEFIT PLANS. Except as listed in Exhibit "15", the
Company does not have, and is not subject to any present or future
obligation or liability under any pension plan, deferred compensation
plan, retirement income plan, stock option or stock purchase plan,
profit sharing plan, bonus plan or policy, employee group insurance
plan, hospitalization plan, disability plan or other employee benefit
plan, program, policy or practice, formal or informal, funded or non
funded, with respect to any of its employees or former employees or
beneficiaries or dependents.
4.38.2. Exhibit "15" also lists the oral and written general policies
inconsistency with the Mexican industry practice, procedures and
work-related rules in effect with respect to employees of the Company,
including but not limited to policies regarding holidays, sick leave,
vacation, disability and death benefits, termination and severance pay,
automobile allowances and rights to company provided automobiles and
expense reimbursements. All those policies, procedures and rules are in
compliance with applicable Law (The plans, programs, policies,
practices and procedures listed in Exhibit "15" are collectively called
the "Benefit Plans").
18
<PAGE> 19
4.38.3. CLAIMS. Except as specified in Exhibit "8", there are no pending or
threatened claims by any employee covered under any of the Benefit
Plans or by any other person which allege a breach of the terms of a
Benefit Plan or fiduciary duties or violation of governing law or which
may result in liability to the Benefit Plans or the Company, and there
is no basis for such a Claim. There are no employees or former
employees or beneficiaries or dependents of employees or former
employees of the Company who are receiving from the Company any pension
or retirement payments, or who are entitled to receive any such
payments, not covered by a pension plan to which the Company is a
party.
4.38.4. DOCUMENTATION, REGISTRATION. Those copies of the Benefit Plans and
related documentation as indicated in Exhibit "15" are true, correct
and complete copies thereof and all oral or written Benefit Plans are
accurately described in Exhibit "15" hereto. The Benefit Plans are duly
registered where required by applicable Laws, and are in good standing
under such applicable Laws.
4.38.5. CONTRIBUTIONS, FUNDING OBLIGATIONS. All required employer and employee
contributions and premiums under the Benefit Plans to the date hereof
have been made, the respective fund or funds established under the
Benefit Plans are fully funded in accordance with applicable Laws, and
no past service funding or post service termination liabilities exist
thereunder.
4.38.6. NON-ARMS LENGTH PAYMENTS. Except as otherwise contemplated in this
Agreement or the Exhibits hereto, no payments have been made or
authorized since the date of the Closing Financial Statements by the
Company to its officers, directors, former directors, shareholders or
employees or to any person not dealing at arms' length with any of the
foregoing, except in the ordinary course of business and at the regular
rates payable to them of salary, pension, bonuses, rents or other
remuneration of any nature.
4.38.7. ACCRUAL OF VACATION PAY, BONUSES, ETC. All vacation pay, bonuses,
commissions and other employee benefit payments payable to employees or
any member of the Company are reflected and have been accrued in the
Audited Financial Statements and will have been accrued in the Closing
Financial Statements, as the case may be.
4.38.8. WITHDRAWALS AND COMPLIANCE WITH PLANS. No withdrawal of assets has been
made from the assets of any Benefit Plan fund held from time to time
except for the purpose of paying benefits or proper expenses of the
Benefit Plans in accordance with the terms of the Benefit Plans and
applicable Laws and no past service funding or post-termination
liabilities exist thereunder. The Benefit Plans are funded in
accordance with the rules of the Benefit Plans and applicable Laws. All
material obligations required to be performed in connection with the
Benefit Plans pursuant to their terms and any applicable Laws have been
performed. There are no obligations under or in respect of the Benefit
Plans (including any representations made to any of the Company
employees) that are not contained in the text of the Benefit Plans and
funding agreement therefor. The Company has not incurred any liability
in connection with the winding-up of a pension plan or the withdrawal
from a multi-employer plan which would have a material adverse effect
on the Business, profits or condition (financial or otherwise) of
19
<PAGE> 20
the Company, or impair the ability of the Company to perform its
obligations contained in this Agreement.
4.38.9. PARTICIPANT AND BENEFICIARY RECORDS. The participant and beneficiary
records with respect to each Benefit Plan are in the custody of the
persons listed in Exhibit "6". All such records accurately state the
history of each participant and beneficiary in connection with each
Benefit Plan and accurately state the benefits earned by or owed to
each such person under each Benefit Plan.
4.39. INSURANCE. Exhibit "16" contains a true and correct copy of all
insurance policies maintained by the Company or under which the Company
is covered in respect of its properties, assets, business or personnel
as of the date hereof. Such insurance policies are in full force and
effect and the Company is not in default with respect to the payment of
any premium or compliance with any of the provisions contained in any
such insurance policy. The Company has not received notice from any of
the insurers regarding cancellation of such insurance policies. The
Company has not received notice from any of the insurers denying any
claims and to the best of the knowledge of the Seller no such notice is
expected to be received.
4.40. COMPLIANCE WITH LAWS. Except as disclosed in Exhibit "8", the Company
has conducted and is conducting its Business in compliance, in all
material respects, with all applicable Laws of each jurisdiction in
which it carries on such business.
4.41. DISCLOSURES. No representation or warranty contained in this Article 4
and no statement contained in any Exhibit or closing document to be
provided to the Purchaser pursuant hereto, or in connection with the
transactions contemplated hereby, contains any untrue statement, or
omits to state any material fact which is necessary in order to make
the statements contained therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as follows:
5.1. DUE ORGANIZATION AND AUTHORITY. The Purchaser is a Company
duly organized, validly existing and in good standing under
the laws of the State of Texas, and has full corporate power
and authority to own, lease and operate its properties and
assets and to carry on its business as now conducted and in
each state in which the nature of its activities requires it
to be qualified.
5.2. AGREEMENT AUTHORIZED, BINDING AND ENFORCEABLE. The execution,
delivery and performance of this Agreement by the Purchaser,
have been duly authorized by all required corporate action.
This Agreement is the legal, valid and binding obligations of
the Purchaser enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws affecting creditors' rights and by
20
<PAGE> 21
equitable principles of general application which may limit
the availability of certain equitable remedies (such as
specific performance).
5.3. NO CONFLICT. The execution, delivery and performance by the
Purchaser of this Agreement do not conflict with, constitute
or result in a breach of or a default under, (a) the Articles
of Incorporation or Bylaws of the Purchaser, (b) any material
contract, indenture, instrument, order, judgment, decree or
regulation by which the Purchaser, is bound, (c) any statute,
ordinance, judgment, order, decree or regulation of any court
or governmental body affecting or, relating to the Purchaser.
5.4. NO REQUIRED CONSENTS. No consent of, waiver from or notice to
any party is required in order for the Purchaser to execute,
deliver and perform its obligations under this Agreement or to
consummate the transactions contemplated hereby.
5.5. REVIEW OF INFORMATION. Purchaser has received and reviewed to
its satisfaction the information referred to herein and it is
not aware of any representation or warranty of the Seller
which contains any untrue statements of a material fact or
omits to state any material facts which is necessary in order
to make the statements contained therein not misleading but
this statement of the Purchaser does not impose directly or
indirectly any responsibility on the part of the Purchaser to
insure that Seller representations and warranties are accurate
and true.
ARTICLE VI
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
Unless such conditions are met on the date hereof, all obligations of
the Purchaser under this Agreement are subject to the fulfillment of
each of the following conditions prior to or at the Closing:
6.1. REPRESENTATIONS AND WARRANTIES. All of the representations,
warranties and certifications of the Seller contained in this
Agreement shall be true, correct and complete in all respects
on the Closing Date as though all such representations,
warranties and certifications were made and given on and as of
the date hereof.
6.2. PERFORMANCE BY THE SELLER. The Seller shall have performed and
complied with all covenants, agreements and conditions
required to be performed or complied with by them pursuant to
this Agreement prior to or at the Closing.
6.3. COMPLIANCE CERTIFICATE. The Purchaser shall have received a
compliance certificate, in form and substance reasonably
satisfactory to the Purchaser and duly executed by the Seller,
with respect to the matters set forth in Sections 6.1 and 6.2.
6.4. NO RESTRAINT ON TRANSACTIONS. There shall be no effective
injunction, judgment, decree, restraining order or order of
any nature issued by a court or government agency of competent
jurisdiction which shall direct that this Agreement or the
transactions contemplated by this Agreement not be consummated
in all material respects as herein provided. There shall be no
pending litigation or other proceeding
21
<PAGE> 22
instituted by any governmental authority, the effect of which
litigation would prevent the consummation of the transactions
contemplated by this Agreement.
6.5. LEGAL OPINION. The Seller shall deliver at the Closing Date an
opinion of Gutierrez Diaz de Rivera y Torres, S.C.,
substantially in the form annexed hereto as Exhibit "17".
6.6. ESCROW AGREEMENT. At the Closing Date, the Sellers shall
execute and deliver the Escrow Agreement in the form of
Exhibit "2".
ARTICLE VII
CONDITIONS PRECEDENT TO THE SELLER OBLIGATIONS
Unless such conditions are met on the date hereof, all obligations of
the Seller under this Agreement are subject to the fulfillment of each
of the following conditions prior to or at the Closing:
7.1. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Purchaser contained in this Agreement shall
be true, correct and complete in all respects on the Closing
Date as though all such representations and warranties were
made and given on and as of the date hereof.
7.2. PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed and complied with all covenants, agreements and
conditions required to be performed or complied with by the
Purchaser pursuant to this Agreement prior to or at the
Closing.
7.3. COMPLIANCE CERTIFICATE. The Seller shall have received a
compliance certificate, in form and substance reasonably
satisfactory to the Seller and duly executed by a duly
authorized officer of the Purchaser, with respect to the
matters set forth in Sections 7.1 and 7.2 hereof.
7.4. NO RESTRAINT ON TRANSACTIONS. There shall be no effective
injunction, judgment, decree, restraining order or order of
any nature issued by a court or governmental agency of
competent jurisdiction which shall direct that this Agreement
or any of the transactions contemplated by this Agreement not
be consummated as herein provided. There shall be no pending
litigation or other proceeding instituted by any governmental
authority, the effect of which litigation would prevent the
consummation of the transactions contemplated by this
Agreement.
ARTICLE VIII
POST-CLOSING COVENANTS OF THE SELLER
8.1. NON-COMPETITION.
8.1.1. For a period of ten (10) years after the Closing Date, neither
Seller nor their respective Affiliates whether operating in
the United States or Mexico shall directly or indirectly: (a)
solicit Business from any person who was a customer of any of
the
22
<PAGE> 23
Company during the twelve (12) months preceding the Closing
Date; or (b) compete or otherwise engage in the chemical
processing, refining, commercialization and/or trading
business of high purified CS and C6 paraffinic hydrocarbon
solvents which supply the plastic industries or substitutes
thereof (the "Business") anywhere in North America, Central
America or South America (the "Territory").
8.1.2. Nothing in Section 8.1.1 above shall be deemed to prohibit or
restrict the Seller, directly or indirectly, from acquiring
and thereafter owning at any time after the Closing Date, any
entity which for periods immediately prior to such acquisition
directly or indirectly derives less than ten (10%) percent of
its revenues from a business or businesses that are the same
or similar to the Business.
8.1.3. In the event that the Seller or any of its Affiliates shall
breach any of the provisions of Section 8.1, or in the event
that any such breach is threatened, in addition to and without
limiting or waiving any other remedies available to the
Purchaser at law or in equity, the Purchaser shall be entitled
to immediate injunctive relief in any court, domestic or
foreign, having the capacity to grant such relief, to restrain
any such breach or threatened breach and to enforce the
provisions of this Section 8.1. The Seller acknowledges and
agrees that there is no adequate remedy at law for any such
breach or threatened breach and, in the event that any
proceeding is brought seeking injunctive relief, agree not to
use as a defense thereto that there is an adequate remedy at
law. The parties further acknowledge that the restrictions
provided for in this Section 8.1 are, under all of the
circumstances, reasonable and necessary for the protection of
the Purchaser and the Company and their respective businesses.
If any provision of this Section 8.1 is determined to be too
broad so as to be unenforceable, such provisions shall be
deemed to have been modified to be only so broad as is
enforceable.
8.2. PREPARATION OF TAX RETURNS. After the Closing, the Seller will
prepare and file (or cause to be prepared and filed) with the
appropriate authorities all reports, annual balances or
accountings which are required to be filed by or with respect
to the Company in respect of all periods through the Closing.
ARTICLE IX
POST-CLOSING COVENANTS OF THE PURCHASER
9.1. PREPARATION OF TAX RETURNS. After the Closing, the Purchaser
will prepare and timely file (or cause to be prepared and
timely filed) as required by law with the appropriate
authorities all reports, annual balances or accountings (the
"Reports") referred to in Section 8.2 hereof. The Purchaser
will also furnish such information and the reasonable
assistance of such personnel as the Seller may reasonably
request to prepare the Reports referred to in Section 8.2
hereof and to respond to any audits thereof.
9.2. ACCESS TO RECORDS. For a period of one (1) year after the
Closing, Purchaser will, and will cause the Company to (a)
maintain all books and records relating to the Company which
may be reasonably necessary in order for the Seller to satisfy
the
23
<PAGE> 24
requirements of auditors and other fiscal obligations imposed
upon the Seller or any of its Affiliates (including, without
limitation, responding to audits of annual balances), and (b)
cooperate with and afford the Seller (and Purchaser shall
cause the Company to afford the Seller), or will use its best
efforts to cause any other appropriate person to cooperate
with and afford the Seller, at the Seller's sole cost and
expense, reasonable access to and the ability to copy, during
normal business hours, such books and records (as well as
access to and reasonable assistance of personnel) on any other
matter relating to the Company which are reasonably necessary
(including, without limitation, responding to audits) in order
for the Seller to satisfy the requirements of auditors and
other obligations imposed upon any of them by law.
9.3. BANK DEBT. Prior to December 2001, Purchaser shall pay or
cause the Company to pay to Seller 33% of any net discounts or
pardons on the principal amount of certain existing credits
granted by Bancrecer, S.A., to the Company obtained with the
direct intervention of Seller, provided however, that such
payments shall be made on the saved amount after giving
effect to any tax implications of the same and provided
further that such discounts or pardons shall be made in form
and substance satisfactory to Purchaser.
ARTICLE X
INDEMNIFICATION
10.1. AGREEMENT TO INDEMNIFY.
10.1.1. The Purchaser agrees to indemnify and hold the Seller harmless
from and against any and all monetary loss, liability,
obligation, damage, cost or expense (including, without
limitation, reasonable attorney's fees and disbursements)
incurred or suffered by or asserted against the Seller or any
of its respective Affiliates, including but not limited to
their respective officers, directors, agents and employees,
directly or indirectly as a result of or in connection with
(a) the breach by the Purchaser of any representation or
warranty made in this Agreement; or (b) the breach by the
Purchaser of, or the failure of the Purchaser to perform, any
of its covenants or obligations contained in this Agreement.
10.1.2. The Seller agrees to indemnify and hold the Purchaser and its
directors, officers, agents, employees and shareholders
harmless from and against any and all loss, liability,
obligation, damage, cost or expense (including, without
limitation, reasonable attorney's fees and disbursements)
incurred or suffered by or asserted against the Purchaser, the
Company, their Affiliates or any of their respective
directors, officers, agents, employees and shareholders,
directly or indirectly ("Losses"), as a result of or in
connection with
(a) the breach or inaccuracy of any representation or
warranty made by either Seller in this Agreement;
24
<PAGE> 25
(b) the breach by Seller, or failure of Seller, to
perform any of its covenants, conditions or
obligations contained in this Agreement;
(c) claims of employees of the Company with respect to
occupational disease or injuries with respect to
events, circumstances or conditions which existed,
arose or occurred during the period prior to the date
hereof;
(d) any third party liability claims which were made
prior to the date hereof for damages arising from
accidents, for which any of the Company is
responsible and which accidents occurred prior to the
date hereof for claims which do not exceed $1,000
Dollars and (ii) for such claims which are in excess
of $1,000 Dollars and which are listed on Exhibit
"8";
(e) third party claims or potential claims arising from
events occurring prior to the date hereof and which
are not listed on Exhibit "8";
(f) actual liability and reasonable attorney's fees paid
after the Closing in connection with the existing
fines levied by any governmental agency.
10.2. CONDITIONS OF INDEMNIFICATION. The obligations and liabilities
of the Indemnifying Party with respect to any claim, action,
suit, proceeding, tax audit, demand or liability based on or
with respect to the inaccuracy or non-performance or
non-fulfillment or breach of any representation or warranty
made by the other party contained in this Agreement or
contained in any document or certificate given in order to
carry out the transactions contemplated hereby asserted or
instituted by any third party on account of any matter giving
rise to a claim of indemnity by an Indemnified Party (a
"Claim"), shall be subject to the following terms and
conditions:
10.2.1. The Indemnified Party will give the Indemnifying Party notice
of any claim. Prior to the giving of any notice and after the
giving of any such notice, if the Indemnifying Party assumes
the defense of a Claim as provided below, the Indemnified
Party will not settle or waive, and will cause its Affiliates
not to settle or waive, any defense (including the waiver of a
statue of limitations), cause of action or counterclaim
without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld.
10.2.2. Upon receipt of notice of a Claim from an Indemnified Party,
the Indemnifying Party will be entitled to assume the sole
defense thereof by representatives chosen by it; provided,
however, in the case of an audit, the auditor permits the
Indemnifying Party to do so. The Indemnifying Party shall have
the right to assert any defenses, causes of action or
counterclaims arising from the subject of the Claim available
to the Indemnified Party and its Affiliates. In the event an
Indemnifying Party is not permitted by an auditor to assume
the defense or control the conduct of an audit of returns, no
settlement with respect to any assessment may be effected
without the prior written consent of the Indemnifying Party,
which consent will not be unreasonably withheld, and the
Indemnified Party shall consult with the Indemnifying Party
concerning the
25
<PAGE> 26
progress of the audit and provide such party with copies of
all correspondence and documents in connection therewith.
10.2.3. If the Indemnifying Party, within thirty (30) days after
notice of any such Claim, fails to assume the defense thereof;
the Indemnified Party shall (upon further notice to the
Indemnifying Party) have the right to undertake the defense
or, with the consent of the Indemnifying Party not be
unreasonably withheld or delayed, the compromise or settlement
of such Claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of such Claim at any time prior to
the settlement, compromise or final determination thereof.
10.2.4. Anything in this Section 10.2 to the contrary notwithstanding,
the Indemnifying Party shall not, without the written consent
of the Indemnified Party (which consent shall not be withheld
unreasonably or delayed), settle or compromise any Claim or
consent to the entry of any judgment which imposes any future
obligation on the Indemnified Party or which does not include
as an unconditional term thereof giving to the Indemnified
Party a release from all liability in respect of such Claim.
Furthermore, the Indemnified Party shall reasonably assist the
Indemnifying Party with the mitigation of loss and the return
to work of any employee eligible for or drawing any
occupational injury benefits in connection with the
indemnification obligations set forth above.
10.2.5. The Indemnified Party shall, and shall cause its Affiliates
to, provide the Indemnifying Party with such assistance at the
sole cost of the Indemnifying Party as may reasonably be
requested by the Indemnifying Party in connection with any
indemnification or defense provided for herein, including,
without limitation, providing the Indemnifying Party with such
information, documents and records and reasonable access to
the services of and consultations with such personnel of the
Indemnified Party or its affiliates as the Indemnifying Party
shall deem necessary (provided that such access shall not
unreasonably interfere with the performance of the duties
performed by or responsibilities of such personnel).
10.2.6. An Indemnified Party's (1) omission to notify an Indemnifying
Party of a Claim, (2) failure to cooperate and provide
requisite access to books and records or personnel as provided
above, (3) failure to obtain the prior written consent of an
Indemnifying Party as required above with respect to
settlements or waivers of defenses, causes of actions, or
counterclaims, or (4) failure to allow an Indemnifying Party
to control a tax audit and make or consent to any settlements
relating thereto as provided above, shall release the
Indemnifying Party from any liability arising from such Claim
to the extent the Indemnifying Party has been materially
prejudiced thereby.
10.2.7. All Claims will be reduced by any insurance proceeds received
by the Indemnified Party with respect thereto.
26
<PAGE> 27
10.2.8. The obligations of any Indemnifying Party to indemnify and
hold harmless an Indemnified Party under this Agreement shall
apply whether or not any losses, claims or other liabilities
indemnified thereunder were or are caused in whole or in party
by (i) the sole, joint or concurrent negligence, fault or
breach of any other standard of conduct (whether active or
passive) by any Indemnified Party or any third party, or (ii)
any act, omission, event or condition that may subject the
indemnitee to strict liability.
10.3. REMEDIES CUMULATIVE. The remedies provided in this Article X
shall be cumulative and shall not preclude assertion by any
party hereto of any other rights or the seeking of any other
remedies against the other party hereto.
10.4. SURVIVAL OF REPRESENTATIONS. The representations, warranties
and indemnification rights and obligations of Seller contained
herein shall survive for the statute of limitation period
provided under the Laws in effect on the date hereof.
ARTICLE XI
MISCELLANEOUS
11.1. NOTICES. All notices, requests, demands and other
communications shall be in writing and shall be deemed to have
been given (a) when received, if delivered in person, or (b)
when sent, if sent by telecopier and confirmed within two (2)
business days by letter delivered to the party to be notified
at its address set forth herein, in any such case as follows:
(a) If to the Seller, to:
Mr. Jose Carral
Ave Jalisco No. 180 3rd floor
Col Tacubaya
Mexico 11870, D.F.
Fax (525) 52 72 09 94
With a copy to:
Lic. Guillermo Diaz de Rivera
Gutierrez, Diaz de Rivera y Torres, S.C.
Durango No.124
Colonia Roma
Mexico 6700, D.F.
Fax (525) 55 25 55 42
(b) If to the Purchaser, to:
Nicholas N. Carter
President
P.O. Box 1636
Silsbee, Tx 77656
Fax (001/409) 385 14 00
27
<PAGE> 28
With a copy to:
Lic. Agustin Portal Ariosa
Haynes and Boone, S.C.
Blvd. Manuel Avila Camacho No. 40-1801
Col Lomas de Chapultepec
Mexico 11000 D.F.
Fax 5 40 06 30
or at such other address(es) as any party may have advised the
other in the manner provided in this Section 11.1.
11.2. PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. The timing and text of
any announcements or statements pertaining to this Agreement
or the transactions contemplated hereby made either publicly
or to the employees of the Company prior to the Closing Date
shall be mutually agreed to by the Seller and the Purchaser.
Except as otherwise provided by law, the terms of this
Agreement and the indemnification provisions hereof shall be
kept confidential.
11.3. COMPLETE AGREEMENT. This Agreement and its Exhibits set forth
the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements,
contracts, promises, representations, warranties, statements,
arrangements and understandings, if any, between the parties
hereto or their representatives. No waiver, modification,
amendment or termination of any provision, term or condition
hereof or of any its Exhibits shall be valid unless in writing
and signed by the party to be charged therewith, and any such
waiver, modification, amendment or termination shall be valid
only to the extent therein set forth. All Exhibits hereto
shall form and be construed to be an integral part hereof.
11.4. FURTHER ASSURANCES. Each of the parties hereto shall, from
time to time after the date hereof, upon the request of the
other party hereto and at the expense of such requesting
party, duly execute, acknowledge and deliver or cause to be
duly executed, acknowledged and delivered, all such further
instruments and documents reasonably requested by the other
party to further effectuate the intents and purposes of this
Agreement.
11.5. GOVERNING LAW. The validity, performance, construction,
interpretation and effect of this Agreement shall be governed
by Laws.
11.6. DISPUTE SETTLEMENT PROCEDURE. In the event of any dispute or
difference arising out of or relating to this Agreement or the
breach thereof, the disputes or differences shall be finally
and exclusively settled by arbitration in accordance with the
applicable Rules of Arbitration of the International Chamber
of
28
<PAGE> 29
Commerce. Any dispute or difference between the parties hereto
will be referred to the arbitration of three (3) persons, one
(1) to be appointed by each of the parties hereto and the
remainder to be chosen by the two (2) so appointed. If either
of the parties fails to appoint an arbitrator and has been
notified by the other party in writing of the appointment and
of the matter in dispute to be dealt with, the decision of the
arbitrator appointed by the first of the parties will be final
and binding on both of the parties hereto. The decision of the
three (3) arbitrators so appointed, or a majority of them,
will be final and binding upon the parties hereto. All costs
and expenses of any such arbitration will be borne by the
parties hereto as determined by the arbitrators. The
arbitration shall take place at Mexico City, Mexico. All
arbitration proceedings and the arbitration award shall be in
English. Judgment upon the award rendered may be entered into
any court having jurisdiction, or application may be made to
such court for a judicial recognition of the award or an order
of enforcement thereof, as the case may be.
11.7. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns. Neither party hereto may delegate its
obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld;
provided that such delegating party shall not be relieved of
its obligations hereunder. The parties hereto shall be
permitted to assign any of their rights under this Agreement
without the prior written consent of the other party.
11.8. SEVERABILITY. Any provisions of this Agreement which may be
determined by competent authority to be 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.
11.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and
all of which taken together shall constitute a single
agreement.
11.10. CAPTIONS. The captions appearing in the Agreement are inserted
only as a matter of convenience and for reference and shall in
no way affect the interpretation or construction of this
Agreement or any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
29
<PAGE> 30
PURCHASER SELLER
Texas Oil & Chemical Co. II Spechem, S.A. de C.V.
/s/ NICHOLAS N. CARTER /s/ JOSE CARRAL
- ---------------------------- ---------------------------------
By: Nicholas N. Carter By: Jose Carral
Title: President Title: Chairman of the Board
/s/ PASCUAL ARANALDE BLANNO
---------------------------------
By: Pascual Aranalde Blanno
Title: Board Member
30
<PAGE> 31
ESCROW AGREEMENT
This Escrow Agreement dated as of the 25th day of January 2000, between
Spechem, S.A. de. C.V. (referred to as the "Seller") and Texas Oil & Chemical
Co. II, Inc. (the "Purchaser").
RECITALS:
A. Seller and Purchaser have entered into a Stock Purchase Agreement
dated January 25th, 2000 (the "Agreement"), a copy of which is attached to this
Agreement in EXHIBIT "A" pursuant to which Purchaser is acquiring ninety-two
(92%) percent of the outstanding capital stock of Productos Quimicos Coin, S.A.,
de C.V. (the "Company").
B. This Escrow Agreement creates an escrow fund to secure Seller's
agreement, covenants and obligations as specified in the Agreement.
IN CONSIDERATION of the promises and agreements of Seller and Purchaser
and for other good and valuable consideration, the receipt of which is
acknowledged, Seller and Purchaser agree as follows:
ARTICLE I
ESCROW FUNDS
1.01. Contemporaneous with the Closing of the Agreement, the amount of
TWO HUNDRED TWENTY FIVE THOUSAND ($225,000.00) AND NO/100 DOLLARS (U.S.) (the
"Escrowed Funds") in a bank check from the Purchaser shall be delivered, in
escrow to the Escrow Agent (as defined herein) to secure Seller's agreement,
covenants and obligations specified in the Agreement.
1.02. The Escrowed Funds are to be retained by the Escrow Agent as an
Escrow Trustee pursuant to the terms of this Escrow Agreement, and the Escrowed
Funds may be dispersed only in accordance with Article II of this Escrow
Agreement.
ARTICLE II
DUTIES OF THE ESCROW AGENT
2.01. The Escrow Agent shall receive the Escrowed Funds pursuant to the
terms of this Escrow Agreement.
2.02. The Escrow Agent shall distribute the Escrowed Funds only in
accordance with joint written instructions signed by both Seller and Purchaser.
On disbursement of all the Escrowed Funds, this Escrow Agreement shall
terminate.
<PAGE> 32
ARTICLE III
TERM OF THE ESCROW AGREEMENT
3.01. The Escrow Agent is hereby authorized and instructed to hold the
Escrowed Funds in escrow until the earlier of the following dates or events:
1) written instructions from both Seller and Purchaser that all
obligations, covenants and agreements of Seller have been
satisfied; or
2) the expiration of ninety (90) days from the date of this
Escrow Agreement.
3.02. This Escrow Agreement shall not be terminated, revoked, rescinded
or modified in any respect without the prior written approval of both Seller and
Purchaser.
3.03. The Escrow Agent shall be obligated only the performance of the
duties that are specifically set forth in this Escrow Agreement and may rely on
the performance of these duties. The Escrow Agent shall be protected in acting
or refraining from acting on any instrument believed to be genuine and to have
been signed or presented by the proper party or parties. The Escrow Agent shall
not be liable for any action taken or omitted in good faith and believed to be
authorized by this Escrow Agreement nor for any action taken or omitted in
accordance with the advice of the Escrow Agent's counsel.
3.04. The Escrow Agent shall have no liability under, or duty to
inquire into the terms and provision of, the Agreement. It is agreed that the
Escrow Agent's duties are purely ministerial in nature and that the Escrow Agent
shall incur no liability whatsoever except for willful misconduct or gross
negligence so long as the Escrow Agent has acted in good faith. The Escrow Agent
shall not be bound by any modification, amendment, termination, cancellation,
rescission, or suppression of this Escrow Agreement unless it is in writing and
signed by all of the parties to this Escrow Agreement and, if the Escrow Agent's
duties are affected in any way, unless the Escrow Agreement has given prior
written consent to any such agreement.
ARTICLE 4
MISCELLANEOUS
4.01. This Escrow Agreement shall be binding on and inure to the
benefit of the parties to this Escrow Agreement and their respective successors
and permitted assigns. No other persons shall have any rights under this Escrow
Agreement.
4.02. Any litigation costs and expenses under this Escrow Agreement
shall be paid by the party obligation for the costs of litigation under the
Agreement.
4.03. A successor Escrow Agent may be appointed at any time by the
mutual written agreement of Purchaser and Seller.
Page 2
<PAGE> 33
4.04. The Escrow Agent agrees to hold the assets of the Escrow Fund as
a trustee in a segregated and separate account, outside of the reach of its
general creditors.
4.05. Any notice, statement, or other communication that is required or
that may be given under the terms of this Escrow Agreement shall be in writing
and shall be sufficient in all respects if properly addressed and delivered
personally or by mail, postage prepaid, as follows:
(a) If to the Seller, to:
Mr. Jose Carral
Ave Jalisco No. 180 3rd floor
Col Tacubaya
Mexico 11870, D.F.
Fax (525) 52 72 09 94
With a copy to:
Lic. Guillermo Diaz de Rivera
Gutierrez, Diaz de Rivera y Torres, S.C.
Durango No.124
Colonia Roma
Mexico 6700, D.F.
Fax (525) 55 25 55 42
(b) If to the Purchaser, to:
Nicholas N. Carter
President
P.O. Box 1636
Silsbee, Tx 77656
Fax (001/409) 385 14 00
If to Escrow Agent:
Lic. Agustin Portal Ariosa
Haynes and Boone, S.C.
Blvd. Manuel Avila Camacho No.40--1801
Col Lomas de Chapultepec
Mexico 11000 D.F.
Fax 5 40 06 30
or to any other address that any party shall designate in writing to the other
parties in accordance with this provision.
Page 3
<PAGE> 34
4.06. This Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
The parties to this Escrow Agreement have duly executed this Agreement
as of the date first written above.
Texas Oil & Chemical Co. II Spechem, S.A. de C.V.
/s/ NICHOLAS N. CARTER /s/ JOSE CARRAL
- ------------------------------------ ---------------------------
By: Nicholas N. Carter By: Jose Carral
Title: President Title: Chairman of the Board
HAYNES AND BOONE, S.C. /s/ PASCUAL ARANALDE BLANNO
---------------------------
By: Pascual Aranalde Blanno
/s/ AGUSTIN PORTAL Title: Board Member
- ------------------------------------
By: Agustin Portal
Title: Partner
Page 4
<PAGE> 35
TITULO NUMERO I NUMERO DE ACCIONES 45'850,279
CAPITAL VARIABLE
PRODUCTOS QUIMICOS COIN, S.A. DE C.V.
DURACION: 99 ANOS
DOMICILIO: MEXICO, D.F.
CAPITAL MINIMO FIJO: $100,000.00
TOTALMENTE SUSCRITO Y PAGADO.
CAPITAL VARIABLE: $49'845,955.00
TOTALMENTE SUSCRITO Y PAGADO.
El presente Titulo se expide en favor de SPECHEM, S.A. DE C.V. de nacionalidad
mexicana, con domicilio en la Ciudad de Mexico coma titular de 45'850,279
(CUARENTA Y CINCO MILLONES OCHOCIENTOS CINCUENTA MIL DOSCIENTOS SETENTA Y NUEVE)
acciones ordinarias, nominativas, con un valor nominal de $1 (UN PESO 00/100
M.N.) de las 49'845,955 acciones representativas del capital variable de la
sociedad.
La sociedad se constituyo mediante escritura publica numero 8211 de fecha 23 de
noviembre de 1987, otorgada ante la fe del Licenciado Rogelio Magana Luna,
Notario Publico numero 156 de Mexico, D.F. la cual se encuentra debidamente
inscrita en el Registro Publico de Comercio del Distrito Federal, bajo el Folio
Mercantil numero 103348 de fecha 14 de marzo de 1988.
Mexico, D.F., 5 de noviembre de 1999.
/s/ JOSE CARRAL /s/ PASCUAL ARANALDE BLANNO
- ------------------------ -------------------------
CONSEJERO CONSEJERO
"TODO EXTRANJERO QUE EN EL ACTO DE LA CONSTITUCION O EN CUALQUIER TIEMPO
ULTERIOR ADQUIERA UN INTERES O PARTICIPACION SOCIAL EN LA SOCIEDAD SE
CONSIDERARA POR ESE SIMPLE HECHO COMO MEXICANO RESPECTO DE UNO Y OTRO Y SE
ENTENDERA QUE CONVIENE EN NO INVOCAR LA PROTECCION DE SU GOBIERNO, BAJO LA PENA,
EN CASO DE FALTAR A SU CONVENIO DE PERDER DICHO INTERES O PARTICIPACION EN
BENEFICIO DE LA NACION MEXICANA".
<PAGE> 36
Endoso 45,850,279 aciones representadas por este titulo definitivo de
Acciones en favor de: Texas Oil & Chemical Co. II, Inc.
De Nacionalidad: Norteamericana
Mexico, D.F. a 25 de enero de 2000
Spechem, S.A. de C.V.
/s/ JOSE CARRAL
- -----------------------------------
Por: Jose Carral
Cargo: Chairman of the Board
/s/ PASCUAL ARANALDE BLANNO
- -----------------------------------
Por: Pascual Aranalde Blanno
Cargo: Board Member
<PAGE> 37
The undersigned, Jose Carral and Pascual Aranalde Blanno in our capacity of
Chairman and Board member, respectively of Spechem, S.A. de C.V., hereby
certify, on behalf of such company, that no consents are required to be obtained
in order to carry out the transactions contemplated in the Stock Purchase
Agreement, dated as of the 25th day of January 2000, between Spechem, S.A. de.
C.V., and Texas Oil & Chemical Co. II, Inc.
We further certify that execution, delivery and performance of such Agreement by
Spechem, S.A. de. C.V., have been duly authorized by all required corporate
action on the part of Spechem, S.A. de. C.V., and that such Agreement contains
the legal, valid and binding obligations of Spechem, S.A. de. C.V., enforceable
against it in accordance with its terms.
Mexico City January 25, 2000
Spechem, S.A. de C.V.
/s/ JOSE CARRAL
- -------------------------------
By: Jose Carral
Title: Chairman of the Board
/s/ PASCUAL ARANALDE BLANNO
- -------------------------------
By: Pascual Aranalde Blanno
Title: Board Member
<PAGE> 38
TITULO NUMERO 1 NUMERO DE ACCIONES 99,999
CAPITAL MINIMO FIJO
PRODUCTOS QUIMICOS COIN, S.A. DE C.V.
DURACION: 99 ANOS
DOMICILIO: MEXICO, D.F.
CAPITAL SOCIAL: MINIMO FIJO: $100,000.00
TOTALMENTE SUSCRITO Y PAGADO.
El presente Titulo se expide en favor de SPECHEM, S.A. DE C.V. de nacionalidad
mexicana, con domicilio en la Ciudad de Mexico como titular de 99,999 (NOVENTA Y
NUEVE MIL NOVECIENTOS NOVENTA Y NUEVE) acciones ordinarias, nominativas, con un
valor nominal de $1 (UN PESO 00/100 M.N.) de las 100,000 acciones
representativas del capital minimo fijo de la sociedad.
La sociedad se constituyo mediante escritura publica numero 8211 de fecha 23 de
noviembre de 1987, otorgada ante la fe del licenciado Rogelio Magana Luna,
Notario Publico numero 156 de Mexico, D.F. la cual se encuentra debidamente
inscrita en el Registro Publico de Comercio del Distrito Federal, bajo el Folio
Mercantil numero 103348 de fecha 14 de marzo de 1988.
Mexico, D.F., 5 de noviembre de 1999.
/s/ JOSE CARRAL /s/ PASCUAL ARANALDE BLANNO
- ------------------------ -------------------------
CONSEJERO CONSEJERO
"TODO EXTRANJERO QUE EN EL ACTO DE LA CONSTITUCION O EN CUALQUIER TIEMPO
ULTERIOR ADQUIERA UN INTERES O PARTICIPACION SOCIAL EN LA SOCIEDAD SE
CONSIDERARA POR ESE SIMPLE HECHO COMO MEXICANO RESPECTO DE UNO Y OTRO Y SE
ENTENDERA QUE CONVIENE EN NO INVOCAR LA PROTECCION DE SU GOBIERNO, BAJO LA
PENA,EN CASO DE FALTAR A SU CONVENIO DE PERDER DICHO INTERES O PARTICIPACION
EN BENEFICIO DE LA NACION MEXICANA".
<PAGE> 39
Endoso 99,999 aciones representadas por este titulo definitivo de
Acciones en favor de: Texas Oil & Chemical Co. II, Inc.
De Nacionalidad: Norteamericana
Mexico, D.F. a 25 de enero de 2000
Spechem, S.A. de C.V.
/s/ JOSE CARRAL
- ---------------------------------
Por: Jose Carral
Cargo: Chairman of the Board
/s/ PASCUAL ARANALDE BLANNO
- ---------------------------------
Por: Pascual Aranalde Blanno
Cargo: Board Member
<PAGE> 1
EXHIBIT 10(q)
Loan No.:_________
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of
the 30th of December, 1999, by and among HELLER FINANCIAL LEASING, INC., a
Delaware corporation ("Secured Party"), whose address is Commercial Equipment
Finance Division, 500 West Monroe Street, Chicago, Illinois 60661, and SOUTH
HAMPTON REFINING CO., a Texas corporation, ("South Hampton"), and GULF STATE
PIPE LINE COMPANY, INC., a Texas corporation, ("Gulf State"). South Hampton and
Gulf State are referred to herein collectively as "Debtors," and each may be
individually referred to as a "Debtor"). Debtors have a common business address
of 7752 FM 418, P.O. Box 1636, Silsbee, Texas 77656.
WITNESSETH:
1. The Loan. Subject to the prior satisfaction of all of the conditions
precedent contained in the Loan Documents (as defined herein), Secured Party
agrees to make available to Debtors and Debtors agree to borrow from Secured
Party, on or before December 31, 1999, up to an aggregate principal amount of
$3,500,000 (the "Loan"). Subject to the foregoing, the Loan will be funded in
one advance (the "Advance") on the date of this Agreement and will be evidenced
by a promissory note in the form of Exhibit A attached hereto (the "Note"). The
Advance will be used solely to partially fund the acquisition (the "Coin
Acquisition") of 92% of Productos Quimicos Coin, S.A., de C.V. ("Coin"). The
Advance shall be on and subject to the terms and conditions set forth in this
Agreement and the other Loan Documents and shall otherwise be at Secured Party's
sole discretion.
2. Conditions to the Advance.
(a) Prior to the Advance, the following conditions shall have
been satisfied in the opinion of the Secured Party:
(i) This Agreement and all other Loan Documents
(herein so called and being the Note, a Guaranty from Arabian
Shield Development Company, a Delaware corporation ("Arabian
Shield"), American Shield Refining Company, a Delaware
corporation ("American Shield"), and Texas Oil and Chemical
Co. II, Inc., a Texas corporation ("Texas Oil II")
(collectively, "Guarantors"), a Pledge Agreement from each of
South Hampton and Texas Oil II, covering all of the stock of
Gulf State in the case of South Hampton, and all of the stock
of South Hampton in the case of Texas Oil II, the Ground Lease
(as defined below), the Sublease (as defined below) and each
and every other document required by Secured Party to be
executed in connection with the Loan, together with all
amendments, supplements, modifications and other changes
thereto, in each case being in form and substance satisfactory
to Secured Party) shall have been duly authorized and executed
by Debtors (and by Guarantors, as applicable) and delivered to
Secured Party.
<PAGE> 2
(ii) Each Debtor shall have delivered to Secured
Party its respective good standing certificates, certificates
of existence, certificates of incumbency and duly certified
resolutions of its board of directors (in form and substance
satisfactory to Secured Party) authorizing it to enter into
and perform the transactions contemplated by the Loan
Documents.
(iii) Secured Party shall have received an opinion
from counsel to Debtors and Guarantors, in form and substance
satisfactory to Secured Party.
(iv) The representations and warranties contained in
this Agreement and the other Loan Documents shall be true and
correct on the date of the Advance as if made on such date, no
Event of Default (as defined in this Agreement), or event
which with the passage of time or giving of notice would
constitute an Event of Default (as defined in this Agreement)
shall have occurred and be continuing, and no material adverse
change shall have occurred with respect to Debtors' business
or assets (including, without limitation, the Collateral, as
defined in this Agreement) since October 31, 1999.
(v) Evidence of insurance which complies with the
requirements of the Loan Documents shall have been delivered
to Secured Party.
(vi) Receipt by Secured Party of a $17,500 commitment
fee (all commitment fees described herein are in addition to
any Earnest Money (as defined herein)).
(vii) UCC-1 Financing Statements covering the
Collateral shall have been duly authorized and executed by the
Debtors and delivered to Secured Party.
(viii) The results of a UCC search showing all
financing statements and other documents or instruments on
file against each Debtor and each Guarantor in the office of
the Secretary of State of the State of Texas and such other
jurisdictions as Secured Party may request, each such search
to be as of a date no more than 10 days prior to the date
hereof;
(ix) Receipt by Secured Party of a certificate from
Debtors in favor of and satisfactory to Secured Party stating
that no Debtor is presently involved in any litigation other
than such litigation previously disclosed to Secured Party in
writing.
(x) Receipt by Secured Party of $35,000 as earnest
money ("Earnest Money"). Debtors agree that regardless of
whether Secured Party makes any Advance, the Earnest Money
will be applied (i) to all legal fees and expenses incurred by
Secured Party in connection with documentation, negotiation
and closing the loan contemplated by this Agreement and (ii)
to Secured Party's environmental appraisal costs and expenses.
If any Earnest Money remains after payment of the foregoing
(such remainder, if any, being the "Balance"), and if the
Advance is made by Secured
2
<PAGE> 3
Party to South Hampton, then the Balance will be applied by
Secured Party as a credit against the $17,500 commitment fee
described in subparagraph (vi) preceding. Debtors understand
and agree that if the transactions contemplated by this
Agreement fail to consummate by March 31, 2000, for any reason
directly or indirectly related to Debtors' inability or
refusal to close on the exact terms and conditions set forth
in this Agreement, then all of the Earnest Money will be the
property of Secured Party without further action or notice.
(xi) A Ground Lease (herein so called), in form and
substance satisfactory to Secured Party, shall have been duly
authorized and executed by South Hampton and delivered to
Secured Party, covering the approximately 105 acres of land
comprising South Hampton's refinery (the "Real Property").
(xii) The machinery and equipment Collateral and the
value thereof (determined independently) shall be satisfactory
to Secured Party in its sole discretion.
(xiii) Secured Party shall be satisfied that there
has been no material adverse change in the financial condition
of either Debtor or any Guarantor.
(xiv) A Sub-Ground Lease (the "Sublease"), in form
and substance satisfactory to Secured Party, shall have been
duly authorized and executed by Secured Party and delivered to
South Hampton.
3. The Note and Interest Rate. The $3,500,000 Advance shall be
evidenced by the Note. The unpaid principal amount of the Note shall bear
interest at the rate set forth in the Note. Amounts advanced and repaid may not
be reborrowed.
4. Payment and Prepayments. The amount of unpaid principal and accrued
interest on the Notes shall be paid as set forth in each respective Note. South
Hampton may not prepay the Note in whole or in part at any time prior to
December 30, 2000. After December 30, 2000 and upon 30 days written notice to
Secured Party, may voluntarily prepay the Loan in whole, but not in part, by
advising Secured Party in writing at least 30 days prior to prepayment and by
paying to Secured Party at the time of such prepayment (i) any and all other
sums due under any of the Loan Documents (as defined herein) and (ii) the
Prepayment Fee (as defined herein). As used herein, "Prepayment Fee" shall mean
an amount equal to the Applicable Percentage (as defined herein) multiplied by
the principal balance prepaid. The term "Applicable Percentage" shall mean (a)
3% if the prepayment occurs on or before December 30, 2001, (b) 2% if the
prepayment occurs after December 30, 2001 and on or before December 30, 2002,
and (c) 1% if the prepayment occurs after December 30, 2002 and before the
stated maturity of the Note. The Prepayment Fee shall also be due and owing upon
involuntary prepayment as a result of Secured Party's exercise of any remedies
provided in this Agreement or any of Loan Documents.
5. Secure Payment. To secure payment of indebtedness as evidenced by
the $3,500,000 Promissory Note of even date herewith made by Debtors, payable to
the order of Secured Party (the "Note"), and any obligations arising under this
Agreement, and also to secure any other indebtedness
3
<PAGE> 4
or liability of Debtors to Secured Party, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising and no
matter how acquired by Secured Party, including all future advances or loans
which may be made at the option of Secured Party (all the foregoing hereinafter
called the "Indebtedness"), Debtors hereby grant and convey to Secured Party a
first priority continuing lien and security interest in the property described
on the schedule attached hereto and made a part hereof by this reference (the
"Schedule"), together with all insurance related thereto, and all proceeds
(including insurance proceeds) thereof, if any, and all substitutions,
modifications, replacements, attachments, additions, improvements, and
accessions thereto, and all intellectual property rights of ownership and/or
use, or other ownership or rights to use of proprietary information, as owner,
licensee, or otherwise relating to any of the foregoing (all of the foregoing
hereinafter called the "Collateral").
6. Representations, Warranties and Covenants. Debtors hereby each
represent, warrant and covenant as follows:
(a) Perform Obligations. Debtors shall pay as and when due all
Indebtedness secured by this Agreement and perform all of the
obligations contained in this Agreement according to its terms. Debtors
shall use the loan proceeds for business uses and not for personal,
family, household, or agricultural uses.
(b) Perfection. This Agreement and all necessary Uniform
Commercial Code filings together create a valid, perfected and first
priority continuing lien and security interest in the Collateral,
securing the payment and performance of the Indebtedness, and all
filings and other actions necessary or desirable to create, perfect and
protect such security interest have been or will be duly taken.
(c) Collateral Free and Clear. The Collateral is and shall
remain free and clear of all liens, claims, charges, encumbrances and
other security interests of any kind ("Liens") (other than the security
interest granted hereby). Debtors shall defend the title to the
Collateral against all persons and against all claims and demands
whatsoever.
(d) Possession and Operating Order of the Collateral. Debtors
shall retain possession of the Collateral at all times and shall not
sell, exchange, assign, loan, deliver, lease, mortgage, or otherwise
dispose of the Collateral or any part thereof (other than sales of
motor vehicles or equipment that are worn out, obsolete or no longer
useful to Debtors' business so long as such assets are promptly
replaced with similar assets having substantially the same business
utility and at least the same value and provided that such replacement
assets are subject to the Lien in favor of the Secured Party) without
the prior written consent of Secured Party. Debtors shall at all times
keep the Collateral at the location[s] specified on the Schedule
(except for removals thereof in the usual course of business for
temporary periods). At Debtors' sole cost and expense, Debtors shall
keep the Collateral in good repair and condition and shall not misuse,
abuse, waste or otherwise allow it to deteriorate, except for normal
wear and tear. Secured Party may verify any Collateral in any
reasonable manner which Secured Party may consider appropriate, and
Debtors shall furnish all reasonable
4
<PAGE> 5
assistance and information and perform any acts which Secured Party may
reasonably request in connection therewith.
(e) Insurance. Debtors shall insure the Collateral against
loss by fire (including extended coverage), theft and other hazards,
for its full insurable value including replacement costs, with a
deductible not to exceed $50,000 per occurrence and without
co-insurance. In addition, Debtors shall obtain liability insurance
covering liability for bodily injury, including death and property
damage, in an amount of at least $5,000,000 per occurrence or such
greater amount as may comply with general industry standards, or in
such other amounts as Secured Party may otherwise require. All policies
of insurance required hereunder shall be in such form, amounts, and
with such companies as Secured Party may approve; shall provide for at
least 30 days prior written notice to Secured Party prior to any
modification or cancellation thereof; shall name Secured Party as loss
payee or additional insured, as applicable, and shall be payable to
Debtors and Secured Party as their interests may appear; shall waive
any claim for premium against Secured Party; and shall provide that no
breach of warranty or representation or act or omission of Debtors
shall terminate, limit or affect the insurers' liability to Secured
Party. Certificates of insurance or policies evidencing the insurance
required hereunder along with satisfactory proof of the payment of the
premiums therefor shall be delivered to Secured Party. Debtors shall
give immediate written notice to Secured Party and to insurers of loss
or damage to the Collateral and shall promptly file proofs of loss with
insurers. Debtors hereby irrevocably appoint Secured Party as Debtors'
attorney-in-fact, coupled with an interest, for the purpose of
obtaining, adjusting and canceling any such insurance and endorsing
settlement drafts. Debtors hereby assign to Secured Party, as
additional security for the Indebtedness, all sums which may become
payable under such insurance.
In the event Debtors fail to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may
purchase insurance at Debtors' expense to protect Secured Party's
interests in the Collateral. This insurance may, but need not, protect
Debtors' interests. The coverage purchased by Secured Party may not pay
any claim made by Debtors or any claim that is made against Debtors in
connection with the Collateral. Debtors may later cancel any insurance
purchased by Secured Party, but only after providing Secured Party with
evidence that Debtors have obtained insurance as required by this
Agreement. If Secured Party purchases insurance for the Collateral,
Debtors will be responsible for the costs of that insurance, including
interest and other charges imposed by Secured Party in connection with
the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The costs of the insurance
may be added to the Indebtedness. The costs of the insurance may be
more than the cost of insurance Debtors are able to obtain on their
own.
(f) If Collateral Attaches to Real Estate. If the Collateral
or any part thereof has been attached to or is to be attached to real
estate, an accurate description of the real estate and the name and
address of the record owner is set forth on the Schedule. Debtors
shall, on demand of Secured Party, furnish Secured Party with a
disclaimer or waiver of any interest in any such Collateral
satisfactory to Secured Party and signed by all persons having an
5
<PAGE> 6
interest in the real estate. Notwithstanding the foregoing, the
Collateral shall remain personal property and shall not be affixed to
realty without the prior written consent of Secured Party.
(g) Reporting Covenants.
(i) As soon as available and in any event within 120
days after the close of each fiscal year of Arabian Shield and
Texas Oil II (collectively, the "Reporting Guarantors"),
Debtors shall cause Reporting Guarantors to furnish to Secured
Party copies of the consolidated balance sheets of Reporting
Guarantors and their subsidiaries as of the close of such
fiscal year and consolidated statements of income,
shareholders' equity and the statements of cash flow of
Reporting Guarantors and their subsidiaries for such fiscal
year, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable
detail and accompanied by an unqualified opinion thereon of an
independent public accounting firm of recognized national
standing selected by Reporting Guarantors and satisfactory to
Secured Party in its sole discretion to the effect that such
financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and that the
examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted
auditing standards.
(ii) As soon as available and in any event within 45
days after the close of each fiscal quarter of Reporting
Guarantors, Debtors shall cause Reporting Guarantors to
furnish to Secured Party copies of the consolidated and
consolidating balance sheets of Reporting Guarantors and their
subsidiaries as of the close of such fiscal quarter,
consolidated and consolidating statements of income and
consolidated statements of cash flow of Reporting Guarantors
and their subsidiaries for the portion of the year then ended,
in each case setting forth in comparative form the figures for
the preceding year.
(iii) Debtors shall notify Secured Party in writing
of any Event of Default (as defined herein) and of any
"default" or "event of default" under any indebtedness or
performance obligations to any other person or entity
immediately upon Debtors becoming aware of such event or
events.
(iv) Debtors shall provide to Secured Party, and will
cause Guarantors to provide, promptly following any request by
Secured Party, such other financial information and reports
concerning Debtors or Guarantors, or any or some of them, as
Secured Party may from time to time request, in each case
being in such form and detail as Secured Party may require.
(v) Debtors will cause the Guarantors to deliver all
reports, financial information, and other information required
to be delivered by the
6
<PAGE> 7
Guarantors to Secured Party under the terms of the
Guaranty or any other agreement between Secured Party
and the Guarantors.
(h) Authorization. Each Debtor is now, and will at all times
remain, a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdiction of its
formation. Each Debtor is now, and will at all times remain, duly
licensed, qualified to do business and in good standing as a foreign
corporation in every jurisdiction where failure to be so licensed or
qualified and in good standing would have a material adverse effect on
its respective business, properties or assets. The execution and
delivery of this Agreement and the other Loan Documents (to the extent
not inconsistent herewith) have been duly authorized by each Debtor and
each Guarantor and constitute the legal, valid and binding obligations
of each Debtor, enforceable against each Debtor, jointly and severally,
in accordance with their respective terms. Each Debtor shall preserve
and maintain its existence and shall not wind up its affairs or
otherwise dissolve. Each Debtor shall not, without 30 days prior
written notice to Secured Party, (1) change its respective name or so
change its structure such that any financing statement or other record
notice becomes misleading or (2) change its principal place of business
or chief executive or accounting offices from the address stated
herein.
(i) Litigation. Except as disclosed by Debtors in writing
prior to the Advance, there are no judgments outstanding against or
affecting Debtors, their officers, directors or affiliates or any part
of the Collateral and there are no actions, charges, claims, demands,
suits, proceedings, or investigations pending or threatened against
Debtors or otherwise affecting any part of the Collateral
("Litigation"). Debtors shall furnish to Secured Party all information
regarding any material Litigation as Secured Party shall reasonably
request and in any event shall promptly notify Secured Party in writing
of any Litigation against it which if decided against it would
materially and adversely affect the finances or operations of Debtors.
For the purposes of this subsection 6(i), any claim (or claims in the
aggregate, if relating to the same event) which exceeds $1,000,000 and
are not fully covered by in-force insurance shall be deemed material.
(j) No Conflicts. No Debtor is in violation of any material
term or provision of its respective by-laws, or of any material
agreement or instrument, decree, order, or any statute, rule, or
governmental regulation applicable to it. The execution, delivery and
performance of the Loan Documents do not and will not violate,
constitute a default under, or otherwise conflict with any such term or
provision or result in the creation of any security interest, lien,
charge, or encumbrance upon any of the properties or assets of each
Debtor, except for the security interest created hereunder.
(k) Compliance with Laws. Debtors shall use and maintain the
Collateral in accordance with all applicable laws, regulations,
ordinances, and codes and shall otherwise comply in all material
respects with all applicable laws, rules, and regulations and duly
observe all valid requirements of all governmental authorities, and all
statutes, rules and regulations relating to its business as now in
effect and which may be imposed in the future.
7
<PAGE> 8
(l) Taxes. Each Debtor has timely filed all tax returns
(federal, state, local, and foreign) required to be filed by it and has
paid or established reserves for all taxes, assessments, fees, and
other governmental charges in respect of its properties, assets, income
and franchises. Each Debtor shall promptly file, pay and discharge all
taxes, assessments, license fees (related to the Collateral) and other
governmental charges prior to the date on which penalties are attached
thereto, establish adequate reserves for the payments of such taxes,
assessments, and other governmental charges and make all required
withholding and other tax deposits, and, upon request, provide Secured
Party with receipts or other proof that any or all of such taxes,
assessments, license fees or governmental charges have been paid in a
timely fashion; provided, however, that nothing contained herein shall
require the payment of any tax, assessment, or other governmental
charge so long as its validity is being diligently contested in good
faith and by appropriate proceedings diligently conducted and each
Debtor has established cash reserves therefor in accordance with GAAP.
Should any stamp, excise, or other tax, including mortgage, conveyance,
deed, intangible, or recording taxes become payable in connection with
or respect of any of the Loan Documents, Debtors shall pay the same
(including interest and penalties, if any) and shall hold Secured Party
harmless with respect thereto.
(m) Environmental Laws/Compliance. Except as disclosed by
Debtor in writing prior to the Advance, no Debtor (1) has received any
claim, summons, complaint, order, or other notice that it is not in
compliance with, or that any public authority is investigating its
compliance with, any federal, state, and local laws, rules,
regulations, orders, and decrees relating to pollution, hazardous
substances, waste, disposal or the protection of human health or
safety, plant life or animal life, natural resources or the
environment, all as amended from time to time (collectively,
"Environmental Laws"), (2) has any knowledge of any material violation
of any Environmental Laws on or about its assets or property, and (3)
is under any current clean up or other remediation program or order.
Except as disclosed by Debtor in writing prior to the Advance, each
Debtor has obtained all environmental, health and safety permits
necessary for the operation of its business. Except as disclosed by
Debtor in writing prior to the Advance, Debtors are and shall remain in
compliance, in all respects, with the terms and conditions of all
permits and with all applicable Environmental Laws. Debtors shall
provide Secured Party, promptly following receipt, copies of any
correspondence, notice, complaint, order, or other document that any
Debtor receives asserting or alleging a circumstance or condition which
requires or may require a cleanup, removal, remedial action or other
response by or on the part of any Debtor under any Environmental Laws,
or which seeks damages or civil, criminal or punitive penalties from
any Debtor for an alleged violation of any Environmental Laws. Debtors
will promptly notify Secured Party of any release, spill or material
change in the nature or extent of any hazardous substances or
contaminants used, transported or stored by Debtors or any subsidiary
of any Debtor, and will allow no material change in the use,
transportation or storage thereof or in Debtors' operations that would
increase in any material amount the risk of violation of any
Environmental Laws, without the prior written approval of Secured
Party.
(n) Regulations. No proceeds of the loans or any other
financial accommodation hereunder will be used, directly or indirectly,
for the purpose of purchasing or carrying any
8
<PAGE> 9
margin security, as that term is defined in Regulations T, U, X of the
Board of Governors of the Federal Reserve System.
(o) Books and Records. Debtors shall maintain, at all times,
true and complete books and records in accordance with GAAP and
consistent with those applied in the preparation of their respective
financial statements. At all reasonable times, upon reasonable notice,
and during normal business hours, Debtors shall permit Secured Party or
its agents to audit, examine and make extracts from or copies of any of
its books, ledgers, reports, correspondence, and other records relating
to the Collateral.
(p) Setoff. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared),
Secured Party is hereby authorized at any time and from time to time to
the fullest extent permitted by law, but shall not be obligated to, set
off and apply against any and all Indebtedness, any and all monies then
or thereafter owed to any Debtor by Secured Party, whether or not the
obligation to pay such monies owed by Secured Party is then due. An
election by Secured Party to exercise its right of setoff shall be
effective immediately upon such election even though any charge
therefor is made or entered on Secured Party's records subsequent
thereto.
(q) Standard of Care; Notice of Claims. Debtors acknowledges
and agrees that Secured Party shall not be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law other
than as a sole and direct result of Secured Party's gross negligence or
willful misconduct. Debtors shall give Secured Party written notice of
any action or inaction by Secured Party or any agent or attorney of
Secured Party that may give rise to a claim against Secured Party or
any agent or attorney of Secured Party or that may be a defense to
payment of the Indebtedness or performance hereunder for any reason,
including commission of a tort (subject, in any event, to the first
sentence of this paragraph) or violation of any contractual duty or
duty implied by law. Debtors agree that unless such notice is fully
given as promptly as possible (and in any event within 30 days) after
any Debtor has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action or inaction, no Debtor
shall assert, and each Debtor shall be deemed to have waived, any claim
or defense arising therefrom.
(r) Indemnity. Each Debtor shall indemnify, defend and hold
Secured Party, its parent, affiliates, officers, directors, agents,
employees, consultants, persons engaged by Secured Party to evaluate or
monitor the Collateral, auditors and attorneys harmless from and
against any loss, cost, expense (including reasonable attorneys' fees
and costs and any consultants' or other experts' fees and expenses),
damage, penalty, fine, claim, lien, suit, judgment or liability of
every kind and nature arising directly or indirectly out of (i) any
Loan Document, (ii) the ownership, possession, lease, operation, use,
condition, sale, return, or other disposition of the Collateral, except
to the extent the loss, expense, damage or liability arises solely and
directly from Secured Party's gross negligence or willful misconduct,
(iii) any Environmental Laws, and (iv) the enforcement by Secured Party
of its rights or remedies
9
<PAGE> 10
hereunder. Any payments required to be made hereunder shall constitute
additional Indebtedness secured by the Collateral and shall be due and
payable on demand.
(s) Payments Set Aside. If any payment is made to Secured
Party or Secured Party enforces its security interest or exercises its
right of set off, and such payment or part, or any proceeds of such
enforcement or set off are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such
recovery, the Indebtedness or part thereof originally intended to be
satisfied, and all liens, security interests, rights and remedies
therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set off had not
occurred.
(t) Expenses and Attorneys' Fees. Debtors shall be liable for
all charges, costs, taxes, expenses and reasonable attorneys' fees
incurred by Secured Party: (i) in perfecting, defending, protecting or
terminating its security interest in the Collateral, or any part
thereof; (ii) subject to the limitations in this Agreement, in the
negotiation, execution, delivery, administration, amendment or
enforcement of the Loan Documents or the collection of any amounts due
under any Note or other Loan Document; (iii) in any lawsuit or other
legal proceeding in any way connected with any of the Loan Documents,
including any contract or tort or other actions, any arbitration or
other alternative dispute resolution proceeding, all appeals and
judgment enforcement actions and any bankruptcy proceeding (including
any relief from stay and/or adequate protection motions, cash
collateral disputes, assumption/rejection motions and disputes or
objections to any proposed disclosure statement or reorganization plan)
and (iv) subject to the limitations in this Agreement, in appraising
the Collateral and performing Secured Party's credit review, due
diligence, and inspection of Collateral.
(u) Complete Information. No representation or warranty made
by any Debtor in any Loan Document and no other document or statement
now or hereafter furnished to Secured Party by or on behalf of any
Debtor contains or will contain any misstatement of a material fact or
omit to state any material fact which would make the statements
contained therein misleading. Except as expressly set forth in writing
and delivered to Secured Party prior to the Advance, there is no fact
known to any Debtor that has or could have a materially adverse affect
on the business, operation, condition (financial or otherwise),
performance, properties or prospects of any Debtor or any Debtor's
ability to timely pay all of the Indebtedness and perform all of its
other obligations contained in or secured by this Agreement.
(v) Collateral Documentation. Debtors shall deliver to Secured
Party prior to the Advance, satisfactory documentation regarding the
Collateral to be financed, including such invoices, canceled checks
evidencing payments, or other documentation as may be reasonably
requested by Secured Party. Additionally, Debtors shall satisfy Secured
Party that Debtors' business and financial information is as has been
represented and there has been no material change in either Debtor's
business, financial condition, or operations.
10
<PAGE> 11
(w) Year 2000 Compliance. Each Debtor has made an assessment
of the microchip and computer-based systems and the software used in
its business and based upon such assessment believes that it will be
"Year 2000 Compliant" by January 1, 2000. For purposes of this
paragraph, "Year 2000 Compliant" means that all software, embedded
microchips and other processing capabilities utilized by, and material
to the business operations or financial condition of, each Debtor are
able to interpret, store, transmit, receive and manipulate data on and
involving all calendar dates correctly and without causing any abnormal
ending scenarios in relation to dates in and after the Year 2000.
(x) No Additional Indebtedness. No Debtor will incur, create,
assume, guarantee or permit to exist any indebtedness or liability,
whether for borrowed money, for the deferred purchase price of
property, as a contingent liability or otherwise, other than the
Revolving Facility (defined herein) and the financing by South Hampton
of insurance premiums. After the Coin Acquisition, the Debtors will not
permit Coin to incur, create, assume, guarantee or permit to exist any
indebtedness or liability, whether for borrowed money, for the deferred
purchase price of property, as a contingent liability or otherwise,
other than indebtedness of Coin for borrowed money existing on the date
hereof and any refinancings (but not increases) of such indebtedness.
(y) No Liens. Debtors will not permit any Liens to exist as to
the Collateral, the Real Property or any other assets of Debtors, other
than (i) Liens on accounts receivable and inventory to secure the
Revolving Facility, and (ii) Liens in favor of Secured Party. After the
Coin Acquisition, the Debtors will not permit any Liens to exist on any
property or assets of Coin, except for Liens granted to secure
indebtedness of Coin permitted under Section 6(x) above, so long as
such Liens only encumber the assets currently encumbered by such Liens.
(z) Real Property Lien. At Secured Party's request, South
Hampton will grant to Secured Party a first priority deed of trust Lien
on the South Hampton Refinery (as defined on the Schedule). The deed of
trust evidencing such Lien shall be in form and substance satisfactory
to Secured Party. Debtors will pay all fees and expenses incurred in
connection therewith, including without limitation reasonable
attorneys' fees and fees and expenses incurred in connection with any
environmental appraisals, title policies and reports and other due
diligence deemed necessary or advisable by Secured Party.
(aa) Distributions and Dividends. Debtors shall not upstream
funds or make distributions of any kind, including loans, payables or
intercompany advances, unless, at the time of such upstreaming, making
or advancing no Event of Default exists and EBITDA (as defined below)
for the trailing 12-month period is greater than $4,000,000, provided,
however, that such prohibition shall not apply to ordinary course of
business transactions among Texas Oil II, South Hampton, Gulf State and
Coin. EBITDA shall mean, for Texas Oil II, South Hampton, Gulf State
and Coin, on a consolidated basis, for any period, the sum of (i) net
income before income tax and franchise taxes, plus (ii) depreciation,
plus (iii) amortization, plus (iv) interest expense. In addition,
Debtors shall not pay dividends or any other payments of any kind to
their respective shareholders in or for any fiscal quarter, other than
such dividends or payments which do not exceed (in aggregate) the
lesser of
11
<PAGE> 12
(i) $150,000 or (ii) 50% of EBITDA minus interest expense for the
quarter that the dividends are paid; provided that no such dividends or
payments shall be allowed if Debtors and Guarantors are not in
compliance with the Loan Documents or an Event of Default exists or
would result from the making of such dividend or payment.
(bb) Working Capital Facility. South Hampton shall maintain a
working capital credit facility in an amount not less than $2,000,000,
with terms and conditions and from a lender acceptable to Secured Party
in its reasonable discretion (the "Revolving Facility"), and Secured
Party acknowledges that the current working capital facility maintained
with Southwest Bank of Texas, N.A. is acceptable.
(cc) Revolving Facility Covenants. South Hampton agrees to
comply with all of the terms, conditions and covenants in the documents
evidencing or relating to the Revolving Facility.
7. Events of Default. If any one of the following events (each of which
is herein called an "Event of Default") shall occur: (a) any Debtor or Guarantor
fails to pay any part of the Indebtedness when, or (b) any warranty or
representation of any Debtor or Guarantor in any Loan Document is materially
untrue, misleading or inaccurate, or (c) any Debtor or Guarantor defaults in the
performance of the covenants contained in Section 6(g) (other than subsection
(iii) thereof) and such default shall continue for 30 days after Debtor shall
have received notice thereof, or (d) any Debtor or Guarantor defaults in the
performance of any other covenant contained in this Agreement or any other Loan
Document, or (e) any Debtor or Guarantor breaches or defaults in the payment or
performance of any debt or other obligation owed by it to Secured Party or any
affiliate of Secured Party, and Secured Party has (without being obligated to do
so) declared such event, an Event of Default hereunder, or (f) any Debtor or
Guarantor breaches or defaults in the payment or performance of any other debt
or other obligation, whether now or hereafter existing, including without
limitation payment and performance of such obligations under the Revolving
Facility, or (g) there shall be any change in (i) the beneficial ownership and
control, directly or indirectly, of any outstanding voting securities or other
interests entitled (without regard to the occurrence of any contingency) to
elect or appoint members of the board of directors or other managing body of any
Debtor or Guarantor (other than Arabian Shield) or (ii) the beneficial ownership
and control, directly or indirectly, through a transaction or series of related
transactions of the majority of the outstanding voting securities or other
interests entitled (without regard to the occurrence of any contingency) to
elect or appoint members of the board of directors or other managing body of
Arabian Shield (a "change of control") and Secured Party notifies Arabian Shield
that, in Secured Party's judgment, such change of control is detrimental to
Secured Party's interests, such Event of Default to become effective 10 days
after such notice is given, or there is any merger, consolidation, dissolution,
liquidation, winding up or sale or other transfer of all or substantially all of
the assets of any Debtor or Guarantor pursuant to which there is a change of
control or cessation of any Debtor or Guarantor or the business of either, or
(h) any money judgment (including any civil and criminal penalties and fines) is
entered or filed against any Debtor or Guarantor in excess of $1,000,000, or (i)
any Debtor or Guarantor shall file a voluntary petition in bankruptcy, shall
apply for or permit the appointment by consent or acquiescence of a receiver,
conservator, administrator, custodian or trustee for itself or all or a
substantial part of its property, shall make an assignment for the benefit of
creditors or shall
12
<PAGE> 13
be unable, fail or admit in writing its inability to pay its debts generally as
such debts become due, or (j) there shall have been filed against any Debtor or
Guarantor an involuntary petition in bankruptcy or any Debtor or Guarantor shall
suffer or permit the involuntary appointment of a receiver, conservator,
administrator, custodian or trustee for all or a substantial part of its
property or the issuance of a warrant of attachment, diligence, execution or
similar process against all or any substantial part of its property; unless, in
each case, such petition, appointment or process is fully bonded against,
vacated or dismissed within 30 days from its effective date, but no later than
10 days prior to any proposed disposition of any assets pursuant to any such
proceeding, or (k) if there is a material adverse change in the business or
financial condition or prospects of any Debtor or Guarantor, then, and in any
such event, Secured Party shall have the right to exercise any one or more of
the remedies hereinafter provided, or (j) if the Kingdom of Saudi Arabia's
Ministry of Finance or other governmental agency declares a default or demands
payment of the $11,000,000 note of Arabian Shield owing to the Kingdom of Saudi
Arabia and payment is not made within 90 days, or any legal action is filed or
other judicial proceeding is taken to collect such note.
8. Remedies. Upon the occurrence of an Event of Default, in addition to
all rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party may, at its option, at any time (a) declare the Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; or
(c) require Debtors to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtors' sole cost and expense.
DEBTORS HEREBY EXPRESSLY WAIVE THEIR RIGHTS, IF ANY, TO (1) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship, store and repair the
Collateral so removed and sell any or all of the Collateral at a public or
private sale or sales. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will give Debtors reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or any
other intended disposition thereof is to be made, it being understood and agreed
that Secured Party may be a buyer at any such sale and no Debtor may, either
directly or indirectly, be a buyer at any such sale. The requirements, if any,
for reasonable notice will be met if such notice is mailed postage prepaid to
Debtors at their address shown above, at least five days before the time of sale
or disposition. After any such sale or disposition, Debtors shall be liable for
any deficiency of any Indebtedness remaining unpaid, with interest thereon at
the rate set forth in the Note.
9. Cumulative Remedies/Marshaling. All remedies of Secured Party
hereunder and under the other Loan Documents are cumulative, are in addition to
any other remedies provided for by law or in equity, or under any other
provision of any of the Loan Documents, or under the provisions of any other
document, instrument or other writing executed by Debtors or any third party in
favor of Secured Party, all of which may, to the extent permitted by law, be
exercised concurrently or separately, and the exercise of any one remedy shall
not be deemed an election of such remedy or to preclude the exercise of any
other remedy. No failure on the part of Secured Party to exercise, and no delay
in exercising any right or remedy, shall operate as a waiver thereof or in any
way modify or be deemed to modify the terms of this Agreement or any other Loan
Document or the Indebtedness,
13
<PAGE> 14
nor shall any single or partial exercise by Secured Party of any right or remedy
preclude any other or further exercise of the same or any other right or remedy.
Secured Party shall not be under any obligation to marshal any assets in favor
of Debtors, any Guarantor or any other person or against or in payment of any or
all of the Indebtedness.
10. Assignment. Secured Party may transfer or assign all or any part
of the Indebtedness and the Loan Documents without releasing Debtors or the
Collateral, and upon such transfer or assignment the assignee or holder shall be
entitled to all the rights, powers, privileges and remedies of Secured Party to
the extent assigned or transferred. The obligations of Debtors shall not be
subject, as against any such assignee or transferee, to any defense, set-off, or
counter-claim available to Debtors against Secured Party and any such defense,
set-off, or counter-claim may be asserted only against Secured Party.
11. Time is of the Essence. Time and manner of performance by Debtors
of their duties and obligations under the Loan Documents is of the essence. If
any Debtor shall fail to comply with any provision of any of the Loan Documents,
Secured Party shall have the right, but shall not be obligated, to take action
to address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be paid by
Debtors upon demand and shall be added to the Indebtedness. Any such action by
Secured Party shall not constitute a waiver of any Debtor's default.
12. ENFORCEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO THAT STATE'S PRINCIPLES OF CONFLICTS OF LAWS.
DEBTORS HEREBY SUBMIT TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN COOK COUNTY, ILLINOIS, AND IRREVOCABLY AGREES THAT, SUBJECT TO
SECURED PARTY'S ELECTION (AND WITHOUT LIMITING SECURED PARTY'S RIGHT TO COMMENCE
AN ACTION IN ANY OTHER JURISDICTION), ALL ACTIONS OR PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN SUCH COURTS. EACH DEBTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE INDEBTEDNESS, SUBJECT TO ANY
RIGHTS OF APPEAL WHICH ANY DEBTOR MAY HAVE UNDER ILLINOIS LAW. WITHOUT LIMITING
ANY OTHER MANNER OF SERVICE AVAILABLE TO SECURED PARTY, EACH DEBTOR EXPRESSLY
WAIVES PERSONAL SERVICE OF PROCESS IN CONNECTION WITH ANY SUCH ACTION OR
PROCEEDING AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED
TO THE LAST KNOWN ADDRESS OF DEBTORS, WHICH SERVICE SHALL BE DEEMED COMPLETED
WITHIN 10 DAYS AFTER THE DATE OF MAILING THEREOF.
13. Further Assurance; Notice. Debtors shall at their expense, execute
and deliver such documents and do such further acts as Secured Party may from
time to time reasonably require to assure and confirm the rights created or
intended to be created hereunder, to carry out the intention or facilitate the
performance of the terms of the Loan Documents or to assure the validity,
perfection, priority or enforceability of any security interest created
hereunder. Debtors agree to execute any instrument or instruments necessary or
expedient for filing, recording, perfecting, notifying, foreclosing, and/or
liquidating of Secured Party's interest in the Collateral upon request of, and
as
14
<PAGE> 15
determined by, Secured Party, and Debtors hereby specifically authorize Secured
Party to prepare and file Uniform Commercial Code financing statements and other
documents and to execute same for and on behalf of Debtors as Debtors'
attorney-in-fact, irrevocably and coupled with an interest, for such purposes.
All notices required or otherwise given by either party shall be in writing and
shall be delivered by hand, by registered or certified first class United States
mail, return receipt requested, or by overnight courier to the other party at
its address stated herein or at such other address as the other party may from
time to time designate by written notice. All notices shall be deemed given when
received, when delivery is refused or when returned for failure to be called
for. Each provision of this Agreement shall remain in full force and effect
until all of the Indebtedness is fully, finally and indefeasibly satisfied and,
notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Debtors and Secured Party set forth in Section 6(q) shall
survive the full, final and indefeasible satisfaction of the Indebtedness.
14. WAIVER OF JURY TRIAL. DEBTORS AND SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. DEBTORS AND SECURED PARTY
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THE
LOAN DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. DEBTORS AND SECURED PARTY FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH THEIR LEGAL COUNSEL AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
15. Joint and Several Obligation. If this Agreement is executed by
more than one person as Debtor, each such Debtor hereby acknowledges it is
jointly and severally liable for and unconditionally guarantees the prompt and
full payment and performance of all obligations of each other Debtor hereunder
and under the other Loan Documents.
16. Complete Agreement. The Loan Documents embody the entire agreement
among the parties hereto superseding all prior commitments, agreements,
representations, and understandings, whether written or oral relating to the
subject matter hereof, and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. The Loan Documents may not be altered, modified or terminated in
any manner except by a writing duly signed by the parties thereto. Debtors and
Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall remain
in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. This
Agreement may be executed in multiple counterparts, each of which will be deemed
an original, but which together shall constitute the same document.
17. Publication. Secured Party shall (at Secured Party's sole expense)
have the right to secure printed publicity concerning the transactions
contemplated by this Agreement through newspapers, brochures, and other media.
[signature page follows]
15
<PAGE> 16
IN WITNESS WHEREOF, Secured Party and Debtors have each signed this
Agreement as of the day and year first above written.
HELLER FINANCIAL LEASING, INC.
By:
--------------------------------------
Name:
Title:
SOUTH HAMPTON REFINING CO.
By:
--------------------------------------
Nicholas N. Carter
President
GULF STATE PIPELINE COMPANY, INC.
By:
--------------------------------------
Nicholas N. Carter
President
LOAN AND SECURITY AGREEMENT
SIGNATURE PAGE
<PAGE> 17
SCHEDULE 1
Collateral
The Collateral shall, in part, consist of all present and future
machinery, equipment, storage tanks, truck and rail loading terminal and
equipment, transportation equipment, and all other equipment including all
improvements, attachments, substitutions, additions, replacements, and proceeds
thereof (cash and non-cash) now owned or hereafter acquired which is located at
7752 FM 418, Silsbee, Texas 77656 and such other locations as such assets may be
located.
Record Owner: South Hampton Refining Co.
Legal Description of Real Estate to which certain Collateral is attached:
[See attached]
<PAGE> 18
EXHIBIT A
Form of Note
<PAGE> 19
Loan No.:________
PROMISSORY NOTE
$3,500,000.00 December 30, 1999
FOR VALUE RECEIVED, SOUTH HAMPTON REFINING CO., a Texas corporation, and
GULF STATE PIPE LINE COMPANY, INC., a Texas corporation ("Makers"), jointly and
severally, promise to pay to the order of HELLER FINANCIAL LEASING, INC., a
Delaware corporation (together with any holder of this Note, "Payee"), at its
office located at 500 West Monroe Street, Chicago, Illinois 60661, or at such
other place as Payee may from time to time designate, the principal sum of THREE
MILLION FIVE HUNDRED THOUSAND and 00/100 Dollars ($3,500,000.00), together with
interest thereon at a fixed rate equal to 10.55% per annum. Principal and
interest shall be payable in 47 consecutive monthly installments commencing
February 1, 2000 and continuing on the same day of each consecutive calendar
month thereafter until this Note is fully paid, each such installment in the
amount of EIGHTY-NINE THOUSAND SIX HUNDRED NINETY-SIX and 37/100 Dollars
($89,696.37); provided, however, that in any and all events the final
installment payment hereunder shall be in the amount of the entire then
outstanding principal balance hereunder, plus all accrued and unpaid interest,
charges and other amounts owing hereunder or under the Security Agreement
(defined below). All payments shall be applied first to interest and then to
principal. Interest shall be computed on the basis of a 360 day year comprised
of 30-day months.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by, among other things, the collateral described in
the Loan and Security Agreement dated as of the date hereof between Makers and
Payee (the "Loan and Security Agreement;" and together with all related
documents and instruments, the "Loan Documents"), and other Loan Documents, to
which reference is made for a statement of the nature and extent of protection
and security afforded, certain rights of Payee and certain rights and
obligations of Makers, including Makers' rights, if any, to prepay the principal
balance hereof; provided, however, that in addition to any other sum payable
hereunder, under the Loan and Security Agreement or any of the other Loan
Documents, in the event of a prepayment of the principal balance hereunder,
whether voluntary, following acceleration or otherwise, Makers shall pay to
Payee together with such prepayment a Breakage Fee (defined below), which
Breakage Fee, together with the amounts payable under Section 4 of the Loan and
Security Agreement, if any, represents liquidated damages to Payee for the loss
of its bargain and not a penalty. As used herein, the term "Breakage Fee" shall
mean the amount, if any, by which (A) the present value, in the aggregate, of
the then remaining installments of principal and interest due hereunder, absent
the prepayment, using a discount rate equal to (i) the yield to maturity as of
the date two (2) days prior to the date of the prepayment on United States
Treasury securities with a final maturity approximately equal to the remaining
term hereof, absent the prepayment, as published in The Wall Street Journal,
plus (ii) one percent (1.00%), exceeds (B) the then outstanding principal
balance hereunder, absent the prepayment.
Time is of the essence hereof. If payment of any installment or any other
sum due under this Note or the Loan Documents is not paid when due, Makers
jointly and severally agree to pay a late charge equal to the lesser of (i) five
cents (5 cent) per dollar on, and in addition to, the amount of each such
payment, or (ii) the maximum amount Payee is permitted to charge by law. In the
event of the occurrence of an Event of Default (as defined in the Loan and
Security Agreement), then the entire unpaid principal balance hereof with
accrued and unpaid interest thereon, together with all other sums payable under
this Note or the Loan Documents, shall, at the option of Payee and without
notice or demand, become immediately due and payable, such accelerated balance
bearing interest until paid at the rate of five and 00/100 percent (5.00%) per
annum above the fixed rate set forth in the first paragraph of this Note.
<PAGE> 20
Makers and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Makers and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.
If there be more than one Maker, all the obligations, promises, agreements
and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKERS HEREBY SUBMIT TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO
THE LAST KNOWN ADDRESS OF MAKERS, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN
TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKERS HEREBY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKERS ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKERS FURTHER WARRANT AND
REPRESENT THAT THEY HAVE REVIEWED THIS WAIVER WITH LEGAL COUNSEL AND THAT THEY
KNOWINGLY AND VOLUNTARILY WAIVE THEIR JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
MAKERS:
SOUTH HAMPTON REFINING CO.
By:
----------------------------------------
Nicholas N. Carter
President
GULF STATE PIPELINE COMPANY, INC.
By:
----------------------------------------
Nicholas N. Carter
President
<PAGE> 21
Loan No. _____________
GUARANTY
For valuable consideration, the receipt whereof is hereby acknowledged,
and to induce HELLER FINANCIAL LEASING, INC., a Delaware corporation ("Lender"),
to make loans or advances, or extend credit or financial accommodations to SOUTH
HAMPTON REFINING CO. and GULF STATE PIPE LINE COMPANY, INC. ("Debtors"), or to
continue the same, but without requiring Lender to do so, the undersigned,
ARABIAN SHIELD DEVELOPMENT COMPANY, a Delaware corporation (hereinafter called
"Guarantor"), promises to pay to Lender, on demand, in lawful money of the
United States, the due and punctual payment and performance of all indebtedness
of Debtors to Lender no matter how acquired by Lender. The word "indebtedness"
is used herein in its most comprehensive sense and includes any and all loans or
performance obligations, notes, security agreements and liabilities of Debtors
to Lender including those existing, now or hereafter made, entered into,
incurred, created or owing, however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Debtors may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become otherwise
unenforceable, including without limitation indebtedness of Debtors to Lender
under that certain Loan and Security Agreement of even date herewith by and
among Debtors and Lender (the "Loan Agreement"). This is a guaranty of payment
and performance and not of collection. Guarantor's obligations hereunder shall
be unconditional (and shall not be subject to any defense, setoff, counterclaim
or recoupment whatsoever) irrespective of the genuineness, validity, regularity
or enforceability of the indebtedness or any conduct of Debtors and/or Lender
which might constitute a legal or equitable discharge of a surety, guarantor or
guaranty.
This is an absolute, unconditional and continuing guaranty relating to
the indebtedness, including that arising under successive transactions which
shall either continue the indebtedness or from time to time renew it after it
has been satisfied or create new indebtedness. This Guaranty shall not apply to
any indebtedness created after actual receipt by Lender of written notice of its
revocation as to future transactions, except that indebtedness committed to
prior to such date but consummated and actually created subsequent to such date
shall be covered hereby.
The obligations hereunder are joint and several, independent of the
obligations of Debtors or the obligations of any other person(s) or guarantor(s)
who may be liable to Lender in whole or in part for the indebtedness, and a
separate action or actions may be brought and prosecuted against Guarantor or
any of them whether action is brought against Debtors alone or whether Debtors
be joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof.
Guarantor authorizes Lender, without notice or consent and without
affecting, impairing or discharging in whole or in part its liability hereunder,
from time to time to (a) renew, modify, amend, compromise, extend, accelerate,
discharge or otherwise change the
<PAGE> 22
time for payment of, or otherwise change the terms or provisions of the
indebtedness or any part thereof, including increasing or decreasing the rate of
interest thereon; (b) take and hold collateral for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, and release any
such collateral; (c) apply such collateral and direct the order or manner of
sale thereof as Lender in its discretion may determine; or (d) release or
substitute in whole or in part any one or more of the endorsers, Guarantor or
anyone else who may be partially or wholly liable for any part of the
indebtedness. Lender may without notice assign this Guaranty in whole or in
part.
Guarantor waives any right to require Lender to (a) proceed against or
exhaust remedies against Debtors; (b) proceed against or exhaust any collateral
given by Debtors or Guarantor; (c) pursue any other remedy in Lender's power
whatsoever; or (d) proceed against any other person(s) or guarantor(s) who may
be liable to Lender in whole or in part for the indebtedness. Guarantor waives
any defense arising by reason of any disability or other defense of Debtors or
by reason of the cessation or modification from any cause whatsoever of the
liability of Debtors. Guarantor waives diligence, all presentments, demands for
performance, notices of non-performance, default, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new, changed, modified, increased or
additional indebtedness, and all other notices of every and any kind. GUARANTOR
HEREBY WAIVES ANY AND ALL NOTICE OF LENDER'S INTENT TO ACCELERATE THE
INDEBTEDNESS AND FURTHER WAIVES ANY NOTICE OF ACCELERATION.
Lender shall have a claim and a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lender whether held in a special account for safekeeping or otherwise, and such
right of setoff may be exercised without demand upon Guarantor or notice by
Lender. No right of setoff shall be deemed to have been waived by any act or
conduct on the part of Lender or by any neglect to exercise such right of setoff
or by any delay in so doing, and every right of setoff shall continue in full
force and effect until such right of setoff is specifically waived or released
by an instrument in writing executed by Lender.
Guarantor waives and agrees not to assert any claim Guarantor may now
or later have against Debtors until such time as the indebtedness is fully,
finally and indefeasibly paid to Lender. Guarantor agrees that this paragraph is
intended to benefit Debtors and is relied upon by Lender. As used in this
paragraph, the term 'claim' is defined in the Bankruptcy Code, Section 101.
Guarantor further hereby irrevocably waives and releases any right of
subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration, or other similar right, or
indemnity, or any right of recourse to collateral for any of the indebtedness
until such time as the indebtedness is fully, finally and indefeasibly paid to
Lender.
Guarantor agrees to pay reasonable attorneys' fees and all other costs
and expenses which may be incurred by Lender in the enforcement of this Guaranty
or otherwise relating to this Guaranty including, without limitation, in
connection with any lawsuit, arbitration or other alternative dispute resolution
proceeding, appeal, judgment enforcement action, bankruptcy proceeding
(including, without limitation, any relief from stay and/or adequate
2
<PAGE> 23
protection motions, cash collateral disputes, assumption/rejection motions and
disputes or objections to any proposed disclosure statement or reorganization
plan) or other legal proceeding in any way related to this Guaranty. Guarantor
acknowledges and agrees that the preceding sentence shall survive and not be
merged with any judgment in connection with any exercise of any right or remedy
by Lender in connection with this Guaranty. Guarantor further agrees that all
reasonable attorneys' fees, costs and expenses incurred in pursuing or enforcing
rights and/or any collateral or security shall constitute so much additional
indebtedness hereby guaranteed.
Guarantor hereby expressly agrees to deliver any and all information
required to be delivered by Guarantor under Section 6(g) of the Loan Agreement,
and Guarantor hereby expressly affirms the representations contained in, and
agrees to comply with the agreements and covenants set forth in, 6(h), 6(i),
6(j), 6(k), 6(l), 6(m), 6(u) and 6(w) of the Loan Agreement to the same extent
as if such provisions were contained herein and Guarantor were the "Debtor"
named therein.
Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, on the indebtedness is rescinded or must otherwise be restored by
Lender upon the bankruptcy or reorganization of Debtors or otherwise.
Any indebtedness of Debtors now or hereafter held by or owing to
Guarantor is hereby subordinated to Lender and such indebtedness, if requested
by Lender, shall be collected, enforced, and received by Guarantor as trustee
for Lender and promptly paid over to Lender.
In this Guaranty, the singular shall include the plural, the plural
shall include the singular, and the use of any gender shall be applicable to all
genders. If any Guarantor is a corporation, by executing and delivering this
Guaranty, it and the officers thereof signing on its behalf represent and
warrant that the execution and delivery of this Guaranty has been duly
authorized by all necessary and appropriate corporate and shareholder action.
In case any one or more of the provisions contained in this Guaranty
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
Guarantor agrees to notify Lender promptly upon learning that a "change
of control" (as defined in the Loan Agreement) with respect to Guarantor has
occurred or is imminent.
Guarantor consents and agrees that, without notice to or by Guarantor
and without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Lender may, from time to time before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the indebtedness or any property securing any or all of the indebtedness
or any guaranty thereof, including, without limitation, judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly
3
<PAGE> 24
waives any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor's rights, including,
without limitation, any destruction of Guarantor's right of subrogation against
Debtors and any destruction of Guarantor's right of contribution or other right
against any other guarantor of any or all of the indebtedness or against any
other person by operation of any statutes or rules of law now or hereafter in
effect, or otherwise.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
THAT STATE'S PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR HEREBY SUBMITS TO THE
PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK COUNTY,
ILLINOIS, AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION (AND WITHOUT
LIMITING LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION), ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE
LITIGATED IN SUCH COURTS. GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS GUARANTY, SUBJECT TO SUCH RIGHT OF APPEAL AS GUARANTOR MAY BE ENTITLED
UNDER ILLINOIS LAW. WITHOUT LIMITING ANY OTHER MANNER OF SERVICE AVAILABLE TO
LENDER, GUARANTOR EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING AND CONSENTS TO SERVICE BY CERTIFIED MAIL,
POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF GUARANTOR, WHICH SERVICE
SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING
THEREOF.
[Remainder of page intentionally blank. Signature pages follow.]
4
<PAGE> 25
IN WITNESS WHEREOF, the undersigned Guarantor, and each of them (if
there be more than one), has executed and delivered this Guaranty independent of
each other and not relying upon or in consideration of the execution hereof
by any other of them, on this 30th day of December, 1999.
GUARANTOR:
ARABIAN SHIELD DEVELOPMENT COMPANY
By:
-------------------------------------
Hatem El-Khalidi
President and Chief Executive Officer
GUARANTY
SIGNATURE PAGE
<PAGE> 26
Loan No.______________
GUARANTY
For valuable consideration, the receipt whereof is hereby acknowledged, and
to induce HELLER FINANCIAL LEASING, INC., a Delaware corporation ("Lender"), to
make loans or advances, or extend credit or financial accommodations to SOUTH
HAMPTON REFINING CO. and GULF STATE PIPE LINE COMPANY, INC. ("Debtors"), or to
continue the same, but without requiring Lender to do so, the undersigned,
AMERICAN SHIELD REFINING COMPANY, a Delaware corporation (hereinafter called
"Guarantor"), promises to pay to Lender, on demand, in lawful money of the
United States, the due and punctual payment and performance of all indebtedness
of Debtors to Lender no matter how acquired by Lender. The word "indebtedness"
is used herein in its most comprehensive sense and includes any and all loans or
performance obligations, notes, security agreements and liabilities of Debtors
to Lender including those existing, now or hereafter made, entered into,
incurred, created or owing, however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Debtors may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become otherwise
unenforceable, including without limitation indebtedness of Debtors to Lender
under that certain Loan and Security Agreement of even date herewith by and
among Debtors and Lender (the "Loan Agreement"). This is a guaranty of payment
and performance and not of collection. Guarantor's obligations hereunder shall
be unconditional (and shall not be subject to any defense, setoff, counterclaim
or recoupment whatsoever) irrespective of the genuineness, validity, regularity
or enforceability of the indebtedness or any conduct of Debtors and/or Lender
which might constitute a legal or equitable discharge of a surety, guarantor or
guaranty.
This is an absolute, unconditional and continuing guaranty relating to the
indebtedness, including that arising under successive transactions which shall
either continue the indebtedness or from time to time renew it after it has been
satisfied or create new indebtedness. This Guaranty shall not apply to any
indebtedness created after actual receipt by Lender of written notice of its
revocation as to future transactions, except that indebtedness committed to
prior to such date but consummated and actually created subsequent to such date
shall be covered hereby.
The obligations hereunder are joint and several, independent of the
obligations of Debtors or the obligations of any other person(s) or guarantor(s)
who may be liable to Lender in whole or in part for the indebtedness, and a
separate action or actions may be brought and prosecuted against Guarantor or
any of them whether action is brought against Debtors alone or whether Debtors
be joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof.
Guarantor authorizes Lender, without notice or consent and without
affecting, impairing or discharging in whole or in part its liability hereunder,
from time to time to (a) renew, modify, amend, compromise, extend, accelerate,
discharge or otherwise change the
<PAGE> 27
time for payment of, or otherwise change the terms or provisions of the
indebtedness or any part thereof, including increasing or decreasing the rate of
interest thereon; (b) take and hold collateral for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, and release any
such collateral; (c) apply such collateral and direct the order or manner of
sale thereof as Lender in its discretion may determine; or (d) release or
substitute in whole or in part any one or more of the endorsers, Guarantor or
anyone else who may be partially or wholly liable for any part of the
indebtedness. Lender may without notice assign this Guaranty in whole or in
part.
Guarantor waives any right to require Lender to (a) proceed against or
exhaust remedies against Debtors; (b) proceed against or exhaust any collateral
given by Debtors or Guarantor; (c) pursue any other remedy in Lender's power
whatsoever; or (d) proceed against any other person(s) or guarantor(s) who may
be liable to Lender in whole or in part for the indebtedness. Guarantor waives
any defense arising by reason of any disability or other defense of Debtors or
by reason of the cessation or modification from any cause whatsoever of the
liability of Debtors. Guarantor waives diligence, all presentments, demands for
performance, notices of non_performance, default, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new, changed, modified, increased or
additional indebtedness, and all other notices of every and any kind. GUARANTOR
HEREBY WAIVES ANY AND ALL NOTICE OF LENDER'S INTENT TO ACCELERATE THE
INDEBTEDNESS AND FURTHER WAIVES ANY NOTICE OF ACCELERATION.
Lender shall have a claim and a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lender whether held in a special account for safekeeping or otherwise, and such
right of setoff may be exercised without demand upon Guarantor or notice by
Lender. No right of setoff shall be deemed to have been waived by any act or
conduct on the part of Lender or by any neglect to exercise such right of setoff
or by any delay in so doing, and every right of setoff shall continue in full
force and effect until such right of setoff is specifically waived or released
by an instrument in writing executed by Lender.
Guarantor waives and agrees not to assert any claim Guarantor may now or
later have against Debtors until such time as the indebtedness is fully, finally
and indefeasibly paid to Lender. Guarantor agrees that this paragraph is
intended to benefit Debtors and is relied upon by Lender. As used in this
paragraph, the term 'claim' is defined in the Bankruptcy Code, Section 101.
Guarantor further hereby irrevocably waives and releases any right of
subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration, or other similar right, or
indemnity, or any right of recourse to collateral for any of the indebtedness
until such time as the indebtedness is fully, finally and indefeasibly paid to
Lender.
Guarantor agrees to pay reasonable attorneys' fees and all other costs and
expenses which may be incurred by Lender in the enforcement of this Guaranty or
otherwise relating to this Guaranty including, without limitation, in connection
with any lawsuit, arbitration or other alternative dispute resolution
proceeding, appeal, judgment enforcement action, bankruptcy proceeding
(including, without limitation, any relief from stay and/or adequate
2
<PAGE> 28
protection motions, cash collateral disputes, assumption/rejection motions and
disputes or objections to any proposed disclosure statement or reorganization
plan) or other legal proceeding in any way related to this Guaranty. Guarantor
acknowledges and agrees that the preceding sentence shall survive and not be
merged with any judgment in connection with any exercise of any right or remedy
by Lender in connection with this Guaranty. Guarantor further agrees that all
reasonable attorneys' fees, costs and expenses incurred in pursuing or enforcing
rights and/or any collateral or security shall constitute so much additional
indebtedness hereby guaranteed.
Guarantor hereby expressly agrees to deliver any and all information
required to be delivered by Guarantor under Section 6(g) of the Loan Agreement,
and Guarantor hereby expressly affirms the representations contained in, and
agrees to comply with the agreements and covenants set forth in, 6(h), 6(i),
6(j), 6(k), 6(l), 6(m), 6(u) and 6(w) of the Loan Agreement to the same extent
as if such provisions were contained herein and Guarantor were the "Debtor"
named therein.
Guarantor further agrees that this Guaranty shall continue to be effective
or be reinstated, as the case may be, if at any time payment, or any part
thereof, on the indebtedness is rescinded or must otherwise be restored by
Lender upon the bankruptcy or reorganization of Debtors or otherwise.
Any indebtedness of Debtors now or hereafter held by or owing to Guarantor
is hereby subordinated to Lender and such indebtedness, if requested by Lender,
shall be collected, enforced, and received by Guarantor as trustee for Lender
and promptly paid over to Lender.
In this Guaranty, the singular shall include the plural, the plural shall
include the singular, and the use of any gender shall be applicable to all
genders. If any Guarantor is a corporation, by executing and delivering this
Guaranty, it and the officers thereof signing on its behalf represent and
warrant that the execution and delivery of this Guaranty has been duly
authorized by all necessary and appropriate corporate and shareholder action.
In case any one or more of the provisions contained in this Guaranty should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Lender may, from time to time before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the indebtedness or any property securing any or all of the indebtedness
or any guaranty thereof, including, without limitation, judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly
3
<PAGE> 29
waives any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor's rights, including,
without limitation, any destruction of Guarantor's right of subrogation against
Debtors and any destruction of Guarantor's right of contribution or other right
against any other guarantor of any or all of the indebtedness or against any
other person by operation of any statutes or rules of law now or hereafter in
effect, or otherwise.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
THAT STATE'S PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR HEREBY SUBMITS TO THE
PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK COUNTY,
ILLINOIS, AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION (AND WITHOUT
LIMITING LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION), ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE
LITIGATED IN SUCH COURTS. GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS GUARANTY, SUBJECT TO SUCH RIGHT OF APPEAL AS GUARANTOR MAY BE ENTITLED
UNDER ILLINOIS LAW. WITHOUT LIMITING ANY OTHER MANNER OF SERVICE AVAILABLE TO
LENDER, GUARANTOR EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING AND CONSENTS TO SERVICE BY CERTIFIED MAIL,
POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF GUARANTOR, WHICH SERVICE
SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING
THEREOF.
[Remainder of page intentionally blank. Signature pages follow.]
4
<PAGE> 30
IN WITNESS WHEREOF, the undersigned Guarantor, and each of them (if there
be more than one), has executed and delivered this Guaranty independent of each
other and not relying upon or in consideration of the execution hereof by any
other of them, on this 30th day of December, 1999.
GUARANTOR:
AMERICAN SHIELD REFINING COMPANY
By:
--------------------------------------
Hatem El-Khalidi
President and Chief Executive Officer
GUARANTY
SIGNATURE PAGE
<PAGE> 31
Loan No. _____________
GUARANTY
For valuable consideration, the receipt whereof is hereby acknowledged,
and to induce HELLER FINANCIAL LEASING, INC., a Delaware corporation ("Lender"),
to make loans or advances, or extend credit or financial accommodations to SOUTH
HAMPTON REFINING CO. and GULF STATE PIPE LINE COMPANY, INC. ("Debtors"), or to
continue the same, but without requiring Lender to do so, the undersigned, TEXAS
OIL AND CHEMICAL CO. II, INC., a Texas corporation (hereinafter called
"Guarantor"), promises to pay to Lender, on demand, in lawful money of the
United States, the due and punctual payment and performance of all indebtedness
of Debtors to Lender no matter how acquired by Lender. The word "indebtedness"
is used herein in its most comprehensive sense and includes any and all loans or
performance obligations, notes, security agreements and liabilities of Debtors
to Lender including those existing, now or hereafter made, entered into,
incurred, created or owing, however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Debtors may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become otherwise
unenforceable, including without limitation indebtedness of Debtors to Lender
under that certain Loan and Security Agreement of even date herewith by and
among Debtors and Lender (the "Loan Agreement"). This is a guaranty of payment
and performance and not of collection. Guarantor's obligations hereunder shall
be unconditional (and shall not be subject to any defense, setoff, counterclaim
or recoupment whatsoever) irrespective of the genuineness, validity, regularity
or enforceability of the indebtedness or any conduct of Debtors and/or Lender
which might constitute a legal or equitable discharge of a surety, guarantor or
guaranty.
This is an absolute, unconditional and continuing guaranty relating to
the indebtedness, including that arising under successive transactions which
shall either continue the indebtedness or from time to time renew it after it
has been satisfied or create new indebtedness. This Guaranty shall not apply to
any indebtedness created after actual receipt by Lender of written notice of its
revocation as to future transactions, except that indebtedness committed to
prior to such date but consummated and actually created subsequent to such date
shall be covered hereby.
The obligations hereunder are joint and several, independent of the
obligations of Debtors or the obligations of any other person(s) or guarantor(s)
who may be liable to Lender in whole or in part for the indebtedness, and a
separate action or actions may be brought and prosecuted against Guarantor or
any of them whether action is brought against Debtors alone or whether Debtors
be joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof.
Guarantor authorizes Lender, without notice or consent and without
affecting, impairing or discharging in whole or in part its liability hereunder,
from time to time to (a) renew, modify, amend, compromise, extend, accelerate,
discharge or otherwise change the
<PAGE> 32
time for payment of, or otherwise change the terms or provisions of the
indebtedness or any part thereof, including increasing or decreasing the rate of
interest thereon; (b) take and hold collateral for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, and release any
such collateral; (c) apply such collateral and direct the order or manner of
sale thereof as Lender in its discretion may determine; or (d) release or
substitute in whole or in part any one or more of the endorsers, Guarantor or
anyone else who may be partially or wholly liable for any part of the
indebtedness. Lender may without notice assign this Guaranty in whole or in
part.
Guarantor waives any right to require Lender to (a) proceed against or
exhaust remedies against Debtors; (b) proceed against or exhaust any collateral
given by Debtors or Guarantor; (c) pursue any other remedy in Lender's power
whatsoever; or (d) proceed against any other person(s) or guarantor(s) who may
be liable to Lender in whole or in part for the indebtedness. Guarantor waives
any defense arising by reason of any disability or other defense of Debtors or
by reason of the cessation or modification from any cause whatsoever of the
liability of Debtors. Guarantor waives diligence, all presentments, demands for
performance, notices of non-performance, default, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new, changed, modified, increased or
additional indebtedness, and all other notices of every and any kind. GUARANTOR
HEREBY WAIVES ANY AND ALL NOTICE OF LENDER'S INTENT TO ACCELERATE THE
INDEBTEDNESS AND FURTHER WAIVES ANY NOTICE OF ACCELERATION.
Lender shall have a claim and a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lender whether held in a special account for safekeeping or otherwise, and such
right of setoff may be exercised without demand upon Guarantor or notice by
Lender. No right of setoff shall be deemed to have been waived by any act or
conduct on the part of Lender or by any neglect to exercise such right of setoff
or by any delay in so doing, and every right of setoff shall continue in full
force and effect until such right of setoff is specifically waived or released
by an instrument in writing executed by Lender.
Guarantor waives and agrees not to assert any claim Guarantor may now
or later have against Debtors until such time as the indebtedness is fully,
finally and indefeasibly paid to Lender. Guarantor agrees that this paragraph is
intended to benefit Debtors and is relied upon by Lender. As used in this
paragraph, the term 'claim' is defined in the Bankruptcy Code, Section 101.
Guarantor further hereby irrevocably waives and releases any right of
subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration, or other similar right, or
indemnity, or any right of recourse to collateral for any of the indebtedness
until such time as the indebtedness is fully, finally and indefeasibly paid to
Lender.
Guarantor agrees to pay reasonable attorneys' fees and all other costs
and expenses which may be incurred by Lender in the enforcement of this Guaranty
or otherwise relating to this Guaranty including, without limitation, in
connection with any lawsuit, arbitration or other alternative dispute resolution
proceeding, appeal, judgment enforcement action, bankruptcy proceeding
(including, without limitation, any relief from stay and/or adequate
2
<PAGE> 33
protection motions, cash collateral disputes, assumption/rejection motions and
disputes or objections to any proposed disclosure statement or reorganization
plan) or other legal proceeding in any way related to this Guaranty. Guarantor
acknowledges and agrees that the preceding sentence shall survive and not be
merged with any judgment in connection with any exercise of any right or remedy
by Lender in connection with this Guaranty. Guarantor further agrees that all
reasonable attorneys' fees, costs and expenses incurred in pursuing or enforcing
rights and/or any collateral or security shall constitute so much additional
indebtedness hereby guaranteed.
Guarantor hereby expressly agrees to deliver any and all information
required to be delivered by Guarantor under Section 6(g) of the Loan Agreement,
and Guarantor hereby expressly affirms the representations contained in, and
agrees to comply with the agreements and covenants set forth in, 6(h), 6(i),
6(j), 6(k), 6(l), 6(m), 6(u) and 6(w) of the Loan Agreement to the same extent
as if such provisions were contained herein and Guarantor were the "Debtor"
named therein.
Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, on the indebtedness is rescinded or must otherwise be restored by
Lender upon the bankruptcy or reorganization of Debtors or otherwise.
Any indebtedness of Debtors now or hereafter held by or owing to
Guarantor is hereby subordinated to Lender and such indebtedness, if requested
by Lender, shall be collected, enforced, and received by Guarantor as trustee
for Lender and promptly paid over to Lender.
In this Guaranty, the singular shall include the plural, the plural
shall include the singular, and the use of any gender shall be applicable to all
genders. If any Guarantor is a corporation, by executing and delivering this
Guaranty, it and the officers thereof signing on its behalf represent and
warrant that the execution and delivery of this Guaranty has been duly
authorized by all necessary and appropriate corporate and shareholder action.
In case any one or more of the provisions contained in this Guaranty
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
Guarantor consents and agrees that, without notice to or by Guarantor
and without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Lender may, from time to time before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the indebtedness or any property securing any or all of the indebtedness
or any guaranty thereof, including, without limitation, judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including, without limitation, any destruction of Guarantor's right of
subrogation against Debtors and any destruction of Guarantor's right
3
<PAGE> 34
of contribution or other right against any other guarantor of any or all of the
indebtedness or against any other person by operation of any statutes or rules
of law now or hereafter in effect, or otherwise.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
THAT STATE'S PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR HEREBY SUBMITS TO THE
PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK COUNTY,
ILLINOIS, AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION (AND WITHOUT
LIMITING LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION), ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE
LITIGATED IN SUCH COURTS. GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS GUARANTY, SUBJECT TO SUCH RIGHT OF APPEAL AS GUARANTOR MAY BE ENTITLED
UNDER ILLINOIS LAW. WITHOUT LIMITING ANY OTHER MANNER OF SERVICE AVAILABLE TO
LENDER, GUARANTOR EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING AND CONSENTS TO SERVICE BY CERTIFIED MAIL,
POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF GUARANTOR, WHICH SERVICE
SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING
THEREOF.
[Remainder of page intentionally blank. Signature pages follow.]
4
<PAGE> 35
IN WITNESS WHEREOF, the undersigned Guarantor, and each of them (if
there be more than one), has executed and delivered this Guaranty independent of
each other and not relying upon or in consideration of the execution hereof by
any other of them, on this 30th day of December, 1999.
GUARANTOR:
TEXAS OIL AND CHEMICAL CO. II, INC.
By:
--------------------------------------
Nicholas N. Carter
President
GUARANTY
SIGNATURE PAGE
<PAGE> 36
Loan No. _____________
GUARANTY
For valuable consideration, the receipt whereof is hereby acknowledged,
and to induce HELLER FINANCIAL LEASING, INC., a Delaware corporation ("Lender"),
to make loans or advances, or extend credit or financial accommodations to SOUTH
HAMPTON REFINING CO. and GULF STATE PIPELINE COMPANY, INC. ("Debtors"), or to
continue the same, but without requiring Lender to do so, the undersigned,
[___________________] (hereinafter called "Guarantor"), promises to pay to
Lender, on demand, in lawful money of the United States, the due and punctual
payment and performance of all indebtedness of Debtors to Lender no matter how
acquired by Lender. The word "indebtedness" is used herein in its most
comprehensive sense and includes any and all loans or performance obligations,
notes, security agreements and liabilities of Debtors to Lender including those
existing, now or hereafter made, entered into, incurred, created or owing,
however arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Debtors may be liable
individually or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable, including
without limitation indebtedness of Debtors to Lender under that certain Loan and
Security Agreement of even date herewith by and among Debtors and Lender (the
"Loan Agreement"). This is a guaranty of payment and performance and not of
collection. Guarantor's obligations hereunder shall be unconditional (and shall
not be subject to any defense, setoff, counterclaim or recoupment whatsoever)
irrespective of the genuineness, validity, regularity or enforceability of the
indebtedness or any conduct of Debtors and/or Lender which might constitute a
legal or equitable discharge of a surety, guarantor or guaranty.
This is an absolute, unconditional and continuing guaranty relating to
the indebtedness, including that arising under successive transactions which
shall either continue the indebtedness or from time to time renew it after it
has been satisfied or create new indebtedness. This Guaranty shall not apply to
any indebtedness created after actual receipt by Lender of written notice of its
revocation as to future transactions, except that indebtedness committed to
prior to such date but consummated and actually created subsequent to such date
shall be covered hereby.
The obligations hereunder are joint and several, independent of the
obligations of Debtors or the obligations of any other person(s) or guarantor(s)
who may be liable to Lender in whole or in part for the indebtedness, and a
separate action or actions may be brought and prosecuted against Guarantor or
any of them whether action is brought against Debtors alone or whether Debtors
be joined in any such action or actions; and Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof.
Guarantor authorizes Lender, without notice or consent and without
affecting, impairing or discharging in whole or in part its liability hereunder,
from time to time to (a) renew, modify, amend, compromise, extend, accelerate,
discharge or otherwise change the
<PAGE> 37
time for payment of, or otherwise change the terms or provisions of the
indebtedness or any part thereof, including increasing or decreasing the rate of
interest thereon; (b) take and hold collateral for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, and release any
such collateral; (c) apply such collateral and direct the order or manner of
sale thereof as Lender in its discretion may determine; or (d) release or
substitute in whole or in part any one or more of the endorsers, Guarantor or
anyone else who may be partially or wholly liable for any part of the
indebtedness. Lender may without notice assign this Guaranty in whole or in
part.
Guarantor waives any right to require Lender to (a) proceed against or
exhaust remedies against Debtors; (b) proceed against or exhaust any collateral
given by Debtors or Guarantor; (c) pursue any other remedy in Lender's power
whatsoever; or (d) proceed against any other person(s) or guarantor(s) who may
be liable to Lender in whole or in part for the indebtedness. Guarantor waives
any defense arising by reason of any disability or other defense of Debtors or
by reason of the cessation or modification from any cause whatsoever of the
liability of Debtors. Guarantor waives diligence, all presentments, demands for
performance, notices of non-performance, default, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new, changed, modified, increased or
additional indebtedness, and all other notices of every and any kind. GUARANTOR
HEREBY WAIVES ANY AND ALL NOTICE OF LENDER'S INTENT TO ACCELERATE THE
INDEBTEDNESS AND FURTHER WAIVES ANY NOTICE OF ACCELERATION.
Lender shall have a claim and a right of setoff against all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lender whether held in a special account for safekeeping or otherwise, and such
right of setoff may be exercised without demand upon Guarantor or notice by
Lender. No right of setoff shall be deemed to have been waived by any act or
conduct on the part of Lender or by any neglect to exercise such right of setoff
or by any delay in so doing, and every right of setoff shall continue in full
force and effect until such right of setoff is specifically waived or released
by an instrument in writing executed by Lender.
Guarantor waives and agrees not to assert any claim Guarantor may now
or later have against Debtors until such time as the indebtedness is fully,
finally and indefeasibly paid to Lender. Guarantor agrees that this paragraph is
intended to benefit Debtors and is relied upon by Lender. As used in this
paragraph, the term 'claim' is defined in the Bankruptcy Code, Section 101.
Guarantor further hereby irrevocably waives and releases any right of
subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration, or other similar right, or
indemnity, or any right of recourse to collateral for any of the indebtedness
until such time as the indebtedness is fully, finally and indefeasibly paid to
Lender.
Guarantor agrees to pay reasonable attorneys' fees and all other costs
and expenses which may be incurred by Lender in the enforcement of this Guaranty
or otherwise relating to this Guaranty including, without limitation, in
connection with any lawsuit, arbitration or other alternative dispute resolution
proceeding, appeal, judgment enforcement action, bankruptcy proceeding
(including, without limitation, any relief from stay and/or adequate
2
<PAGE> 38
protection motions, cash collateral disputes, assumption/rejection motions and
disputes or objections to any proposed disclosure statement or reorganization
plan) or other legal proceeding in any way related to this Guaranty. Guarantor
acknowledges and agrees that the preceding sentence shall survive and not be
merged with any judgment in connection with any exercise of any right or remedy
by Lender in connection with this Guaranty. Guarantor further agrees that all
reasonable attorneys' fees, costs and expenses incurred in pursuing or enforcing
rights and/or any collateral or security shall constitute so much additional
indebtedness hereby guaranteed.
Guarantor hereby expressly agrees to deliver any and all information
required to be delivered by Guarantor under Section 6(g) of the Loan Agreement,
and Guarantor hereby expressly affirms the representations contained in, and
agrees to comply with the agreements and covenants set forth in, 6(h), 6(i),
6(j), 6(k), 6(l), 6(m), 6(u) and 6(w) of the Loan Agreement to the same extent
as if such provisions were contained herein and Guarantor were the "Debtor"
named therein.
Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, on the indebtedness is rescinded or must otherwise be restored by
Lender upon the bankruptcy or reorganization of Debtors or otherwise.
Any indebtedness of Debtors now or hereafter held by or owing to
Guarantor is hereby subordinated to Lender and such indebtedness, if requested
by Lender, shall be collected, enforced, and received by Guarantor as trustee
for Lender and promptly paid over to Lender.
In this Guaranty, the singular shall include the plural, the plural
shall include the singular, and the use of any gender shall be applicable to all
genders. If any Guarantor is a corporation, by executing and delivering this
Guaranty, it and the officers thereof signing on its behalf represent and
warrant that the execution and delivery of this Guaranty has been duly
authorized by all necessary and appropriate corporate and shareholder action.
In case any one or more of the provisions contained in this Guaranty
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
Guarantor consents and agrees that, without notice to or by Guarantor
and without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Lender may, from time to time before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the indebtedness or any property securing any or all of the indebtedness
or any guaranty thereof, including, without limitation, judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including, without limitation, any destruction of Guarantor's right of
subrogation against Debtors and any destruction of Guarantor's right
3
<PAGE> 39
of contribution or other right against any other guarantor of any or all of the
indebtedness or against any other person by operation of any statutes or rules
of law now or hereafter in effect, or otherwise.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
THAT STATE'S PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR HEREBY SUBMITS TO THE
PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK COUNTY,
ILLINOIS, AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION (AND WITHOUT
LIMITING LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION), ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE
LITIGATED IN SUCH COURTS. GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS GUARANTY, SUBJECT TO SUCH RIGHT OF APPEAL AS GUARANTOR MAY BE ENTITLED
UNDER ILLINOIS LAW. WITHOUT LIMITING ANY OTHER MANNER OF SERVICE AVAILABLE TO
LENDER, GUARANTOR EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING AND CONSENTS TO SERVICE BY CERTIFIED MAIL,
POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF GUARANTOR, WHICH SERVICE
SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING
THEREOF.
IN WITNESS WHEREOF, the undersigned Guarantor, and each of them (if
there be more than one), has executed and delivered this Guaranty independent of
each other and not relying upon or in consideration of the execution hereof by
any other of them, on this _______ day of December, 1999.
GUARANTOR:
-----------------------------------------
By:
--------------------------------------
Name:
Title:
4
<PAGE> 40
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of December 30, 1999, is by and between
TEXAS OIL AND CHEMICAL CO. II, INC., a Texas corporation (the "Pledgor") whose
address is 7752 FM 418, P.O. Box 1636, Silsbee, Texas 77656, and HELLER
FINANCIAL LEASING, INC., a Delaware corporation (the "Secured Party"), whose
address is 500 West Monroe Street, Chicago, Illinois 60661.
R E C I T A L S:
A. South Hampton Refining Co. and Gulf State Pipe Line Company, Inc.
("Debtors") and Secured Party have entered into that certain Loan and Security
Agreement of even date herewith (such Loan and Security Agreement, as the same
may be amended or modified from time to time, being hereinafter referred to as
the "Loan Agreement"; terms defined in the Loan Agreement and not otherwise
defined herein being used as defined therein).
B. Secured Party has conditioned its obligations under the Loan
Agreement upon the execution and delivery of this Agreement by Pledgor.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Security Interest and Pledge
Section 1.1. Security Interest and Pledge. As collateral security for
the prompt payment in full when due of the obligations of the Debtors described
in the Loan Agreement (whether at stated maturity, by acceleration, or
otherwise) and other Loan Documents and all present and future obligations of
Pledgor under this Agreement and all other Loan Documents (collectively, the
"Obligations"), Pledgor hereby pledges and grants to Secured Party a first
priority security interest in the following property (such property being
hereinafter sometimes called the "Collateral"):
(a) all of Pledgor's shares of stock, now owned or hereafter acquired,
in the corporation described on Schedule 1 attached hereto (the "Company"),
as evidenced on the date hereof by the certificates described on Schedule 1
attached hereto; and
(b) all proceeds, revenues, distributions, dividends, stock dividends,
securities, and other property, rights, and interests that Pledgor receives
or is at any time entitled to receive on account of the Collateral
described in clause (a) above.
1
<PAGE> 41
ARTICLE II
Representations and Warranties
Pledgor represents and warrants to Secured Party that:
Section 2.1. Title. Pledgor owns, and with respect to Collateral
acquired after the date hereof, Pledgor will own, legally and beneficially, the
Collateral free and clear of any Lien, security interest, pledge, claim, or
other encumbrance or any right or option on the part of any third Person to
purchase or otherwise acquire the Collateral or any part thereof, except for the
security interest granted hereunder. The Collateral is not subject to any
restriction on transfer or assignment except for compliance with applicable
federal and state securities laws and regulations promulgated thereunder.
Pledgor has the unrestricted right to pledge the Collateral as contemplated
hereby. All of the Collateral has been duly and validly issued and is fully paid
and nonassessable.
Section 2.2. Organization and Authority. Pledgor is a corporation duly
organized, validly existing, and in good standing under the laws of its state of
incorporation. Pledgor has the corporate power and authority to execute,
deliver, and perform this Agreement, and the execution, delivery, and
performance of this Agreement by Pledgor have been duly authorized by all
necessary corporate action on the part of Pledgor and do not and will not
violate or conflict with the articles of incorporation or bylaws of Pledgor or
any law, rule, or regulation or any order, writ, injunction, or decree of any
court, governmental authority, or arbitrator and do not and will not conflict
with, result in a breach of, or constitute a default under the provisions of any
indenture, mortgage, deed of trust, security agreement, or other instrument or
agreement binding on Pledgor or any of its property.
Section 2.3. Principal Place of Business. The principal place of
business and chief executive office of Pledgor, and the office where Pledgor
keeps its books and records, is located at the address of Pledgor shown at the
beginning of this Agreement.
Section 2.4. Litigation. Except as previously disclosed to Secured
Party in writing, there is no litigation, investigation, or governmental
proceeding pending or threatened against Pledgor or any of its properties which
if adversely determined would have a material adverse effect on the Collateral
or the financial condition, operations, or business of Pledgor.
Section 2.5. Percentage of Stock. The Collateral constitutes all of the
issued and outstanding shares of common capital stock of the Company.
Section 2.6. First Priority Perfected Security Interest. This Agreement
creates in favor of Secured Party a first priority perfected security interest
in the Collateral. There are no conditions precedent to the effectiveness of
this Agreement that have not been fully and permanently satisfied.
2
<PAGE> 42
ARTICLE III
Affirmative and Negative Covenants
Pledgor covenants and agrees with Secured Party that:
Section 3.1. Delivery. Prior to or concurrently with the execution and
delivery of this Agreement, Pledgor shall deliver to Secured Party all
certificate(s) identified on Schedule 1 attached hereto, accompanied by undated
stock powers duly executed in blank.
Section 3.2. Encumbrances. Pledgor shall not create, permit, or suffer
to exist, and shall defend the Collateral against, any Lien, security interest,
or other encumbrance on the Collateral except the pledge and security interest
of Secured Party hereunder, and shall defend Pledgor's rights in the Collateral
and Secured Party's security interest in the Collateral against the claims of
all Persons.
Section 3.3. Sale of Collateral. Pledgor shall not sell, assign, or
otherwise dispose of the Collateral or any part thereof without the prior
written consent of Secured Party.
Section 3.4. Distributions. If Pledgor shall become entitled to receive
or shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any reclassification, increase, or reduction of capital or issued in connection
with any reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for any Collateral or otherwise, Pledgor agrees
to accept the same as Secured Party's agent and to hold the same in trust for
Secured Party, and to deliver the same forthwith to Secured Party in the exact
form received, with the appropriate endorsement of Pledgor when necessary and/or
appropriate undated stock powers duly executed in blank, to be held by Secured
Party as additional Collateral for the Obligations, subject to the terms hereof.
Any sums paid upon or in respect of the Collateral upon the liquidation or
dissolution of the issuer thereof shall be paid over to Secured Party to be held
by it as additional Collateral for the Obligations subject to the terms hereof;
and in case any distribution of capital shall be made on or in respect of the
Collateral or any property shall be distributed upon or with respect to the
Collateral pursuant to any recapitalization or reclassification of the capital
of the issuer thereof or pursuant to any reorganization of the issuer thereof,
the property so distributed shall be delivered to the Secured Party to be held
by it, as additional Collateral for the Obligations, subject to the terms
hereof. All sums of money and property so paid or distributed in respect of the
Collateral that are received by Pledgor shall, until paid or delivered to
Secured Party, be held by Pledgor in trust as additional security for the
Obligations.
Section 3.5. Further Assurances. At any time and from time to time,
upon the request of Secured Party, and at the sole expense of Pledgor, Pledgor
shall promptly execute and deliver all such further instruments and documents
and take such further action as Secured Party may deem necessary or desirable to
preserve and perfect its security interest in the Collateral and carry out the
provisions and purposes of this Agreement, including, without limitation, the
execution and filing of such financing statements as Secured Party may require.
A carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
3
<PAGE> 43
sufficient as a financing statement and may be filed as a financing statement.
Subject to the right of Pledgor to receive cash dividends under Section 4.3
hereof, in the event any Collateral is ever received by Pledgor, Pledgor shall
promptly transfer and deliver to Secured Party such Collateral so received by
Pledgor (together with any necessary endorsements in blank or undated stock
powers duly executed in blank), which Collateral shall thereafter be held by
Secured Party pursuant to the terms of this Agreement. Secured Party shall at
all times have the right to exchange any certificates representing Collateral
for certificates of smaller or larger denominations for any purpose consistent
with this Agreement.
Section 3.6. Inspection Rights. Pledgor shall permit Secured Party and
its representatives to examine, inspect, and copy Pledgor's books and records at
any reasonable time and as often as Secured Party may desire.
Section 3.7. Taxes. Pledgor agrees to pay or discharge prior to
delinquency all taxes, assessments, levies, and other governmental charges
imposed on it or its property, except Pledgor shall not be required to pay or
discharge any tax, assessment, levy, or other governmental charge if (i) the
amount or validity thereof is being contested by Pledgor in good faith by
appropriate proceedings diligently pursued, (ii) such proceedings do not involve
any risk of sale, forfeiture, or loss of the Collateral or any interest therein,
and (iii) adequate reserves therefor have been established in conformity with
GAAP.
Section 3.8. Notification. Pledgor shall promptly notify Secured Party
of (i) any Lien, security interest, encumbrance, or claim made or threatened
against the Collateral, (ii) any material change in the Collateral, including,
without limitation, any material decrease in the value of the Collateral, and
(iii) the occurrence or existence of any Event of Default or the occurrence or
existence of any condition or event that, with the giving of notice or lapse of
time or both, would be an Event of Default.
Section 3.9. Books and Records; Information. Pledgor shall keep
accurate and complete books and records of the Collateral and Pledgor's business
and financial condition in accordance with GAAP. Pledgor shall from time to time
at the request of Secured Party deliver to Secured Party such information
regarding the Collateral and Pledgor as Secured Party may request. Pledgor shall
mark its books and records to reflect the security interest of Secured Party
under this Agreement.
Section 3.10. Compliance with Agreements. Pledgor shall comply in all
material respects with all agreements, contracts, and instruments binding on it
or affecting its properties or business.
Section 3.11. Compliance with Laws. Pledgor shall comply in all
material respects with all applicable laws, rules, regulations, and orders of
any court or governmental authority.
Section 3.12. Additional Securities. Pledgor shall not consent to or
approve the issuance of any additional shares of any class of capital stock of
the issuer of the Collateral, or any securities convertible into, or
exchangeable for, any such shares or any warrants, options, rights, or other
commitments entitling any Person to purchase or otherwise acquire any such
shares.
4
<PAGE> 44
ARTICLE IV
Rights of Secured Party and Pledgor
Section 4.1. Power of Attorney. Pledgor hereby irrevocably constitutes
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead and in the name of Pledgor or in its
own name, from time to time in Secured Party's discretion, to take any and all
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives Secured Party the power
and right on behalf of Pledgor and in its own name to do any of the following
(subject to the rights of Pledgor under Sections 4.2 and 4.3 hereof), without
notice to or the consent of Pledgor:
(i) to demand, sue for, collect, or receive in the name of
Pledgor or in its own name, any money or property at any time payable
or receivable on account of or in exchange for any of the Collateral
and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, or any other instruments for the payment of
money under the Collateral;
(ii) to pay or discharge taxes, Liens, security interests, or
other encumbrances levied or placed on or threatened against the
Collateral; and
(iii) (A) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to Secured Party
or as Secured Party shall direct; (B) to receive payment of and
receipt for any and all monies, claims, and other amounts due and to
become due at any time in respect of or arising out of any Collateral;
(C) to sign and endorse any drafts, assignments, proxies, stock
powers, verifications, notices, and other documents relating to the
Collateral; (D) to commence and prosecute any suit, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action, or
proceeding brought against Pledgor with respect to any Collateral; (F)
to settle, compromise, or adjust any suit, action, or proceeding
described above and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate; (G) to exchange any
of the Collateral for other property upon any merger, consolidation,
reorganization, recapitalization, or other readjustment of the issuer
thereof and, in connection therewith, deposit any of the Collateral
with any committee, depositary, transfer agent, registrar, or other
designated agency upon such terms as Secured Party may determine; (H)
to add or release any guarantor, indorser, surety, or other party to
any of the Collateral or the Obligations; (I) to renew, extend, or
otherwise change the terms and conditions of any of the Collateral or
Obligations; (J) to insure any of the Collateral; and (K) to sell,
transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured
Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Pledgor's expense, at any time, or from
time to time, all acts
5
<PAGE> 45
and things which Secured Party deems necessary to protect, preserve,
or realize upon the Collateral and Secured Party's security interest
therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be liable
for any failure to do so or any delay in doing so. Secured Party shall not be
liable for any act or omission or for any error of judgment or any mistake of
fact or law in its individual capacity or in its capacity as attorney-in-fact
except acts or omissions resulting from its willful misconduct. This power of
attorney is conferred on Secured Party solely to protect, preserve, and realize
upon its security interest in the Collateral.
Section 4.2. Voting Rights. Unless and until an Event of Default shall
have occurred and be continuing, Pledgor shall be entitled to exercise any and
all voting rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Loan Agreement.
Secured Party shall execute and deliver to the Pledgor all such proxies and
other instruments as Pledgor may reasonably request for the purpose of enabling
Pledgor to exercise the voting rights which it is entitled to exercise pursuant
to this Section.
Section 4.3. Dividends. Unless and until an Event of Default shall have
occurred and be continuing, Pledgor shall be entitled to receive and retain any
dividends on the Collateral paid in cash out of earned surplus to the extent and
only to the extent that such dividends are permitted by the Loan Agreement.
Section 4.4. Performance by Secured Party. If Pledgor fails to perform
or comply with any of its agreements contained herein, Secured Party itself may,
at its sole discretion, cause or attempt to cause performance or compliance with
such agreement and the expenses of Secured Party, together with interest thereon
at the maximum nonusurious per annum rate permitted by applicable law, shall be
payable by Pledgor to Secured Party on demand and shall constitute Obligations
secured by this Agreement. Notwithstanding the foregoing, it is expressly agreed
that Secured Party shall not have any liability or responsibility for the
performance of any obligation of Pledgor under this Agreement.
Section 4.5. Setoff; Property Held by Secured Party. Secured Party
shall have the right to set off and apply against the Obligations, at any time
and without notice to Pledgor, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by or owing
from Secured Party to Pledgor whether or not the Obligations are then due. As
additional security for the Obligations, Pledgor hereby grants Secured Party a
security interest in all money, instruments, and other property of Pledgor now
or hereafter held by Secured Party, including, without limitation, property held
in safekeeping. In addition to Secured Party's right of setoff and as further
security for the Obligations, Pledgor hereby grants Secured Party a security
interest in all deposits (general or special, time or demand, provisional or
final) and other accounts of Pledgor now or hereafter maintained with Secured
Party and all other sums at any time credited by or owing from Secured Party to
Pledgor. The rights and remedies of Secured Party hereunder are in addition to
6
<PAGE> 46
other rights and remedies (including, without limitation, other rights of
setoff) which Secured Party may have.
Section 4.6. Secured Party's Duty of Care. Other than the exercise of
reasonable care in the physical custody of the Collateral while held by Secured
Party hereunder, Secured Party shall have no responsibility for or obligation or
duty with respect to all or any part of the Collateral or any matter or
proceeding arising out of or relating thereto, including, without limitation,
any obligation or duty to collect any sums due in respect thereof or to protect
or preserve any rights against prior parties or any other rights pertaining
thereto, it being understood and agreed that Pledgor shall be responsible for
preservation of all rights in the Collateral. Without limiting the generality of
the foregoing, Secured Party shall be conclusively deemed to have exercised
reasonable care in the custody of the Collateral if Secured Party takes such
action, for purposes of preserving rights in the Collateral, as Pledgor may
reasonably request in writing, but no failure or omission or delay by Secured
Party in complying with any such request by Pledgor, and no refusal by Secured
Party to comply with any such request by Pledgor, shall be deemed to be a
failure to exercise reasonable care.
Section 4.7. Assignment by Secured Party. Secured Party may at any time
and from time to time assign the Obligations and any portion thereof and/or the
Collateral and any portion thereof, and the assignee shall be entitled to all of
the rights and remedies of Secured Party under this Agreement in relation
thereto.
ARTICLE V
Default
Section 5.1. Rights and Remedies. If any Event of Default shall occur,
Secured Party shall have the following rights and remedies:
(i) In addition to all other rights and remedies granted to
Secured Party in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations,
Secured Party shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code as adopted by the State of
Illinois. Without limiting the generality of the foregoing, Secured
Party may (A) without demand or notice to Pledgor, collect, receive,
or take possession of the Collateral or any part thereof, (B) sell or
otherwise dispose of the Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at Secured Party's
offices or elsewhere, for cash, on credit, or for future delivery,
and/or (C) bid and become a purchaser at any sale free of any right or
equity of redemption in Pledgor, which right or equity is hereby
expressly waived and released by Pledgor. Upon the request of Secured
Party, Pledgor shall assemble the Collateral and make it available to
Secured Party at any place designated by Secured Party that is
reasonably convenient to Pledgor and Secured Party. Pledgor agrees
that Secured Party shall not be obligated to give more than five (5)
days written notice of the time and place of any public sale or of the
time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. Secured Party
shall not be obligated to make any sale of the Collateral regardless
of notice of sale having been given. Secured Party may adjourn any
public or
7
<PAGE> 47
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Pledgor shall be
liable for all expenses of retaking, holding, preparing for sale, or
the like, and all attorneys' fees and other expenses incurred by
Secured Party in connection with the collection of the Obligations and
the enforcement of Secured Party's rights under this Agreement, all of
which expenses and fees shall constitute additional Obligations
secured by this Agreement. Secured Party may apply the Collateral
against the Obligations in such order and manner as Secured Party may
elect in its sole discretion. Pledgor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations. Pledgor waives all
rights of marshalling in respect of the Collateral.
(ii) Secured Party may cause any or all of the Collateral held
by it to be transferred into the name of Secured Party or the name or
names of Secured Party's nominee or nominees.
(iii) Secured Party may collect or receive all money or property
at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so.
(iv) Secured Party shall have the right, but shall not be
obligated to, exercise or cause to be exercised all voting, consensual,
and other powers of ownership pertaining to the Collateral, and Pledgor
shall deliver to Secured Party, if requested by Secured Party,
irrevocable proxies with respect to the Collateral in form satisfactory
to Secured Party.
(v) Pledgor hereby acknowledges and confirms that Secured
Party may be unable to effect a public sale of any or all of the
Collateral by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, and applicable state securities
laws and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire any shares of the Collateral for
their own respective accounts for investment and not with a view to
distribution or resale thereof. Pledgor further acknowledges and
confirms that any such private sale may result in prices or other terms
less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner,
and Secured Party shall be under no obligation to take any steps in
order to permit the Collateral to be sold at a public sale. Secured
Party shall be under no obligation to delay a sale of any of the
Collateral for any period of time necessary to permit any issuer
thereof to register such Collateral for public sale under the
Securities Act of 1933, as amended, or under applicable state
securities laws.
(vi) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain
any required approval of the purchaser or purchasers by any applicable
governmental authority.
8
<PAGE> 48
ARTICLE VI
Miscellaneous
Section 6.1. Expenses; Indemnification. Pledgor agrees to pay on demand
all costs and expenses incurred by Secured Party in connection with the
preparation, negotiation, and execution of this Agreement and any and all
amendments, modifications, and supplements hereto. Pledgor agrees to pay and to
hold Secured Party harmless from and against all fees and all excise, sales,
stamp, and other taxes payable in connection with this Agreement or the
transactions contemplated hereby. Pledgor hereby indemnifies Secured Party and
each affiliate thereof and their respective officers, directors, employees,
attorneys, and agents from, and holds each of them harmless against, any and all
losses, liabilities, claims, damages, penalties, judgments, costs, and expenses
(including attorneys' fees) to which any of them may become subject which
directly or indirectly arise from or relate to (i) the negotiation, execution,
delivery, performance, administration, or enforcement of this Agreement, (ii)
any of the transactions contemplated by this Agreement, (iii) any breach by
Pledgor of any representation, warranty, covenant, or other agreement contained
in this Agreement, or (iv) any investigation, litigation, or other proceeding,
including, without limitation, any threatened investigation, litigation, or
other proceeding relating to any of the foregoing. Without limiting any
provision of this Agreement or any other instrument, or agreement securing,
evidencing, or relating to the Obligations or any part thereof, it is the
express intention of the parties hereto that each person or entity to be
indemnified under this Section shall be indemnified from and held harmless
against any and all losses, liabilities, claims, damages, penalties, judgments,
costs, and expenses (including attorneys' fees) arising out of or resulting from
the sole or contributory negligence of the person or entity to be indemnified.
Section 6.2. No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 6.3. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Pledgor and Secured Party and their respective
heirs, successors, and assigns, except that Pledgor may not assign any of its
rights or obligations under this Agreement without the prior written consent of
Secured Party.
Section 6.4. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
9
<PAGE> 49
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto.
Section 6.5. Notices. All notices and other communications provided for
in this Agreement shall be given or made by telex, telegraph, telecopy, cable,
or in writing and telexed, telecopied, telegraphed, cabled, mailed by certified
mail return receipt requested, or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party at such other address as shall be designated by such party
in a notice to the other party given in accordance with this Section. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telex or telecopy, subject to telephone
confirmation of receipt, or delivered to the telegraph or cable office, subject
to telephone confirmation of receipt, or when personally delivered or, in the
case of a mailed notice, when duly deposited in the mails, in each case given or
addressed as aforesaid.
Section 6.6. Applicable Law; Venue; Service of Process. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Illinois and the applicable laws of the United States of America. Any action or
proceeding against Pledgor under or in connection with this Agreement or any
other instrument or agreement securing, evidencing, or relating to the
Obligations or any part thereof may be brought in any state or federal court in
Cook County, Illinois. Pledgor hereby irrevocably (i) submits to the
nonexclusive jurisdiction of such courts, and (ii) waives any objection it may
now or hereafter have as to the venue of any such action or proceeding brought
in such court or that such court is an inconvenient forum. Pledgor agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified or determined in accordance with the
provisions of Section 6.5 of this Agreement. Nothing in this Agreement or any
other instrument or agreement securing, evidencing, or relating to the
Obligations or any part thereof shall affect the right of Secured Party to serve
process in any other manner permitted by law or shall limit the right of Secured
Party to bring any action or proceeding against Pledgor or with respect to any
of its property in courts in other jurisdictions. Any action or proceeding by
Pledgor against Secured Party shall be brought only in a court located in Cook
County, Illinois.
Section 6.7. Headings. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 6.8. Survival. All representations and warranties made in this
Agreement shall survive the execution and delivery of this Agreement, and no
investigation by Secured Party shall affect the representations and warranties
of Pledgor herein or the right of Secured Party to rely upon them.
Section 6.9. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.10. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
10
<PAGE> 50
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 6.11. Construction. Pledgor and Secured Party acknowledge that
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Pledgor and Secured
Party.
Section 6.12. Obligations Absolute. The obligations of Pledgor under
this Agreement shall be absolute and unconditional and shall not be released,
discharged, reduced, or in any way impaired by any circumstance whatsoever,
including, without limitation, any amendment, modification, extension, or
renewal of this Agreement, the Obligations, or any document or instrument
evidencing, securing, or otherwise relating to the Obligations, or any release,
subordination, or impairment of collateral, or any waiver, consent, extension,
indulgence, compromise, settlement, or other action or inaction in respect of
this Agreement, the Obligations, or any document or instrument evidencing,
securing, or otherwise relating to the Obligations, or any exercise or failure
to exercise any right, remedy, power, or privilege in respect of the
Obligations.
Section 6.13. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, PLEDGOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
[Remainder of page intentionally blank. Signature pages follow.]
11
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
PLEDGOR:
TEXAS OIL AND CHEMICAL CO. II, INC.
By:
----------------------------------
Nicholas N. Carter
President
Address for Notices:
7752 FM 418
P.O. Box 1636
Silsbee, Texas 77656
Fax No.: (409) 385-2453
Attention: Nicholas N. Carter
PLEDGE AGREEMENT
SIGNATURE PAGE
<PAGE> 52
SECURED PARTY:
HELLER FINANCIAL LEASING, INC.
By:
----------------------------------
Name:
Title:
Address for Notices:
Commercial Equipment Finance Group
500 West Monroe Street
Chicago, Illinois 60661
Fax: (312) 441-7519
PLEDGE AGREEMENT
SIGNATURE PAGE
<PAGE> 53
SCHEDULE 1
All shares of stock in South Hampton Refining Co., now existing and
hereafter issued, presently evidenced by Stock Certificate No. 15, evidencing
1000 shares of common stock.
<PAGE> 54
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of December 30, 1999, is by and between
SOUTH HAMPTON REFINING CO., a Texas corporation (the "Pledgor") whose address is
7752 FM 418, P.O. Box 1636, Silsbee, Texas 77656, and HELLER FINANCIAL LEASING,
INC., a Delaware corporation (the "Secured Party"), whose address is 500 West
Monroe Street, Chicago, Illinois 60661.
R E C I T A L S:
A. Pledgor and Gulf State Pipe Line Company, Inc. ("Debtors") and
Secured Party have entered into that certain Loan and Security Agreement of even
date herewith (such Loan and Security Agreement, as the same may be amended or
modified from time to time, being hereinafter referred to as the "Loan
Agreement"; terms defined in the Loan Agreement and not otherwise defined herein
being used as defined therein).
B. Secured Party has conditioned its obligations under the Loan
Agreement upon the execution and delivery of this Agreement by Pledgor.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Security Interest and Pledge
Section 1.1. Security Interest and Pledge. As collateral security for
the prompt payment in full when due of the obligations of the Debtors described
in the Loan Agreement (whether at stated maturity, by acceleration, or
otherwise) and other Loan Documents and all present and future obligations of
Pledgor under this Agreement and all other Loan Documents (collectively, the
"Obligations"), Pledgor hereby pledges and grants to Secured Party a first
priority security interest in the following property (such property being
hereinafter sometimes called the "Collateral"):
(a) all of Pledgor's shares of stock, now owned or hereafter
acquired, in the corporation described on Schedule 1 attached hereto
(the "Company"), as evidenced on the date hereof by the certificates
described on Schedule 1 attached hereto; and
(b) all proceeds, revenues, distributions, dividends, stock
dividends, securities, and other property, rights, and interests that
Pledgor receives or is at any time entitled to receive on account of
the Collateral described in clause (a) above.
<PAGE> 55
ARTICLE II
Representations and Warranties
Pledgor represents and warrants to Secured Party that:
Section 2.1. Title. Pledgor owns, and with respect to Collateral
acquired after the date hereof, Pledgor will own, legally and beneficially, the
Collateral free and clear of any Lien, security interest, pledge, claim, or
other encumbrance or any right or option on the part of any third Person to
purchase or otherwise acquire the Collateral or any part thereof, except for the
security interest granted hereunder. The Collateral is not subject to any
restriction on transfer or assignment except for compliance with applicable
federal and state securities laws and regulations promulgated thereunder.
Pledgor has the unrestricted right to pledge the Collateral as contemplated
hereby. All of the Collateral has been duly and validly issued and is fully paid
and nonassessable.
Section 2.2. Organization and Authority. Pledgor is a corporation duly
organized, validly existing, and in good standing under the laws of its state of
incorporation. Pledgor has the corporate power and authority to execute,
deliver, and perform this Agreement, and the execution, delivery, and
performance of this Agreement by Pledgor have been duly authorized by all
necessary corporate action on the part of Pledgor and do not and will not
violate or conflict with the articles of incorporation or bylaws of Pledgor or
any law, rule, or regulation or any order, writ, injunction, or decree of any
court, governmental authority, or arbitrator and do not and will not conflict
with, result in a breach of, or constitute a default under the provisions of any
indenture, mortgage, deed of trust, security agreement, or other instrument or
agreement binding on Pledgor or any of its property.
Section 2.3. Principal Place of Business. The principal place of
business and chief executive office of Pledgor, and the office where Pledgor
keeps its books and records, is located at the address of Pledgor shown at the
beginning of this Agreement.
Section 2.4. Litigation. Except as previously disclosed to Secured
Party in writing, there is no litigation, investigation, or governmental
proceeding pending or threatened against Pledgor or any of its properties which
if adversely determined would have a material adverse effect on the Collateral
or the financial condition, operations, or business of Pledgor.
Section 2.5. Percentage of Stock. The Collateral constitutes all of the
issued and outstanding shares of common capital stock of the Company.
Section 2.6. First Priority Perfected Security Interest. This Agreement
creates in favor of Secured Party a first priority perfected security interest
in the Collateral. There are no conditions precedent to the effectiveness of
this Agreement that have not been fully and permanently satisfied.
2
<PAGE> 56
ARTICLE III
Affirmative and Negative Covenants
Pledgor covenants and agrees with Secured Party that:
Section 3.1. Delivery. Prior to or concurrently with the execution and
delivery of this Agreement, Pledgor shall deliver to Secured Party all
certificate(s) identified on Schedule 1 attached hereto, accompanied by undated
stock powers duly executed in blank.
Section 3.2. Encumbrances. Pledgor shall not create, permit, or suffer
to exist, and shall defend the Collateral against, any Lien, security interest,
or other encumbrance on the Collateral except the pledge and security interest
of Secured Party hereunder, and shall defend Pledgor's rights in the Collateral
and Secured Party's security interest in the Collateral against the claims of
all Persons.
Section 3.3. Sale of Collateral. Pledgor shall not sell, assign, or
otherwise dispose of the Collateral or any part thereof without the prior
written consent of Secured Party.
Section 3.4. Distributions. If Pledgor shall become entitled to receive
or shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any reclassification, increase, or reduction of capital or issued in connection
with any reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for any Collateral or otherwise, Pledgor agrees
to accept the same as Secured Party's agent and to hold the same in trust for
Secured Party, and to deliver the same forthwith to Secured Party in the exact
form received, with the appropriate endorsement of Pledgor when necessary and/or
appropriate undated stock powers duly executed in blank, to be held by Secured
Party as additional Collateral for the Obligations, subject to the terms hereof.
Any sums paid upon or in respect of the Collateral upon the liquidation or
dissolution of the issuer thereof shall be paid over to Secured Party to be held
by it as additional Collateral for the Obligations subject to the terms hereof;
and in case any distribution of capital shall be made on or in respect of the
Collateral or any property shall be distributed upon or with respect to the
Collateral pursuant to any recapitalization or reclassification of the capital
of the issuer thereof or pursuant to any reorganization of the issuer thereof,
the property so distributed shall be delivered to the Secured Party to be held
by it, as additional Collateral for the Obligations, subject to the terms
hereof. All sums of money and property so paid or distributed in respect of the
Collateral that are received by Pledgor shall, until paid or delivered to
Secured Party, be held by Pledgor in trust as additional security for the
Obligations.
Section 3.5. Further Assurances. At any time and from time to time,
upon the request of Secured Party, and at the sole expense of Pledgor, Pledgor
shall promptly execute and deliver all such further instruments and documents
and take such further action as Secured Party may deem necessary or desirable to
preserve and perfect its security interest in the Collateral and carry out the
provisions and purposes of this Agreement, including, without limitation, the
execution and filing of such financing statements as Secured Party may require.
A carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
3
<PAGE> 57
sufficient as a financing statement and may be filed as a financing statement.
Subject to the right of Pledgor to receive cash dividends under Section 4.3
hereof, in the event any Collateral is ever received by Pledgor, Pledgor shall
promptly transfer and deliver to Secured Party such Collateral so received by
Pledgor (together with any necessary endorsements in blank or undated stock
powers duly executed in blank), which Collateral shall thereafter be held by
Secured Party pursuant to the terms of this Agreement. Secured Party shall at
all times have the right to exchange any certificates representing Collateral
for certificates of smaller or larger denominations for any purpose consistent
with this Agreement.
Section 3.6. Inspection Rights. Pledgor shall permit Secured Party and
its representatives to examine, inspect, and copy Pledgor's books and records at
any reasonable time and as often as Secured Party may desire.
Section 3.7. Taxes. Pledgor agrees to pay or discharge prior to
delinquency all taxes, assessments, levies, and other governmental charges
imposed on it or its property, except Pledgor shall not be required to pay or
discharge any tax, assessment, levy, or other governmental charge if (i) the
amount or validity thereof is being contested by Pledgor in good faith by
appropriate proceedings diligently pursued, (ii) such proceedings do not involve
any risk of sale, forfeiture, or loss of the Collateral or any interest therein,
and (iii) adequate reserves therefor have been established in conformity with
GAAP.
Section 3.8. Notification. Pledgor shall promptly notify Secured Party
of (i) any Lien, security interest, encumbrance, or claim made or threatened
against the Collateral, (ii) any material change in the Collateral, including,
without limitation, any material decrease in the value of the Collateral, and
(iii) the occurrence or existence of any Event of Default or the occurrence or
existence of any condition or event that, with the giving of notice or lapse of
time or both, would be an Event of Default.
Section 3.9. Books and Records; Information. Pledgor shall keep
accurate and complete books and records of the Collateral and Pledgor's business
and financial condition in accordance with GAAP. Pledgor shall from time to time
at the request of Secured Party deliver to Secured Party such information
regarding the Collateral and Pledgor as Secured Party may request. Pledgor shall
mark its books and records to reflect the security interest of Secured Party
under this Agreement.
Section 3.10. Compliance with Agreements. Pledgor shall comply in all
material respects with all agreements, contracts, and instruments binding on it
or affecting its properties or business.
Section 3.11. Compliance with Laws. Pledgor shall comply in all
material respects with all applicable laws, rules, regulations, and orders of
any court or governmental authority.
Section 3.12. Additional Securities. Pledgor shall not consent to or
approve the issuance of any additional shares of any class of capital stock of
the issuer of the Collateral, or any securities convertible into, or
exchangeable for, any such shares or any warrants, options, rights, or other
commitments entitling any Person to purchase or otherwise acquire any such
shares.
4
<PAGE> 58
ARTICLE IV
Rights of Secured Party and Pledgor
Section 4.1. Power of Attorney. Pledgor hereby irrevocably constitutes
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead and in the name of Pledgor or in its
own name, from time to time in Secured Party's discretion, to take any and all
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives Secured Party the power
and right on behalf of Pledgor and in its own name to do any of the following
(subject to the rights of Pledgor under Sections 4.2 and 4.3 hereof), without
notice to or the consent of Pledgor:
(i) to demand, sue for, collect, or receive in the name of
Pledgor or in its own name, any money or property at any time payable
or receivable on account of or in exchange for any of the Collateral
and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, or any other instruments for the payment of
money under the Collateral;
(ii) to pay or discharge taxes, Liens, security interests, or
other encumbrances levied or placed on or threatened against the
Collateral; and
(iii) (A) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to Secured Party
or as Secured Party shall direct; (B) to receive payment of and
receipt for any and all monies, claims, and other amounts due and to
become due at any time in respect of or arising out of any Collateral;
(C) to sign and endorse any drafts, assignments, proxies, stock
powers, verifications, notices, and other documents relating to the
Collateral; (D) to commence and prosecute any suit, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action, or
proceeding brought against Pledgor with respect to any Collateral; (F)
to settle, compromise, or adjust any suit, action, or proceeding
described above and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate; (G) to exchange any
of the Collateral for other property upon any merger, consolidation,
reorganization, recapitalization, or other readjustment of the issuer
thereof and, in connection therewith, deposit any of the Collateral
with any committee, depositary, transfer agent, registrar, or other
designated agency upon such terms as Secured Party may determine; (H)
to add or release any guarantor, indorser, surety, or other party to
any of the Collateral or the Obligations; (I) to renew, extend, or
otherwise change the terms and conditions of any of the Collateral or
Obligations; (J) to insure any of the Collateral; and (K) to sell,
transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured
Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Pledgor's expense, at any time, or from
time to time, all acts
5
<PAGE> 59
and things which Secured Party deems necessary to protect, preserve,
or realize upon the Collateral and Secured Party's security interest
therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be liable
for any failure to do so or any delay in doing so. Secured Party shall not be
liable for any act or omission or for any error of judgment or any mistake of
fact or law in its individual capacity or in its capacity as attorney-in-fact
except acts or omissions resulting from its willful misconduct. This power of
attorney is conferred on Secured Party solely to protect, preserve, and realize
upon its security interest in the Collateral.
Section 4.2. Voting Rights. Unless and until an Event of Default shall
have occurred and be continuing, Pledgor shall be entitled to exercise any and
all voting rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Loan Agreement.
Secured Party shall execute and deliver to the Pledgor all such proxies and
other instruments as Pledgor may reasonably request for the purpose of enabling
Pledgor to exercise the voting rights which it is entitled to exercise pursuant
to this Section.
Section 4.3. Dividends. Unless and until an Event of Default shall have
occurred and be continuing, Pledgor shall be entitled to receive and retain any
dividends on the Collateral paid in cash out of earned surplus to the extent and
only to the extent that such dividends are permitted by the Loan Agreement.
Section 4.4. Performance by Secured Party. If Pledgor fails to perform
or comply with any of its agreements contained herein, Secured Party itself may,
at its sole discretion, cause or attempt to cause performance or compliance with
such agreement and the expenses of Secured Party, together with interest thereon
at the maximum nonusurious per annum rate permitted by applicable law, shall be
payable by Pledgor to Secured Party on demand and shall constitute Obligations
secured by this Agreement. Notwithstanding the foregoing, it is expressly agreed
that Secured Party shall not have any liability or responsibility for the
performance of any obligation of Pledgor under this Agreement.
Section 4.5. Setoff; Property Held by Secured Party. Secured Party
shall have the right to set off and apply against the Obligations, at any time
and without notice to Pledgor, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by or owing
from Secured Party to Pledgor whether or not the Obligations are then due. As
additional security for the Obligations, Pledgor hereby grants Secured Party a
security interest in all money, instruments, and other property of Pledgor now
or hereafter held by Secured Party, including, without limitation, property held
in safekeeping. In addition to Secured Party's right of setoff and as further
security for the Obligations, Pledgor hereby grants Secured Party a security
interest in all deposits (general or special, time or demand, provisional or
final) and other accounts of Pledgor now or hereafter maintained with Secured
Party and all other sums at any time credited by or owing from Secured Party to
Pledgor. The rights and remedies of Secured Party hereunder are in addition to
6
<PAGE> 60
other rights and remedies (including, without limitation, other rights of
setoff) which Secured Party may have.
Section 4.6. Secured Party's Duty of Care. Other than the exercise of
reasonable care in the physical custody of the Collateral while held by Secured
Party hereunder, Secured Party shall have no responsibility for or obligation or
duty with respect to all or any part of the Collateral or any matter or
proceeding arising out of or relating thereto, including, without limitation,
any obligation or duty to collect any sums due in respect thereof or to protect
or preserve any rights against prior parties or any other rights pertaining
thereto, it being understood and agreed that Pledgor shall be responsible for
preservation of all rights in the Collateral. Without limiting the generality of
the foregoing, Secured Party shall be conclusively deemed to have exercised
reasonable care in the custody of the Collateral if Secured Party takes such
action, for purposes of preserving rights in the Collateral, as Pledgor may
reasonably request in writing, but no failure or omission or delay by Secured
Party in complying with any such request by Pledgor, and no refusal by Secured
Party to comply with any such request by Pledgor, shall be deemed to be a
failure to exercise reasonable care.
Section 4.7. Assignment by Secured Party. Secured Party may at any time
and from time to time assign the Obligations and any portion thereof and/or the
Collateral and any portion thereof, and the assignee shall be entitled to all of
the rights and remedies of Secured Party under this Agreement in relation
thereto.
ARTICLE V
Default
Section 5.1. Rights and Remedies. If any Event of Default shall occur,
Secured Party shall have the following rights and remedies:
(i) In addition to all other rights and remedies granted to
Secured Party in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations,
Secured Party shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code as adopted by the State of
Illinois. Without limiting the generality of the foregoing, Secured
Party may (A) without demand or notice to Pledgor, collect, receive,
or take possession of the Collateral or any part thereof, (B) sell or
otherwise dispose of the Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at Secured Party's
offices or elsewhere, for cash, on credit, or for future delivery,
and/or (C) bid and become a purchaser at any sale free of any right or
equity of redemption in Pledgor, which right or equity is hereby
expressly waived and released by Pledgor. Upon the request of Secured
Party, Pledgor shall assemble the Collateral and make it available to
Secured Party at any place designated by Secured Party that is
reasonably convenient to Pledgor and Secured Party. Pledgor agrees
that Secured Party shall not be obligated to give more than five (5)
days written notice of the time and place of any public sale or of the
time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. Secured Party
shall not be obligated to make any sale of the Collateral regardless
of notice of sale having been given. Secured Party may adjourn any
public or
7
<PAGE> 61
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Pledgor shall be
liable for all expenses of retaking, holding, preparing for sale, or
the like, and all attorneys' fees and other expenses incurred by
Secured Party in connection with the collection of the Obligations and
the enforcement of Secured Party's rights under this Agreement, all of
which expenses and fees shall constitute additional Obligations
secured by this Agreement. Secured Party may apply the Collateral
against the Obligations in such order and manner as Secured Party may
elect in its sole discretion. Pledgor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations. Pledgor waives all
rights of marshalling in respect of the Collateral.
(ii) Secured Party may cause any or all of the Collateral held by
it to be transferred into the name of Secured Party or the name or
names of Secured Party's nominee or nominees.
(iii) Secured Party may collect or receive all money or property
at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so.
(iv) Secured Party shall have the right, but shall not be
obligated to, exercise or cause to be exercised all voting,
consensual, and other powers of ownership pertaining to the
Collateral, and Pledgor shall deliver to Secured Party, if requested
by Secured Party, irrevocable proxies with respect to the Collateral
in form satisfactory to Secured Party.
(v) Pledgor hereby acknowledges and confirms that Secured Party
may be unable to effect a public sale of any or all of the Collateral
by reason of certain prohibitions contained in the Securities Act of
1933, as amended, and applicable state securities laws and may be
compelled to resort to one or more private sales thereof to a
restricted group of purchasers who will be obligated to agree, among
other things, to acquire any shares of the Collateral for their own
respective accounts for investment and not with a view to distribution
or resale thereof. Pledgor further acknowledges and confirms that any
such private sale may result in prices or other terms less favorable
to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner,
and Secured Party shall be under no obligation to take any steps in
order to permit the Collateral to be sold at a public sale. Secured
Party shall be under no obligation to delay a sale of any of the
Collateral for any period of time necessary to permit any issuer
thereof to register such Collateral for public sale under the
Securities Act of 1933, as amended, or under applicable state
securities laws.
(vi) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain
any required approval of the purchaser or purchasers by any applicable
governmental authority.
8
<PAGE> 62
ARTICLE VI
Miscellaneous
Section 6.1. Expenses; Indemnification. Pledgor agrees to pay on demand
all costs and expenses incurred by Secured Party in connection with the
preparation, negotiation, and execution of this Agreement and any and all
amendments, modifications, and supplements hereto. Pledgor agrees to pay and to
hold Secured Party harmless from and against all fees and all excise, sales,
stamp, and other taxes payable in connection with this Agreement or the
transactions contemplated hereby. Pledgor hereby indemnifies Secured Party and
each affiliate thereof and their respective officers, directors, employees,
attorneys, and agents from, and holds each of them harmless against, any and all
losses, liabilities, claims, damages, penalties, judgments, costs, and expenses
(including attorneys' fees) to which any of them may become subject which
directly or indirectly arise from or relate to (i) the negotiation, execution,
delivery, performance, administration, or enforcement of this Agreement, (ii)
any of the transactions contemplated by this Agreement, (iii) any breach by
Pledgor of any representation, warranty, covenant, or other agreement contained
in this Agreement, or (iv) any investigation, litigation, or other proceeding,
including, without limitation, any threatened investigation, litigation, or
other proceeding relating to any of the foregoing. Without limiting any
provision of this Agreement or any other instrument, or agreement securing,
evidencing, or relating to the Obligations or any part thereof, it is the
express intention of the parties hereto that each person or entity to be
indemnified under this Section shall be indemnified from and held harmless
against any and all losses, liabilities, claims, damages, penalties, judgments,
costs, and expenses (including attorneys' fees) arising out of or resulting from
the sole or contributory negligence of the person or entity to be indemnified.
Section 6.2. No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 6.3. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Pledgor and Secured Party and their respective
heirs, successors, and assigns, except that Pledgor may not assign any of its
rights or obligations under this Agreement without the prior written consent of
Secured Party.
Section 6.4. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
9
<PAGE> 63
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto.
Section 6.5. Notices. All notices and other communications provided for
in this Agreement shall be given or made by telex, telegraph, telecopy, cable,
or in writing and telexed, telecopied, telegraphed, cabled, mailed by certified
mail return receipt requested, or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party at such other address as shall be designated by such party
in a notice to the other party given in accordance with this Section. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telex or telecopy, subject to telephone
confirmation of receipt, or delivered to the telegraph or cable office, subject
to telephone confirmation of receipt, or when personally delivered or, in the
case of a mailed notice, when duly deposited in the mails, in each case given or
addressed as aforesaid.
Section 6.6. Applicable Law; Venue; Service of Process. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Illinois and the applicable laws of the United States of America. Any action or
proceeding against Pledgor under or in connection with this Agreement or any
other instrument or agreement securing, evidencing, or relating to the
Obligations or any part thereof may be brought in any state or federal court in
Cook County, Illinois. Pledgor hereby irrevocably (i) submits to the
nonexclusive jurisdiction of such courts, and (ii) waives any objection it may
now or hereafter have as to the venue of any such action or proceeding brought
in such court or that such court is an inconvenient forum. Pledgor agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified or determined in accordance with the
provisions of Section 6.5 of this Agreement. Nothing in this Agreement or any
other instrument or agreement securing, evidencing, or relating to the
Obligations or any part thereof shall affect the right of Secured Party to serve
process in any other manner permitted by law or shall limit the right of Secured
Party to bring any action or proceeding against Pledgor or with respect to any
of its property in courts in other jurisdictions. Any action or proceeding by
Pledgor against Secured Party shall be brought only in a court located in Cook
County, Illinois.
Section 6.7. Headings. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 6.8. Survival. All representations and warranties made in this
Agreement shall survive the execution and delivery of this Agreement, and no
investigation by Secured Party shall affect the representations and warranties
of Pledgor herein or the right of Secured Party to rely upon them.
Section 6.9. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.10. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
10
<PAGE> 64
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 6.11. Construction. Pledgor and Secured Party acknowledge that
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Pledgor and Secured
Party.
Section 6.12. Obligations Absolute. The obligations of Pledgor under
this Agreement shall be absolute and unconditional and shall not be released,
discharged, reduced, or in any way impaired by any circumstance whatsoever,
including, without limitation, any amendment, modification, extension, or
renewal of this Agreement, the Obligations, or any document or instrument
evidencing, securing, or otherwise relating to the Obligations, or any release,
subordination, or impairment of collateral, or any waiver, consent, extension,
indulgence, compromise, settlement, or other action or inaction in respect of
this Agreement, the Obligations, or any document or instrument evidencing,
securing, or otherwise relating to the Obligations, or any exercise or failure
to exercise any right, remedy, power, or privilege in respect of the
Obligations.
Section 6.13. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, PLEDGOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
[Remainder of page intentionally blank. Signature pages follow.]
11
<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
PLEDGOR:
SOUTH HAMPTON REFINING CO.
By:
------------------------------------
Nicholas N. Carter
President
Address for Notices:
7752 FM 418
P.O. Box 1636
Silsbee, Texas 77656
Fax No.: (409) 385-2453
Attention: Nicholas N. Carter
PLEDGE AGREEMENT
SIGNATURE PAGE
<PAGE> 66
SECURED PARTY:
HELLER FINANCIAL LEASING, INC.
By:
------------------------------------
Name:
Title:
Address for Notices:
Commercial Equipment Finance Group
500 West Monroe Street
Chicago, Illinois 60661
Fax: (312) 441-7519
PLEDGE AGREEMENT
SIGNATURE PAGE
<PAGE> 67
SCHEDULE 1
All shares of stock in Gulf State Pipe Line Company, Inc., now existing
or hereafter issued, presently evidenced by Stock Certificate No. 2, evidencing
1000 shares of common stock.
<PAGE> 68
GROUND LEASE
by and between
SOUTH HAMPTON REFINING CO., as Landlord
and
HELLER FINANCIAL LEASING, INC., as Tenant
<PAGE> 69
GROUND LEASE
THIS GROUND LEASE ("Lease") is made and executed as of the 30th day of
December, 1999, by and between SOUTH HAMPTON REFINING CO., a Texas corporation
("Landlord"), and HELLER FINANCIAL LEASING, INC., a Delaware corporation
("Tenant"), with reference to the following:
R E C I T A L S:
A. Landlord is the owner of that certain parcel of land
containing approximately 105 acres located in Silsbee, Texas and legally
described on Exhibit A attached hereto and made a part hereof, together with
any and all easements, licenses, tenements, hereditaments and appurtenances no
or hereafter belonging or pertaining to said real property (said real property
and interests herein referred collectively to as the "Premises").
B. Landlord desires to lease to Tenant, and Tenant desires to
lease from Landlord, the Premises.
C. Simultaneously with the execution of this Lease, Landlord has
obtained a loan (the "Loan") from Tenant in the stated principal amount of
Three Million Five Hundred Thousand Dollars ($3,500,000.00) secured by, among
other things, the equipment, fixtures and other personalty owned by Landlord
and currently or at any subsequent time located or positioned on the Premises
(the "Equipment"). Such Loan is being made and granted pursuant to and as
described in that certain Loan and Security Agreement of even date herewith
(the "Loan Agreement") between Tenant, as Lender, and Landlord, as Borrower.
D. In lieu of granting a security interest in the Premises
pursuant to a deed of trust or mortgage instrument, Landlord hereby makes and
grants this Lease as additional security for the Loan.
E. Simultaneously with the execution of this Lease, Landlord has
made and entered into a Hazardous Substances Indemnity Agreement (herein so
called) of even date herewith providing environmental indemnities and
protections to the Tenant.
1. Premises. In consideration of the mutual covenants herein
contained and subject to and in consideration of the execution, delivery and
performance of each of Landlord and Tenant of the Loan Agreement and Hazardous
Substances Indemnity Agreement, Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the Premises, upon and subject to the terms and
conditions of this Lease.
2. Lease Term. The term of this Lease (the "Term") shall
commence on December 30, 1999 (the "Lease Commencement Date") and shall
continue until December 31, 2049 (the "Termination Date"), unless earlier
terminated pursuant to the provisions hereof. As used herein, the
<PAGE> 70
term "Lease Year" shall mean each calendar year or portion thereof within the
Term. The first Lease Year, however, shall commence on the Commencement Date
and shall end on December 31 of the calendar year immediately succeeding the
calendar year in which the Commencement Date shall occur.
3. Base Rent. Tenant shall pay to Landlord, in lawful money of
the United States of America, annual rent (the "Base Rent") of One Dollar
($1.00). Landlord hereby acknowledges payment of Base Rent for the entire Term.
4. Possession of Premises. Tenant does not have the initial
intention to take actual possession of the Premises and instead chooses to
utilize its leasehold interest as additional security under the Loan Agreement.
If there is a default under the terms of the Loan Agreement, Tenant may at its
option upon written demand obtain actual possession of the Premises at which
time Landlord shall deliver possession of the Premises free and clear of all
interests (possessory or otherwise) other than those expressly consented to by
Tenant.
5. Taxes and Assessments. During the Term of this Lease,
Landlord shall pay to the public officers charged with the collection thereof,
as the same become due and payable and before any fine, penalty, interest or
other charge may be added thereto for the nonpayment thereof, all real estate
taxes, license and permit fees, charges for public utilities of any kind, and
obligations for any and all other governmental charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind and
nature whatsoever, as well as assessments for sidewalks, streets, sewers, water
or any other public improvements and any other improvements or benefits which,
during the Term hereof, shall be made, assessed, levied or imposed upon or
become due and payable in connection with, or a lien upon, the Premises, or any
part thereof or improvements thereon, or upon this Lease (all of which taxes,
assessments and other governmental charges are hereinafter referred to as
"Impositions"). Landlord shall automatically furnish to Tenant, within thirty
(30) days after the date upon which any such Imposition is due, official
receipts of the proper taxing or other authority, or other proof reasonably
satisfactory to Tenant, evidencing the full payment thereof. Landlord shall
promptly send to Tenant copies of any notices for any such taxes, assessments
or charges received by Landlord.
6. Indemnification by Landlord. In addition to the indemnities
and protections granted by Landlord to Tenant pursuant to the Hazardous
Substances Indemnity Agreement, Landlord hereby agrees to and shall defend,
protect, indemnify and save harmless Tenant and all of Tenant's partners,
officers, directors, shareholders, affiliates, agents, employees,
representatives, contractors and invitees from and against all liabilities,
obligations, claims, demands, damages, penalties, fines, losses, suits, causes
of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
Tenant or any other such indemnified persons or parties by reason of (a)
ownership of the Premises or any interest therein, or receipt of any rent or
other sum therefrom, (b) any accident, occurrence, injury to or death of
persons (including workmen) or loss of or damage to property occurring on or
about the Premises (or any part thereof) or any buildings, improvements,
fixtures, equipment or personalty thereon or the adjoining sidewalks,
-2-
<PAGE> 71
curbs, vaults and vault space, if any, or the adjoining streets or ways, (c) any
use, non-use or condition of the Premises (or any part thereof) or the adjoining
sidewalks, curbs, vaults or vault space, if any, or the adjoining streets or
ways, (d) any failure on the part of Landlord to perform or comply with any of
the terms of this Lease, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Premises or any
part thereof, or (f) any matters related to any and all Impositions, and from
any and all liens and penalties imposed as a result of a delinquency in payment
thereof. In case any action, suit or proceeding is brought against Tenant or any
other such indemnified persons or parties by reason of any such occurrence,
Landlord, upon Tenant's request, will at Landlord's sole expense resist and
defend such action, suit or proceeding, or cause the same to be resisted and
defended by counsel designated by Tenant and approved by Tenant in advance in
writing. The obligations of Landlord under this Paragraph 6 arising by reason of
any such occurrence taking place during the Term of this Lease shall survive any
expiration or earlier termination of this Lease.
7. Use of Premises. Landlord acknowledges, represents and
warrants that the current use of the Premises complies with all applicable
statutes, rules, orders, ordinances, requirements and regulations of any
governmental authority having jurisdiction over the Premises and covenants that
the same will hold true throughout the term of this Lease.
8. Utilities. As long as it is in possession of the Premises,
Landlord alone shall be responsible for and shall pay all charges for all
water, gas, heat, light, electricity, telephone, sewer, sprinkler, cable and
other utilities and services used or desired by Landlord on or from the
Premises, together with any taxes, penalties, surcharges or the like pertaining
thereto and any maintenance charges for all utilities. Tenant has no
responsibility to provide any such utilities or services, nor any other
services, and Tenant shall not be liable in any respect (including for damages
to either person or property) in the event of any failure in the provision of
any such utilities or services or in the event of any cessation thereof nor
shall any such failure or cessation be construed as an eviction of Landlord or
relieve Landlord from fulfillment of any covenant in this Lease. If Tenant or
any successor in interest to Tenant shall take possession of the Premises,
Landlord shall ensure that adequate utilities are provided to the Premises.
9. Responsibility for Other Expenses. As long as it is in
possession of the Premises, Landlord alone shall be responsible for and shall
pay all other expenses that are incident to or have a direct relationship with
the ownership, operation and maintenance of the Premises.
10. Maintenance and Repairs. Landlord covenants that it shall
keep the Premises and all buildings, improvements, fixtures and equipment
located on and/or used in connection with the Premises in good condition and
shall make or cause to be made all necessary repairs, alterations and/or
replacements thereto. All such repairs, alterations or replacements shall be of
good quality and Landlord shall cause the Premises and all buildings,
improvements, fixtures and equipment to be maintained in a manner consistent
with its condition, quality and class on the date hereof. Landlord shall not
use, or permit or suffer to be used, the Premises or any part thereof for any
disorderly or unlawful purpose and shall not commit or permit any waste or
deterioration of the Premises.
-3-
<PAGE> 72
11. Alterations and Additions. Landlord, at its own expense,
shall have the right to make alterations and additions to the Premises and the
buildings thereon (if any), provided that: (a) no substantial portion of any
buildings may be demolished or removed without the prior written consent of
Tenant; and (b) the general character of the Premises shall not be changed as a
result of any such alterations or additions nor shall the fair market value of
the Premises be reduced as a result of any such alterations or additions below
the value of the Premises which existed immediately before such alterations or
additions. All such work shall be done in a good and workmanlike manner and
shall consist of new materials unless otherwise agreed to by Tenant.
12. Insurance. At all times through the Term of this Lease,
Landlord shall obtain and maintain the insurance in the form and substance,
required to be obtained and maintained pursuant to the Loan Agreement.
13. Damage or Destruction. In the event of damage to or
destruction of the buildings or improvements, if any, situated on the Premises
by fire or other casualty, Landlord will give Tenant immediate notice thereof.
Tenant shall have the option upon the receipt of notice from Landlord to
immediately terminate the Lease and the rights and obligations of the parties
hereunder, except rights and obligations arising prior to such damage or
destruction, shall terminate as of the date of such damage or destruction and
the parties hereto shall look solely to the insurance award for compensation
for their respective interests in the Premises. If Tenant does not elect to
terminate the Lease, Landlord will promptly, at Landlord's sole expense and
whether or not the insurance proceeds (if any) payable or received by virtue of
such event are sufficient for the following purpose, repair, restore or rebuild
(as applicable) the same to the same or improved condition and utility (except
as may be otherwise agreed between Landlord and Tenant) so that upon the
completion of such repairs, restoration or rebuilding (as the case may be), the
fair market value of the said buildings and improvements shall be at least
substantially equal to the fair market value thereof as existed immediately
prior to the occurrence of such fire or other casualty. Landlord's obligations
to be performed hereunder shall continue during the period of any such repair
and restoration.
14. Condemnation.
(a) Entire Premises. In the event that all right, title and
interest of Landlord and Tenant in and to the Premises is acquired by authority
of any governmental agency in the exercise of its power of eminent domain, the
rights and obligations of the parties hereunder, except rights and obligations
arising prior to such taking, shall terminate as of the date of such taking and
the parties hereto shall look solely to the condemnation award for compensation
for their respective interests in the Premises, as hereinafter provided.
(b) Partial Taking. In the event that less than all of the
right, title and interest of Landlord in the Premises is acquired by authority
of any governmental agency in the exercise of its power of eminent domain,
Tenant, upon consideration of the utility of the Premises, shall have the
option, which may be exercised in its sole discretion, whether or not to
terminate this Lease. If Tenant so chooses to terminate the Lease, this Lease
shall terminate as of the date of such taking and
-4-
<PAGE> 73
the parties hereto shall look solely to the condemnation award for compensation
for their respective interests in the Premises. If Tenant determines that the
operation on the Premises can so continue, this Lease shall continue as to the
remainder of the Premises, and Tenant, subject to the rights of any Leasehold
Mortgagee (hereinafter defined), shall use the condemnation proceeds to repair
and restore the improvements on the Premises.
(c) Condemnation Award. Any condemnation award resulting
from a total taking shall be allocated and paid first to the Leasehold
Mortgagee, if any, in accordance with the terms and provisions of the Leasehold
Mortgage (hereinafter defined), then to the Tenant in consideration of the
repayment of the Loan, and if any amount of the condemnation award remains
after full repayment of the Loan, then to the Landlord.
15. Default.
(a) Landlord Default. In addition to other Defaults
defined throughout this Lease, it shall constitute a "Default" by Landlord
under this Lease if (a) Landlord shall fail to pay any sum or payment to Tenant
required herein as and when due hereunder, or (b) failure or default shall be
made in the performance of any of the other covenants, agreements, conditions
or undertakings herein contained to be kept, observed and performed by the
Landlord and such failure or default shall continue for fifteen (15) days after
notice thereof in writing to the Landlord (provided however, if such failure
cannot reasonably be cured within such 15-day period, but Landlord commences to
cure such failure within such 15-day period and thereafter diligently pursues
such cure to completion, then such failure shall not be a Default hereunder
unless the same is not fully cured within an additional 30 days following the
expiration of the aforesaid 15-day period), or (c) Landlord shall generally not
pay its debts as they become due or shall admit in writing its inability to pay
its debts, or Landlord shall file a petition in voluntary bankruptcy under the
Federal Bankruptcy Act or similar law, state or federal, whether now or
hereafter existing, or Landlord shall file an answer admitting insolvency or
inability to pay Landlord's debts, or Landlord shall fail to obtain a vacation
or stay of involuntary proceedings in bankruptcy or insolvency within sixty
(60) days after the filing of same (as hereinafter provided), or Landlord shall
be adjudicated a bankrupt, or a trustee or receiver shall be appointed for
Landlord or for all of Landlord's property or the major part thereof, or any
court shall have taken jurisdiction of the property of Landlord or the major
part thereof in any involuntary proceeding for reorganization, dissolution,
liquidation or winding up of Landlord, and such trustee or receiver shall not
be discharged or such jurisdiction relinquished or vacated or stayed on appeal
or otherwise removed within sixty (60) days after such appointment; provided
that in the event of such occurrence, Landlord and Tenant intend and agree that
the transactions evidenced by the Loan Agreement and surrounding loan documents
shall be regarded as a loan from Tenant to Landlord that is secured by the
Premises, and Landlord hereby grants Tenant a security interest in the Premises
as described in Paragraph 16(e) herein and this Lease shall be deemed to be a
security agreement and financing statement within the meaning of Article 9 of
the Uniform Commercial Code of any applicable law, or (d) Landlord shall make
an assignment for the benefit of Landlord's creditors, or (e) Landlord shall
vacate or abandon the Premises, or (f) Landlord shall fail to discharge any
lien or encumbrance placed upon the Premises in violation of the terms and
conditions of this Lease within fifteen (15) days after
-5-
<PAGE> 74
such lien or encumbrance is filed against the Premises, or (g) Landlord shall
commit an event of default or default under the terms of the Loan Agreement,
the Sub-Ground Lease (as defined herein) or the Hazardous Substances Indemnity
Agreement.
(b) Tenant Default. It is hereby acknowledged and agreed by
Landlord that Tenant has undertaken no obligations under this Lease and,
accordingly, by its actions or omissions can not commit a default under the
terms of this Lease.
16. Remedies for Landlord Default. Upon the occurrence of a
Default by Landlord under this Lease, Tenant, at Tenant's sole option and
without further notice or demand to Landlord, may, in addition to all other
rights and remedies provided in this Lease or at law or in equity, elect to
pursue any one or more of the following rights or remedies without any notice
or demand whatsoever:
(a) Foreclose on the Equipment pursuant to the terms of
the Loan Agreement.
(b) Terminate this Lease and Landlord's right of
possession of the Premises (in which event Landlord shall immediately surrender
the Premises to Landlord, and, if Landlord fails to do so, Tenant may, without
prejudice to any other remedy that Tenant may have or be entitled for
possession, enter upon and take possession of the Premises and expel or remove
Landlord and any other person who may be occupying such Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim of damages therefor), and Tenant shall thereupon be entitled to recover
from Landlord all damages for all loss and damage which Tenant may suffer by
reason of such termination, whether through inability to relet the Premises, or
otherwise, including any loss of Rent and other benefits which Tenant would
have received under this Lease for the remainder of the Lease Term.
(c) Terminate Landlord's right of possession of the
Premises without terminating this Lease (in which event Tenant may enter upon
and take possession of the Premises and expel or remove Landlord and any other
person or persons who may be occupying such Premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim for
damages therefor), and in which event Tenant may, but shall not be obligated
to, relet the Premises, or any part thereof, for the account of Landlord, for
such rent and such term and upon such terms and conditions as are acceptable to
Tenant in Tenant's sole discretion.
(d) Enter upon the Premises, by force if necessary,
without being liable for prosecution or any claim for damages therefor, and do
whatever Landlord is obligated to do under the terms of this Lease, and
Landlord agrees to reimburse Tenant on demand for any expenses which Tenant may
incur in thus effecting compliance with Landlord's obligations under this
Lease, and Landlord further agrees that Tenant shall not be liable for any
damage resulting to Landlord from such action, whether caused by the negligence
of Tenant or otherwise.
-6-
<PAGE> 75
In the event Tenant may elect to regain possession of the Premises by
a forcible detainer proceeding, Landlord hereby specifically waives any
statutory notice which may be required prior to such proceeding, and Landlord
agrees that Landlord's execution of this Lease is, in part, consideration for
such waiver. If Landlord shall fail to make any payments or cure any event of
default hereunder within the time herein permitted, Tenant, without being under
any obligation to do so and without thereby waiving such event of default, may
make such payments or remedy such other event of default for the account of
Landlord (and enter the Premises for such purpose) and thereupon Landlord shall
be obligated to, and hereby agrees, to pay Tenant, upon demand, all costs,
expenses and disbursements (including reasonable attorneys' fees) incurred by
Tenant in taking such remedial action. In the event that Tenant shall have
taken possession of the Premises pursuant to the authority herein granted, then
Tenant shall have the right to keep in place and use all of the furniture,
fixtures and equipment at the Premises, including that which is owned by or
leased to Landlord, at all times prior to any foreclosure thereon by Tenant or
repossession thereof by any lessor thereof or third party having a lien
thereon; and Tenant shall also have the right to remove from such Premises
(without the necessity of obtaining a distress warrant, writ of sequestration
or other legal process) all or any portion of such furniture, fixtures,
equipment and other property located thereon and to place same in storage in
any premises within the county in which the Premises are located, and, in such
event, Landlord shall be liable to Tenant for any and all costs incurred by
Tenant in connection with such removal and storage; and Tenant shall also have
the right to relinquish possession of all or any portion of such furniture,
fixtures, equipment and other property to any person ("Claimant") claiming to
be entitled to possession thereof who presents to Tenant a copy of any
instrument represented to Tenant by Claimant to have been executed by Landlord
(or any predecessor of Landlord) granting Claimant the right under such
circumstances to take possession of such furniture, fixtures, equipment or
other property, without the necessity on the part of Tenant to inquire into the
authenticity of said instrument's copy or Landlord's or Landlord's
predecessor's signature thereon and without the necessity of Tenant making any
nature of investigation or inquiry as to the validity of the factual or legal
basis upon which Claimant purports to act; AND LANDLORD AGREES TO INDEMNIFY AND
HOLD TENANT HARMLESS FROM ALL COST, LOSS, EXPENSE, DAMAGE AND LIABILITY
INCIDENT TO LANDLORD'S RELINQUISHMENT OF POSSESSION OF ALL OR ANY PORTION OF
SUCH FURNITURE, FIXTURES, EQUIPMENT OR OTHER PROPERTY TO CLAIMANT, AND LANDLORD
STIPULATES AND AGREES THAT THE RIGHTS HEREIN GRANTED TO TENANT ARE COMMERCIALLY
REASONABLE. In the event of termination or repossession of the Premises as a
result of an event of default by Landlord hereunder, Tenant shall not have any
obligation to relet or to attempt to relet the Premises, or any portion
thereof, or to collect rental after reletting; and, in the event of reletting,
Tenant may relet the whole or any portion of the Premises for any period to any
tenant and for any use and purpose. For the purposes of any reletting of the
Premises, the Tenant is hereby authorized to repair, alter and improve the
Premises to the extent necessary or desirable in the Tenant's judgment. If and
when the Premises are relet and if a sufficient sum is not realized from such
reletting after payment of all the Tenant's expenses of reletting (including,
without limitation, costs of repairs, alterations, improvements, additions,
legal fees and brokerage commissions) to satisfy the payment of Rent due under
this Lease for any month, Landlord shall pay to Tenant any such deficiency
monthly upon demand. Landlord agrees that the Tenant may file suit to recover
any sums due to Tenant under this
-7-
<PAGE> 76
Lease and that such suit or recovery of any amount due Tenant pursuant hereto
shall not be any defense to any subsequent action brought for any amount not
previously reduced by judgment in favor of Tenant. If Tenant elects to
terminate Landlord's right to possession of the Premises only, without
terminating this Lease, Tenant may, at Tenant's sole option, enter upon the
Premises, removing Landlord's signs and other evidences of tenancy, and take
and hold possession thereof; provided, however, that such entry and possession
shall not terminate this Lease nor release Landlord, in whole or in part, from
Landlord's from any obligation of Landlord under this Lease. Landlord shall pay
on demand and reimburse Tenant for payment of Tenant's reasonable attorneys'
fees, expenses and court costs in negotiation, at trial, and on appeal incurred
by Tenant to enforce any obligation of Landlord under this Lease, or to defend
any claim brought by Landlord against Tenant or by any person claiming by,
through or under Landlord, or in curing any event of default by Landlord, or in
connection with any action or proceeding arising out of or occasioned by any
lien or claim of lien on the Premises, or in defending or otherwise
participating in any legal proceeding initiated by Landlord or against
Landlord, or in connection with the investigation of a response to any request
for consent or other amendments to this Lease by Landlord.
It is acknowledged and agreed that Base Rent for the entire term has
been paid in advance.
(e) Power of Sale. In the event of a Default, Tenant and
Trustee (as defined herein) shall have all the rights available to a deed of
trust trustee or a beneficiary of a deed of trust under the laws of the State
of Texas, including, without limitation, all rights granted a trustee or
beneficiary under the laws of the State of Texas including Section 51.002 of
the Texas Property Code, as amended or a successor statute (collectively, the
"Deed of Trust Law"). In accordance therewith, to secure the full and timely
performance and discharge of Landlord's obligations under the Lease, Landlord
hereby grants, bargains, sells and conveys in trust with power of sale, the
Premises unto Michael W. Hillard, Esq. as a deed of trust trustee (the
"Trustee"). Tenant may appoint in writing, a substitute trustee without notice,
filing or recordation, who shall succeed to all the estates, rights, powers
and duties of the aforenamed Trustee.
(f) Tenant's Remedies Cumulative. Each right, power and
remedy of Tenant provided for in this Lease or now or hereafter existing at law
or in equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power or remedy provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Tenant of any one
or more of the rights, powers or remedies provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by Tenant of any or all such other
rights, powers or remedies.
17. Leasehold Mortgages.
(a) Tenant shall have the right, at any time and from
time to time, without the consent of the Landlord, to grant one or more
mortgages, collateral assignments or security interests in Tenant's leasehold
interest under the Lease. Said mortgage or collateral device and any subsequent
-8-
<PAGE> 77
or additional mortgages or collateral devices granted by Tenant are hereinafter
referred to individually and, to the extent that more than one such mortgage or
security device(s) may be in force at any one time, collectively, as the
"Leasehold Mortgage." The holder(s) of such Leasehold Mortgage at any point in
time are hereinafter referred to, individually and collectively, as the
"Leasehold Mortgagee."
(b) Landlord shall not be obligated to subordinate or
subject Landlord's interest to the lien and charge of any Leasehold Mortgage.
(c) If the holder of any Leasehold Mortgage shall have
registered with Landlord by written notice specifying the name and address of
such Leasehold Mortgagee, Landlord thereafter shall give to such Leasehold
Mortgagee a copy of each notice of default for which provision is made under
Section 10 hereof at the same time as and whenever such notice shall be given
by Landlord to Tenant, such copy to be addressed to such Leasehold Mortgagee at
the address last furnished to Landlord as provided hereinabove. In the event of
any such registration, Landlord shall not be entitled to serve a notice of
cancellation and termination upon Tenant unless a copy of any prior notice of
default shall have been given to such Leasehold Mortgagee as hereinabove
provided and the time as hereinafter specified for the curing of such default
shall have expired without the same having been cured. The performance by any
such Leasehold Mortgagee of any condition or agreement on the part of Tenant to
be performed hereunder will be deemed to have been performed with the same
force and effect as though performed by Tenant.
(d) Landlord will accept performance by any Leasehold
Mortgagee, within the following periods, of any term, covenant or condition on
Tenant's part to be performed hereunder, with the same force and effect as
though timely performed by Tenant:
(ii) As to any rent and all other charges
payable hereunder, within thirty (30) days after notice from Landlord
to Leasehold Mortgagee that such default was not cured within the time
period given to Tenant; and
(iii) As to all other defaults hereunder, within
ninety (90) days more than the applicable time period provided herein
to the Tenant to remedy such default provided that Landlord shall
notify Leasehold Mortgagee of Tenant's failure to remedy such default
within the applicable time period or, if within such period such
default cannot be cured, or cannot be cured within entry into
possession, so long as Leasehold Mortgagee commences to so cure within
such period and diligently and continuously proceeds therewith,
including, without limitation, diligent efforts to obtain possession,
to the completion of such cure.
If any default of the Tenant is not curable by the Leasehold
Mortgagee, including, without limitation, any matter personal to the Tenant,
such default shall be deemed cured if the Leasehold Mortgagee (i) cures all
curable defaults within the aforesaid time periods, and (ii) agrees in writing
to assume and perform all of the terms and conditions of this Lease from and
after the date of such non-curable default.
-9-
<PAGE> 78
(e) Landlord shall not exercise its right to terminate
this Lease, as hereinabove provided, during the time that any such Leasehold
Mortgagee, who, having registered with Landlord pursuant to subsection (c)
above, shall require to complete its remedies under such Leasehold Mortgagee,
provided, however:
(i) That such Leasehold Mortgagee proceeds,
promptly and with due diligence, with the remedies under its mortgage
on the leasehold estate and thereafter prosecutes and completes the
same with all due diligence; and
(ii) That such Leasehold Mortgagee shall pay to
Landlord the rent and all other charges required to be paid by Tenant
hereunder which have accrued and which shall become due and payable
during said period of time.
(f) Landlord shall also be obligated to give any notice
of cancellation and termination of this Lease to any such Leasehold Mortgagee
who shall have registered with Landlord pursuant to subparagraph (c) above,
simultaneously with such notice given to Tenant. No such notice to Tenant shall
be effective with respect to a cancellation or termination of this Lease unless
the Leasehold Mortgagee shall also have been so notified as aforesaid.
Leasehold Mortgagee shall then have the right to notify Landlord in writing,
within sixty (60) days after receipt by Leasehold Mortgagee of such notice of
cancellation and termination, that (i) Leasehold Mortgagee, or any designee or
nominee which Leasehold Mortgagee may designate or name in such notice, elects
to lease the Premises from the date of cancellation or termination of this
Lease (as specified in the notice of cancellation and termination) for the
remainder of the term of this Lease, at the rent and other payments and charges
herein reserved, and otherwise upon identical terms, covenants and conditions
as are herein set forth, with the same relative priority in time and in right
as this Lease and having the benefit of and vesting in the Leasehold Mortgagee,
its designee or nominee, of all of the rights, title, interest, powers and
privileges of the Tenant hereunder and (ii) Leasehold Mortgagee further
obligates itself, within sixty (60) days after delivery to Landlord of such
election: (a) to cure the default (other than a default personal to Tenant
which is not curable by Leasehold Mortgagee as above described) upon which such
cancellation or termination was based, or in respect to any default not capable
of curing within such sixty (60) days, or which cannot be cured without entry
into possession, to proceed and effect cure with due diligence, including,
without limitation, diligent efforts to obtain possession; (b) to pay to
Landlord all rent and other payments and charges due under this Lease up to and
including the date of commencement of the term of such new lease; and (c) to
pay to Landlord all expenses and reasonable attorney's fees incurred by
Landlord in connection with any such default and with the preparation,
execution and delivery of such new lease.
Upon compliance by Leasehold Mortgagee, its designee or nominee,
within such time, Landlord shall thereupon execute and deliver such new lease
to Leasehold Mortgagee, its designee or nominee, having the same relative
priority in time and in right as this Lease and having the benefit of all of
the right, title, interest, powers and privileges of the Tenant hereunder in
and to the Premises, hereunder, including specifically assignment of Landlord's
interest in and to any then existing subleases which became a direct lease
between Landlord and the subtenant at the time of cancellation
-10-
<PAGE> 79
or termination of this Lease. Landlord hereby agree with respect to any such
sublease so assigned, that it will not modify or amend any of the terms and
provision thereof, during the period between the expiration or termination of
this Lease and the execution and delivery of the new lease.
Upon the execution and delivery of the new lease, the leasehold estate
shall automatically vest in the Leasehold Mortgagee until the expiration of the
term (including any renewal term) of the new lease, unless the new lease shall
thereafter sooner be terminated and Landlord shall execute and deliver and
permit to be recorded such documents as may be reasonably required by the
Leasehold Mortgagee to confirm the foregoing. Subject to such new lease having
been effectuated with the Leasehold Mortgagee, its designee or nominee,
Landlord further agree that, during the period following the term of this Lease
until the date of the execution and delivery of the new lease, it will do
nothing which will give rise to any liens thereon, but Landlord shall have all
of the right, power and privilege to operate, maintain and control the Premises
in the manner required hereby on the part of the Tenant and shall pay over to
the Leasehold Mortgagee on that date of such execution and delivery the net
income, if any, after payment of all amounts accrued which would be required to
be paid as rent to Landlord or otherwise as expenses on the Premises as if this
Lease had remained in full force and effect until the execution and delivery of
the new lease, derived from the Premises from the date of termination of this
Lease.
Landlord shall deliver physical possession of the Premises to either
the Leasehold Mortgagee, its designee or nominee at such time as the new lease
is executed. In the event, however, that any the time the new lease is executed
the Tenant hereunder shall be in possession of the Premises, Landlord, at the
request and expense of the Leasehold Mortgagee, its designee or nominee, as the
new tenant, will take all commercially reasonable and appropriate steps to
remove the Tenant from the Premises, but shall not be liable to such new tenant
for any damages resulting from any default of the Tenant in vacating the said
premises, or from any failure to vacate them, and there shall be no abatement
of rent by reason thereof.
In no event shall the Leasehold Mortgagee, its designee or nominee, be
under any obligation or liability whatsoever beyond the period for which it is
the tenant under any such new lease.
(g) Landlord shall not amend or modify this Lease
without the consent of any Leasehold Mortgagee to the extent such consent is
required by the terms of the applicable mortgage. Landlord further acknowledges
that all determinations with respect to rebuilding in the event of a casualty
or condemnation and the control of and rights to the proceeds with respect
thereto shall be vested in the Leasehold Mortgagee with priority over the
rights of Landlord hereunder.
(h) There shall be no merger of this Lease nor the
leasehold estate created by this Lease with the fee estate or any part thereof
by reason of fact that the same person, firm, corporation or other entity may
acquire or own or hold, directly or indirectly:
(i) this Lease or the leasehold estate created by
this Lease or any interest in this Lease or in any such
leasehold estate; and
-11-
<PAGE> 80
(ii) the fee estate in the Premises or any part
thereof or any interest in such estate, and no such merger
shall occur unless and until all corporations, firms and
other entities, including any Leasehold Mortgagee, having any
interest in (x) this Lease or the leasehold estate created by
this Lease and (y) the fee estate in the Premises or any part
thereof or any interest in such fee estate shall join in a
written instrument effecting such merger and shall duly
record the same.
18. Landlord Mortgages. Landlord shall not grant any mortgage,
deed of trust or security interest in Landlord's interest in and to the
Premises. Any action in violation of this paragraph shall be an automatic
Default under the Lease.
19. Assignment and Subletting.
(a) By Tenant. Tenant shall have the right, without
Landlord's consent, to assign, mortgage, pledge, encumber, hypothecate or
otherwise transfer or permit the transfer of this Lease or Tenant's interest
(or any part thereof) in this Lease, in whole or in part, by operation of law,
court decree or otherwise, this Lease in whole or in part. No assignment or
subletting by Tenant shall in any way affect the terms, conditions, covenants,
agreements and provisions herein set forth, any and all assignments or
subleases shall be subject at all times to this Lease and to the prior right,
title and interest of Landlord in and to the Premises, and any and all assigns
and subtenants shall be bound by all of the provisions of this Lease.
(b) By Landlord. Landlord shall not, without Tenant's
prior written consent, assign, mortgage, pledge, encumber, hypothecate or
otherwise transfer or permit the transfer of this Lease or Landlord's interest
(or any part thereof) in this Lease or any of Landlord's rights or obligations
hereunder, in whole or in part, by operation of law, court decree or otherwise,
nor shall Landlord sublease the Premises or any part thereof without the prior
written consent of Tenant. Any attempted assignment, subletting, encumbrance or
other transfer by Landlord in violation of the terms and covenants of this
Paragraph 19 shall automatically be a Default under the terms of this Lease
subject to the remedies described herein. Any assignee or sublessee which is
approved and permitted pursuant hereto must expressly accept and assume in
writing all of the obligations of Landlord hereunder. The consent of Tenant to
any such assignment, sublease or other transfer may be withheld by Tenant in
Tenant's sole and arbitrary discretion. Tenant may further impose conditions on
the granting of consent to any such assignment, sublease or other transfer as
Tenant may, in Tenant's sole and arbitrary discretion, desire. If the Landlord
desires to assign or otherwise transfer this Lease or any right or interest
hereunder or to enter into any sublease of the Premises, then Landlord shall
deliver written notice of such intent to the Tenant, together with a copy of the
proposed instrument of assignment, transfer or sublease, at least thirty (30)
days prior to the effective date of the proposed assignment or transfer or
commencement date of the term of the proposed sublease. In the event of any
approved sublease or assignment or other transfer hereunder, the Landlord shall
not be released or discharged from any liability or obligation (whether past,
present or future) under this Lease, including any renewal term of this Lease,
it being agreed that upon any such assignment, transfer or subletting, Landlord
shall not be relieved of any obligations hereunder and shall continue to have
-12-
<PAGE> 81
liability under this Lease with respect to the Premises throughout the Term. If
the rental rate agreed upon between Landlord and any proposed subtenant under
any proposed sublease of the Premises (or any part thereof) is greater than the
rental rate that Landlord must pay Tenant hereunder for that portion of the
Premises that is subject to such proposed sublease, or if any consideration
shall be received by Landlord in connection with any such proposed assignment,
sublease or other transfer (in addition to rental as provided in any such
proposed sublease), then all of such excess rental or such consideration, as
the case may be (or both), shall be owed by Landlord to Tenant hereunder and
shall be paid by Landlord to Tenant, which payment shall, in the case of excess
rentals, be made immediately upon receipt thereof by Landlord. For purposes of
this Paragraph 19, an assignment, sublease or transfer shall be considered to
include any change in the majority ownership or control of Landlord (if
Landlord is a corporation, a partnership or any other form of entity) and shall
further include any change in the ownership or control of Landlord through
merger, consolidation, sale of assets or stock, reorganization or otherwise.
All subleases, assignments or other transfers approved and permitted pursuant
hereto shall be subject and subordinate to this Lease (including any amendment
hereto or modification, extension, renewal or replacement hereof and further
including any new lease given in substitution for this Lease) and all of the
terms and covenants hereof, and any default under the terms of a sublease,
assignment or other transfer which violates any of the provisions of this Lease
(as this Lease may have then been modified, amended, extended, renewed or
replaced) or any such substitute lease shall be deemed a Default hereunder. The
covenants and agreements set forth in this Paragraph 19 shall run with the land
comprising the Premises and shall bind Landlord and Landlord's heirs, executors,
administrators, personal representatives, representatives in any bankruptcy
proceeding, successors and assigns. Any assignee, sublessee or transferee of
Landlord's interest in this Lease, by assuming Landlord's obligations hereunder,
shall assume liability to Tenant for all amounts paid to persons other than
Tenant by such successors in contravention of this Paragraph 19. Upon the
occurrence of a Default by Landlord hereunder, if the Premises or any part
thereof are then assigned, transferred or sublet, Tenant, in addition to any
other remedy herein provided or provided by law, may at Tenant's option collect
directly from any such assignee, transferee or subtenant all rents and/or other
consideration and amounts becoming due to Landlord under such assignment,
transfer or sublease and apply such rent against any sums due to Tenant from
Landlord hereunder, and no such collection shall be construed to constitute a
novation or a release of Landlord from the further performance of Landlord's
obligations hereunder.
20. Successors and Assigns. This Lease shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
21. Relationship of Landlord and Tenant. It is expressly
understood that Tenant shall not be construed to be a partner or associate of
Landlord in the conduct of its business, and that the relationship between the
parties hereto is and shall at all times remain that of landlord and tenant.
22. Covenants of Landlord. Landlord covenants that it is
seized in fee simple of, and has good and marketable title to, the Premises and
that the same is free and clear of all liens, leases, encumbrances, easements,
encroachments, covenants, conditions, and restrictions except for the items
-13-
<PAGE> 82
set forth in Exhibit B attached hereto and made a part hereof; that Landlord
has the full right and power to make this Lease.
23. Surrender of Possession. Tenant, if it so choices to
take possession of the Premises pursuant to Paragraph 4 herein, on or before
the last day of the Term or upon the earlier termination of this Lease, shall
peaceably and quietly leave, surrender and yield up unto Landlord the Premises.
24. Brokerage Commissions. Each of Landlord and Tenant
represents and warrants to the other that it has employed no broker or agent in
connection with this Lease, and each party hereto shall indemnify and hold the
other harmless from and against any claim, liability or damage against or to
the other arising from or in respect of a breach of the foregoing
representation and warranty.
25. Limitation on Tenant's Liability. Landlord expressly
covenants and agrees that neither Tenant nor any officer, director,
shareholder, partner, venturer, affiliate, agent, employee or representative of
Tenant (the "Affiliated Parties") shall have any personal liability for any
obligations (if any) of Tenant arising under this Lease and that Landlord will
not institute, prosecute or attempt to enforce in any court or otherwise any
action for specific performance or to recover or collect from Tenant nor any
Affiliated Parties or from any assignee to Tenant at any time succeeding to the
interest of Tenant under this Lease, or at any time owning, or who had
previously owned, the leasehold estate of Tenant, any moneys claimed for
damages for breach of any agreement or covenant herein including any covenant
to pay rent or other monetary sums. If Tenant defaults in the performance of
any of Tenant's obligations under this Lease or otherwise, Landlord shall look
solely to Tenant's interest in the Premises and not to any other assets,
interests or rights of Tenant or any Affiliated Parties for satisfaction of
Landlord's remedies on account thereof, it being hereby agreed that Tenant's
liability under this Lease shall be limited to Tenant's interest in the
Premises and Landlord agrees to look solely to Tenant's interest in the
Premises to satisfy any obligation of Tenant under this Lease. The foregoing is
an express covenant and agreement on the part of Landlord and constitutes a
material inducement to the execution of this Lease by Tenant and a condition of
Tenant's obligations hereunder.
26. Estoppel Certificates.
(a) By Landlord. Landlord shall, at any time
and from time to time, at the request of Tenant, execute, acknowledge and
deliver to Tenant a certificate by Landlord certifying (i) that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
the extent to which this Lease is in full force and effect as modified and
stating the modifications), (ii) whether there then exist any offsets or
defenses against the enforcement by Tenant of any of the provisions of this
Lease (and, if so, specifying the same), (iii) the dates, if any, to which the
Base Rent and other amounts payable hereunder have been paid in advance, (iv)
the address to which notices to Landlord should be sent pursuant to this Lease,
and (v) any other information as may be reasonably requested by Tenant. Any
such certificate may be relied upon by any prospective Leasehold Mortgage or
assignee of Tenant's interest hereunder.
-14-
<PAGE> 83
(b) By Tenant. Tenant shall, at any time and
from time to time not to exceed once per Lease Year, at the request of
Landlord, execute, acknowledge and deliver to Landlord a certificate by Tenant
certifying that to the best of its knowledge, (i) that this Lease is unmodified
and in full force and effect (or, if there have been modifications, the extent
to which this Lease is in full force and effect as modified and stating the
modifications), (ii) whether there then exist any offsets or defenses against
the enforcement by Landlord of any of the provisions of this Lease (and if so,
specifying the same) , (iii) the dates, if any, to which the Base Rent and
other amounts payable hereunder have been paid in advance and (iv) the address
to which notices to Tenant should be sent pursuant to this Lease.
27. Recordation. A memorandum of this Lease in form and content
acceptable to Tenant, shall be recorded among the land records of the county in
which the Premises is located, and the costs of recordation shall be borne by
Landlord.
28. Gender and Number. Words of any gender used in this Lease
shall be deemed to include any other gender, and words in the singular number
shall be deemed to include the plural (and vice-versa), when the context so
requires.
29. Titles. The titles and article or paragraph headings
contained in this Lease are inserted only for convenience, and shall not be
construed as a part of this Lease or as limiting the scope of the particular
provisions to which they refer.
30. Notices. All notices to be given under this Lease shall be in
writing and shall be sent by personal delivery using an independent courier
service providing proof of delivery, by overnight national or regional courier
providing proof of delivery or by certified or registered mail, postage prepaid
return receipt requested, addressed as follows:
A. If to Landlord:
South Hampton Refining Co.
and Address: 7752 FM 418
P.O. Box 1636
Silsbee, Texas 77656
Attn: Nicholas N. Carter
or to such other person or such other address designated by notice sent by
Landlord to Tenant.
B. If to Tenant:
Heller Financial Leasing, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: CEFD - Control Region Credit Manager
-15-
<PAGE> 84
or to such other address as is designated by Tenant in a notice to Landlord.
All notices shall be deemed given when received, when delivery is refused or
when the same is returned for failure to be called for.
31. Partial Invalidity. If any provisions of this Lease or the
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
32. Waiver. The failure of Landlord or Tenant to insist upon
strict performance of any of the covenants or conditions of this Lease or to
exercise any option herein conferred in any one or more instances shall not be
construed as a waiver or relinquishment for the failure of the same or any
similar covenant, condition or option, but the same shall be and remain in full
force and effect.
33. Financing Requirements. In the event that any lender
providing a Leasehold Mortgage hereunder requires, as a condition of such
financing, that modifications to this Lease be obtained, and provided that such
modifications are reasonable, do not decrease the rentals and other sums
required to be paid by Tenant hereunder, and do not require Landlord to
subordinate its interest in the Premises to the Leasehold Mortgage, Tenant
shall submit such required modifications to Landlord, and Landlord shall enter
into and execute a written amendment hereto incorporating such required
modifications within thirty (30) days after the same have been submitted to
Landlord by Tenant.
34. Entire Agreement. This instrument contains all the agreements
made between the parties hereto with respect to the lease by Landlord of the
Premises as contemplated hereby, and may be modified only by an agreement in
writing, signed by all the parties hereto or their respective successors in
interest.
35. Subordination.
(a) Landlord hereby subordinates to the rights to Tenant
under the Loan Agreement any and all security interest or landlord's lien that
Landlord may have or hereafter acquire with respect to the Equipment, whether
set forth in this Lease, provided by applicable law or otherwise, and any and
all right or distraint, levy or execution against the Equipment for any rent or
other sums due or to become due under this Lease.
(b) Landlord agrees that, as between Landlord and
Tenant, to the maximum extent permitted by applicable law, the Equipment shall
not become part of the Premises and Tenant may enter the Premises at any time
to remove the Equipment in the exercise of its rights and remedies under the
Loan Agreement.
-16-
<PAGE> 85
36. Termination.
(a) This Lease shall automatically terminate upon the
termination of the Loan Agreement.
(b) Tenant shall have the right to terminate this Lease,
whether pursuant to the terms of this Lease, the Loan Agreement or otherwise at
any time upon not less than ten (10) day's prior written notice to Landlord.
(c) Other than the rights, if any, granted pursuant to
the terms of the Loan Agreement, Landlord shall not have any right to terminate
this Lease at any time during the Term hereof.
37. Duties of Landlord. Landlord hereby acknowledges and agrees
that in addition to its capacity as Landlord pursuant to this Lease, it is also
acting as the Subtenant pursuant to the Sub-Ground Lease of even date herewith
between Tenant, as landlord, and Landlord, as subtenant (the "Sub-Ground
Lease"). To the extent that the duties of the Landlord pursuant to this Lease
overlap, coincide with or even exceed its duties as Subtenant pursuant to the
Sub-Ground Lease, Landlord agrees to fulfill its duties and obligations in one
capacity or the other and failure to do so will act as a Default under the
terms of this Lease, the Sub-Ground Lease and the Loan Agreement.
38. No Breach of Sub-Ground Lease. With respect to Landlord's
obligations under this Lease, Landlord shall not do or permit to be done by any
employee, agent or representative of Landlord any act or thing that may
constitute a breach or violation of any term, covenant or condition of the
Sub-Ground Lease, whether or not such act or thing is permitted under the
provisions of this Lease.
39. Survival of Landlord's Obligations. Landlord's covenants and
obligations under this Lease which are not performed or capable of being
performed during the term of this Lease shall survive the expiration or earlier
termination of this Lease.
[REMAINDER OF PAGE INTENTIONALLY BLANK.]
-17-
<PAGE> 86
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
LANDLORD:
SOUTH HAMPTON REFINING CO.
By:
-----------------------------------
Nicholas N. Carter
President
TENANT:
HELLER FINANCIAL LEASING, INC.
By:
-----------------------------------
Name:
Title:
-18-
<PAGE> 87
SUB-GROUND LEASE
by and between
SOUTH HAMPTON REFINING CO., as Subtenant
and
HELLER FINANCIAL LEASING, INC., as Sublessor
<PAGE> 88
SUB-GROUND LEASE
THIS SUB-GROUND LEASE ("Sublease") is made and executed as of the 30th day
of December, 1999, by and between SOUTH HAMPTON REFINING CO., a Texas
corporation ("Subtenant"), and HELLER FINANCIAL LEASING, INC., a Delaware
corporation ("Sublessor"), with reference to the following:
R E C I T A L S:
A. Subtenant is the owner of that certain parcel of land containing
approximately 105 acres located in Silsbee, Texas and legally described on
Exhibit A attached hereto and made a part hereof (the "Premises").
B. Pursuant to a Ground Lease of even date herewith (the "Ground Lease"),
Sublessor has leased from Subtenant, and Subtenant has leased to Sublessor, the
Premises.
C. Simultaneously with the execution of this Sublease, Subtenant has
obtained a loan (the "Loan") from Sublessor in the stated principal amount of
Three Million Five Hundred Thousand Dollars ($3,500,000.00) secured by, among
other things, the equipment, fixtures and other personalty owned by Subtenant
and currently or at any subsequent time located or positioned on the Premises
(the "Equipment"). Such Loan is being made and granted pursuant to and as
described in that certain Loan and Security Agreement of even date herewith (the
"Loan Agreement") between Sublessor, as Lender, and Subtenant, as Borrower.
D. In lieu of granting a security interest in the Premises pursuant to a
deed of trust or mortgage instrument, Subtenant has made and granted the Ground
Lease to Sublessor as additional security for the Loan.
E. Simultaneously with the execution of this Sublease, Subtenant has made
and entered into a Hazardous Substances Indemnity Agreement (herein so called)
of even date herewith providing environmental indemnities and protections to the
Sublessor.
F. Sublessor desires to sublease to Subtenant, and Subtenant desires to
sublease from Sublessor, the Premises.
1. Premises. In consideration of the mutual covenants herein contained and
subject to and in consideration of the execution, delivery and performance by
Subtenant of the Loan Agreement and Hazardous Substances Indemnity Agreement,
Sublessor hereby subleases to Subtenant, and Subtenant hereby subleases from
Sublessor, the Premises, upon and subject to the terms and conditions of this
Sublease, and subject to the rights and interests of third parties under any
existing liens, ground leases, easements and encumbrances affecting the Premises
(or any part thereof), and all zoning regulations, rules, ordinances, building
restrictions and other laws and regulations now in effect or hereafter adopted
by any governmental authority having jurisdiction over the Premises or any part
thereof.
SUBLEASE - Page 1
<PAGE> 89
2. Sublease Term. The term of this Sublease (the "Term") shall commence on
December 30, 1999 (the "Lease Commencement Date") and shall terminate on the
date on which the Ground Lease terminates (the "Termination Date"), unless
earlier terminated pursuant to the provisions hereof. As used herein, the term
"Lease Year" shall mean each calendar year or portion thereof within the Term.
The first Lease Year, however, shall commence on the Commencement Date and shall
end on December 31 of the calendar year immediately succeeding the calendar year
in which the Commencement Date shall occur.
3. Base Rent. Subtenant shall pay to Sublessor, in lawful money of the
United States of America, annual rent (the "Base Rent") of One Dollar ($1.00).
Sublessor hereby acknowledges payment of Base Rent for the entire Term.
4. Taxes and Assessments.
(a) Payment by Subtenant. During the Term of this Sublease, Subtenant
shall pay to the public officers charged with the collection thereof, as the
same become due and payable and before any fine, penalty, interest or other
charge may be added thereto for the nonpayment thereof, all real estate taxes,
license and permit fees, charges for public utilities of any kind, and
obligations for any and all other governmental charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind and
nature whatsoever, as well as assessments for sidewalks, streets, sewers, water
or any other public improvements and any other improvements or benefits which,
during the Term hereof, shall be made, assessed, levied or imposed upon or
become due and payable in connection with, or a lien upon, the Premises, or any
part thereof or improvements thereon, or upon this Sublease (all of which taxes,
assessments and other governmental charges are hereinafter referred to as
"Impositions"). Subtenant shall automatically furnish to Sublessor, within
thirty (30) days after the date upon which any such Impositon is due, official
receipts of the proper taxing or other authority, or other proof reasonably
satisfactory to Sublessor, evidencing the full payment thereof. Subtenant shall
promptly send to Sublessor copies of any notices for any such taxes, assessments
or charges received by Subtenant.
(b) Escrow of Impositions. Sublessor may, at Sublessor's sole option,
provide Subtenant with a statement of estimated Impositions for the then
upcoming Lease Year (based upon Sublessor's reasonable estimate of anticipated
Impositions for such Lease Year), and, following Sublessor's request therefor,
Subtenant shall, beginning the first day of the next calendar month following
such request and continuing thereafter throughout the Term (unless and until
otherwise thereafter excused by Sublessor), pay in equal monthly installments
one-twelfth (1/12) of the aforesaid estimated Impositions for each Lease Year;
provided, that if Sublessor determines at any time or from time to time that the
Impositions are to be greater than the aforesaid estimated amount, then
Sublessor may from time to time or at any time during any such Lease Year
deliver to Subtenant Sublessor's revised estimate of the amount of Impositions,
and Subtenant shall pay to Sublessor, within twenty (20) days following
Subtenant's receipt of notification of the revised amount, the difference
between the previous estimate and the revised estimate for the expired portion
of the then current Lease Year, and the monthly installments of estimated
Impositions payable shall be increased for the months following Subtenant's
receipt of the revised estimate to one-twelfth (1/12) of the revised estimate of
Impositions; provided further, that not more than one hundred eighty (180) days
following the last
SUBLEASE - Page 2
<PAGE> 90
day of each Lease Year during the Term, Sublessor will, as applicable, provide
Subtenant with a written comparison of the amount of the estimated Impositions
paid for the Lease Year just ended to Impositions actually incurred for such
Lease Year, and if the amount of the estimated Impositions paid by Subtenant for
such prior Lease Year: (A) exceeds the amount Subtenant should have paid based
on the actual amount of the Impositions, Sublessor will give Subtenant a credit
against current payments of Impositions (or, if such credit exceeds the amount
of Impositions payable during the remainder of the Term, refund the excess), or
(B) is less than the amount Subtenant should have paid based on the actual
amount of the Impositions, Subtenant shall pay Sublessor the difference within
twenty (20) days following Subtenant's receipt of such written comparison.
5. Indemnification by Subtenant. In addition to the indemnities and
protections granted by Subtenant to Sublessor pursuant to the Hazardous
Substances Indemnity Agreement, Subtenant hereby agrees to and shall defend,
protect, indemnify and save harmless Sublessor and all of Sublessor's partners,
officers, directors, shareholders, affiliates, agents, employees,
representatives, contractors and invitees from and against all liabilities,
obligations, claims, demands, damages, penalties, fines, losses, suits, causes
of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
Sublessor or any other such indemnified persons or parties by reason of (a)
ownership of the Premises or any interest therein, or receipt of any rent or
other sum therefrom, (b) any accident, occurrence, injury to or death of persons
(including workmen) or loss of or damage to property occurring on or about the
Premises (or any part thereof) or the adjoining sidewalks, curbs, vaults and
vault space, if any, or the adjoining streets or ways, (c) any use, non-use or
condition of the Premises (or any part thereof) or any buildings, improvements,
fixtures, equipment or personalty thereon or the adjoining sidewalks, curbs,
vaults or vault space, if any, or the adjoining streets or ways, (d) any failure
on the part of Subtenant to perform or comply with any of the terms of this
Sublease, (e) performance of any labor or services or the furnishing of any
materials or other property in respect of the Premises or any part thereof, or
(f) any matters related to any and all Impositions, and from any and all liens
and penalties imposed as a result of a delinquency in payment thereof. In case
any action, suit or proceeding is brought against Sublessor or any other such
indemnified persons or parties by reason of any such occurrence, Subtenant, upon
Sublessor's request, will at Subtenant's sole expense resist and defend such
action, suit or proceeding, or cause the same to be resisted and defended by
counsel designated by Subtenant and approved by Sublessor in advance in writing.
The obligations of Subtenant under this Paragraph 5 arising by reason of any
such occurrence taking place during the Term of this Sublease shall survive any
expiration or earlier termination of this Sublease.
6. Use of Premises. Subtenant acknowledges, represents and warrants that
the current use of the Premises complies and hereby covenants that Subtenant's
occupancy and use of the Premises shall at all times during the Term continue to
comply with all applicable statutes, rules, orders, ordinances, requirements and
regulations of any governmental authority having jurisdiction over the Premises.
Without limiting the generality of the foregoing, throughout the Term, Subtenant
shall also procure and maintain in effect each and every permit, license,
certificate or other authorization required in connection with any building or
improvement now or hereafter erected on the Premises or any part thereof or in
connection with any activities or operations of Subtenant upon or in connection
with the Premises.
SUBLEASE - Page 3
<PAGE> 91
7. Utilities. Subtenant alone shall be responsible for obtaining and
maintaining, and shall pay all charges for, all water, gas, heat, light,
electricity, telephone, sewer, sprinkler, cable and other utilities and services
used or desired by Subtenant on or from the Premises, together with any taxes,
penalties, surcharges or the like pertaining thereto and any maintenance charges
for all utilities. Sublessor has no responsibility to provide any such utilities
or services, nor any other services, and Sublessor shall not be liable in any
respect (including for damages to either person or property) in the event of any
failure in the provision of any such utilities or services or in the event of
any cessation thereof nor shall any such failure or cessation be construed as an
eviction of Subtenant or relieve Subtenant from fulfillment of any covenant in
this Sublease.
8. Maintenance and Repairs. Subtenant covenants that it shall keep the
Premises and all buildings, improvements, fixtures and equipment located on
and/or used in connection with the Premises in good condition and shall make or
cause to be made all necessary repairs, alterations and/or replacements thereto.
All such repairs, alterations or replacements shall be of good quality and
Subtenant shall cause the Premises and all such buildings, improvements,
fixtures and equipment to be maintained in a manner consistent with its
condition, quality and class on the date hereof. Subtenant shall not use, or
permit or suffer to be used, the Premises or any part thereof for any disorderly
or unlawful purpose and shall not commit or permit any waste or deterioration of
the Premises.
9. Alterations and Additions. Subtenant, at its own expense, shall have the
right to make alterations and additions to the Premises and the buildings
thereon (if any), provided that: (a) no substantial portion of any buildings may
be demolished or removed without the prior written consent of Sublessor; and (b)
the general character of the Premises shall not be changed as a result of any
such alterations or additions nor shall the fair market value of the Premises be
reduced as a result of any such alterations or additions below the value of the
Premises which existed immediately before such alterations or additions. All
such work shall be done in a good and workmanlike manner and shall consist of
new materials unless otherwise agreed to by Sublessor.
10. Insurance. At all times through the Term of this Sublease, Subtenant
shall obtain and maintain the insurance in the form and substance required to be
obtained and maintained pursuant to the Loan Agreement.
11. Damage or Destruction. In the event of damage to or destruction of the
buildings or improvements, if any, situated on the Premises by fire or other
casualty, Subtenant will give Sublessor immediate notice thereof. Sublessor
shall have the option upon the receipt of notice from Subtenant to immediately
terminate the Sublease and the rights and obligations of the parties hereunder,
except rights and obligations arising prior to such damage or destruction, shall
terminate as of the date of such damage or destruction and the parties hereto
shall look solely to the insurance award for compensation for their respective
interests in the Premises. If Sublessor does not elect to terminate the
Sublease, Subtenant will promptly, at Subtenant's sole expense and whether or
not the insurance proceeds (if any) payable or received by virtue of such event
are sufficient for the following purpose, repair, restore or rebuild (as
applicable) the same to the same or improved condition and utility (except as
may be otherwise agreed between Sublessor and Subtenant) so that upon the
completion of such repairs, restoration or rebuilding (as the case may be), the
fair market value of the said
SUBLEASE - Page 4
<PAGE> 92
buildings and improvements shall be at least substantially equal to the fair
market value thereof as existed immediately prior to the occurrence of such fire
or other casualty. Subtenant's obligation to pay Basic Rent and other charges
and to perform all obligations of Subtenant hereunder shall continue during the
period of any such repair and restoration.
12. Condemnation. In the event that the right, title and interest of
Sublessor and Subtenant, or any portion thereof, in and to the Premises is
acquired by authority of any governmental agency in the exercise of its power of
eminent domain, the terms and provisions of the Ground Lease shall govern and
control.
13. Default.
(a) Subtenant Default. In addition to other Defaults defined throughout
this Sublease, it shall constitute a "Default" by Subtenant under this Lease if
(a) Subtenant shall fail to pay any installment of Rent or any other sum or
payment to Sublessor required herein as and when due hereunder, or (b) failure
or default shall be made in the performance of any of the other covenants,
agreements, conditions or undertakings herein contained to be kept, observed and
performed by the Subtenant and such failure or default shall continue for
fifteen (15) days after notice thereof in writing to the Subtenant (provided
however, if such failure cannot reasonably be cured within such 15-day period,
but Subtenant commences to cure such failure within such 15-day period and
thereafter diligently pursues such cure to completion, then such failure shall
not be a Default hereunder unless the same is not fully cured within an
additional 30 days following the expiration of the aforesaid 15-day period), or
(c) Subtenant shall generally not pay its debts as they become due or shall
admit in writing its inability to pay its debts, or Subtenant shall file a
petition in voluntary bankruptcy under the Federal Bankruptcy Act or similar
law, state or federal, whether now or hereafter existing, or Subtenant shall
file an answer admitting insolvency or inability to pay Subtenant's debts, or
Subtenant shall fail to obtain a vacation or stay of involuntary proceedings in
bankruptcy or insolvency within sixty (60) days after the filing of same (as
hereinafter provided), or Subtenant shall be adjudicated a bankrupt, or a
trustee or receiver shall be appointed for Subtenant or for all of Subtenant's
property or the major part thereof, or any court shall have taken jurisdiction
of the property of Subtenant or the major part thereof in any involuntary
proceeding for reorganization, dissolution, liquidation or winding up of
Subtenant, and such trustee or receiver shall not be discharged or such
jurisdiction relinquished or vacated or stayed on appeal or otherwise removed
within sixty (60) days after such appointment; provided that in the event of
such occurrence, Sublessor and Subtenant intend and agree that the transactions
evidenced by the Loan Agreement and surrounding loan documents shall be regarded
as a loan from Subtenant to Sublessor that is secured by the Premises, and
Subtenant hereby grants Sublessor a security interest in the Premises as
described in Paragraph 14(b) herein and this Sublease shall be deemed to be a
security agreement and financing statement within the meaning of Article 9 of
the Uniform Commercial Code of any applicable law, or (d) Subtenant shall make
an assignment for the benefit of Subtenant's creditors, or (e) Subtenant shall
vacate or abandon the Premises, or (f) Subtenant shall fail to discharge any
lien or encumbrance placed upon the Premises in violation of the terms and
conditions of this Lease within fifteen (15) days after such lien or encumbrance
is filed against the Premises, or (g) Subtenant shall commit an event of default
or default under the terms of the Loan Agreement, the Ground Lease or the
Hazardous Substances Indemnity Agreement.
SUBLEASE - Page 5
<PAGE> 93
(b) Sublessor Default. It is hereby acknowledged and agreed by
Subtenant that Sublessor has undertaken no obligations under this Sublease and,
accordingly, by its actions or omissions can not commit a default under the
terms of this Sublease.
14. Remedies for Subtenant Default.
(a) Termination of Sublease or Foreclosure on Equipment. Following the
occurrence of a Default by Subtenant, Sublessor, at its election, may, in
addition to any and all other rights or remedies available to Sublessor at law
or in equity, elect to either (i) foreclose on the Equipment pursuant to the
terms of the Loan Agreement or (ii) terminate this Sublease by delivery of
written notice to Subtenant (a "Default Termination Notice"). In the event of
termination, all rights of Subtenant hereunder and in the Premises shall
terminate, and Sublessor shall be permitted to re-enter and take possession of
the Premises, or to institute such other appropriate proceedings as Sublessor
may be legally entitled to employ. It is acknowledged and agreed that Base Rent
for the entire term has been paid in advance.
(b) Power of Sale. In the event of a Default, Sublessor and Trustee (as
defined herein) shall have all the rights available to a deed of trust trustee
or a beneficiary of a deed of trust under the laws of the State of Texas,
including, without limitation, all rights granted a trustee or beneficiary under
the laws of the State of Texas including Section 51.002 of the Texas Property
Code, as amended or a successor statute (collectively, the "Deed of Trust Law").
In accordance therewith, to secure the full and timely performance and discharge
of Subtenant's obligations under the Sublease, Subtenant hereby grants,
bargains, sells and conveys in trust with power of sale, the Premises unto
Michael W. Hillard, Esq. as a deed of trust trustee (the "Trustee"). Sublessor
may appoint in writing, a substitute trustee without notice , filing or
recordation, who shall succeed to all the estates, rights, powers and duties of
the aforenamed Trustee.
(c) Sublessor's Remedies Cumulative. Each right, power and remedy of
Sublessor provided for in this Sublease or now or hereafter existing at law or
in equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power or remedy provided for in this
Sublease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Sublessor of any one
or more of the rights, powers or remedies provided for in this Sublease or now
or hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by Sublessor of any or all such
other rights, powers or remedies.
15. Leasehold Mortgages. Subtenant shall not have the right to grant
mortgages, collateral assignments or security interests in Subtenant's leasehold
interest under the Sublease. Any attempted actions prohibited by this paragraph
shall constitute an automatic Default by Subtenant.
16. Assignment and Subletting.
(a) By Subtenant. Subtenant shall not, without Sublessor's prior
written consent, assign, mortgage, pledge, encumber, hypothecate or otherwise
transfer or permit the transfer of this
SUBLEASE - Page 6
<PAGE> 94
Sublease or Subtenant's interest (or any part thereof) in this Sublease or any
of Subtenant's rights or obligations hereunder, in whole or in part, by
operation of law, court decree or otherwise, nor shall Subtenant sublease the
Premises or any part thereof without the prior written consent of Sublessor. Any
attempted assignment, subletting, encumbrance or other transfer by Subtenant in
violation of the terms and covenants of this Paragraph 16 shall automatically be
a Default under the terms of this Sublease subject to the remedies described
herein. Any assignee or sublessee which is approved and permitted pursuant
hereto must expressly accept and assume in writing all of the obligations of
Subtenant hereunder. The consent of Sublessor to any such assignment, sublease
or other transfer may be withheld by Sublessor in Sublessor's sole and arbitrary
discretion. Sublessor may further impose conditions on the granting of consent
to any such assignment, sublease or other transfer as Sublessor may, in
Sublessor's sole and arbitrary discretion, desire. If the Subtenant desires to
assign or otherwise transfer this Sublease or any right or interest hereunder or
to enter into any sublease of the Premises, then Subtenant shall deliver written
notice of such intent to the Sublessor, together with a copy of the proposed
instrument of assignment, transfer or sublease, at least thirty (30) days prior
to the effective date of the proposed assignment or transfer or commencement
date of the term of the proposed sublease. In the event of any approved sublease
or assignment or other transfer hereunder, the Subtenant shall not be released
or discharged from any liability or obligation (whether past, present or future)
under this Sublease, including any renewal term of this Sublease, it being
agreed that upon any such assignment, transfer or subletting, Subtenant shall
not be relieved of any obligations hereunder and shall continue to have
liability under this Sublease with respect to the Premises throughout the Term.
If the rental rate agreed upon between Subtenant and any proposed subtenant
under any proposed sublease of the Premises (or any part thereof) is greater
than the rental rate that Subtenant must pay Sublessor hereunder for that
portion of the Premises that is subject to such proposed sublease, or if any
consideration shall be received by Subtenant in connection with any such
proposed assignment, sublease or other transfer (in addition to rental as
provided in any such proposed sublease), then all of such excess rental or such
consideration, as the case may be (or both), shall be owed by Subtenant to
Sublessor hereunder and shall be paid by Subtenant to Sublessor, which payment
shall be made immediately upon receipt thereof by Subtenant. For purposes of
this Paragraph 16, an assignment, sublease or transfer shall be considered to
include any change in the majority ownership or control of Subtenant (if
Subtenant is a corporation, a partnership or any other form of entity) and shall
further include any change in the ownership or control of Subtenant through
merger, consolidation, sale of assets or stock, reorganization or otherwise. All
subleases, assignments or other transfers approved and permitted pursuant hereto
shall be subject and subordinate to this Sublease (including any amendment
hereto or modification, extension, renewal or replacement hereof and further
including any new lease given in substitution for this Sublease) and all of the
terms and covenants hereof, and any default under the terms of a sublease,
assignment or other transfer which violates any of the provisions of this
Sublease (as this Sublease may have then been modified, amended, extended,
renewed or replaced) or any such substitute lease shall be deemed a Default
hereunder. The covenants and agreements set forth in this Paragraph 16 shall run
with the land comprising the Premises and shall bind Subtenant and Subtenant's
heirs, executors, administrators, personal representatives, representatives in
any bankruptcy proceeding, successors and assigns. Any assignee, sublessee or
transferee of Subtenant's interest in this Sublease, by assuming Subtenant's
obligations hereunder, shall assume liability to Sublessor for all amounts paid
to persons other than Sublessor by such successors in contravention of this
Paragraph 16. Upon the occurrence of a Default by Subtenant hereunder, if the
Premises or any part thereof or interest hereunder are then
SUBLEASE - Page 7
<PAGE> 95
assigned, transferred or sublet, Sublessor, in addition to any other remedy
herein provided or provided by law, may at Sublessor's option collect directly
from any such assignee, transferee or subtenant all rents becoming due to
Subtenant under such assignment, transfer or sublease and apply such rent and/or
other consideration and amounts against any sums due to Sublessor from Subtenant
hereunder, and no such collection shall be construed to constitute a novation or
a release of Subtenant from the further performance of Subtenant's obligations
hereunder.
(b) By Sublessor. Sublessor shall have the right to transfer or assign
this Sublease or Sublessor's interest hereunder as security or absolutely and
Subtenant agrees to attorn to the lawful transferee thereof, but any such
transfer or assignment shall be at all times subject to the terms and conditions
of this Sublease and the rights of Subtenant hereunder.
17. Successors and Assigns. This Sublease shall be binding upon and shall
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
18. Relationship of Sublessor and Subtenant. It is expressly understood
that Subtenant shall not be construed to be a partner or associate of Sublessor
in the conduct of its business, and that the relationship between the parties
hereto is and shall at all times remain that of sublessor and subtenant.
19. Surrender of Possession. Subtenant, on or before the last day of the
Term or upon the earlier termination of this Sublease, shall peaceably and
quietly leave, surrender and yield up unto Sublessor the Premises, in good order
and condition except for reasonable wear and tear and damage by the elements.
20. Brokerage Commissions. Each of Sublessor and Subtenant represents and
warrants to the other that it has employed no broker or agent in connection with
this Sublease, and each party hereto shall indemnify and hold the other harmless
from and against any claim, liability or damage against or to the other arising
from or in respect of a breach of the foregoing representation and warranty.
21. Limitation on Sublessor's Liability. Subtenant expressly covenants and
agrees that neither Sublessor nor any officer, director, shareholder, partner,
venturer, affiliate, agent, employee or representative of Sublessor (the
"Affiliated Parties") shall have any personal liability for any obligations (if
any) of Sublessor arising under this Sublease and that Subtenant will not
institute, prosecute or attempt to enforce in any court or otherwise any action
for specific performance or to recover or collect from Sublessor nor any
Affiliated Parties or from any assignee to Sublessor at any time succeeding to
the interest of Sublessor under this Sublease, or at any time owning, or who had
previously owned, the estate of Sublessor, any moneys claimed for damages for
breach of any agreement or covenant herein. If Sublessor defaults in the
performance of any of Sublessor's obligations under this Sublease or otherwise,
Subtenant shall look solely to Sublessor's interest in the Premises and not to
any other assets, interests or rights of Sublessor or any Affiliated Parties for
satisfaction of Subtenant's remedies on account thereof, it being hereby agreed
that Sublessor's liability under this Sublease shall be limited to Sublessor's
interest in the Premises and Subtenant agrees to look solely to Sublessor's
interest in the Premises to satisfy any obligation of Sublessor
SUBLEASE - Page 8
<PAGE> 96
under this Sublease. The foregoing is an express covenant and agreement on the
part of Subtenant and constitutes a material inducement to the execution of this
Sublease by Sublessor and a condition of Sublessor's obligations hereunder.
22. Estoppel Certificates.
(a) By Sublessor. Sublessor shall, at any time and from time to time
not to exceed once per Lease Year, at the request of Subtenant, execute,
acknowledge and deliver to Subtenant a certificate by Sublessor certifying (i)
that this Sublease is unmodified and in full force and effect (or, if there have
been modifications, the extent to which this Sublease is in full force and
effect as modified and stating the modifications), (ii) whether there then exist
any offsets or defenses against the enforcement by Subtenant of any of the
provisions of this Sublease (and, if so, specifying the same), (iii) the dates,
if any, to which the Base Rent and other amounts payable hereunder have been
paid in advance, and (iv) the address to which notices to Sublessor should be
sent pursuant to this Sublease.
(b) By Subtenant. Subtenant shall, at any time and from time to time,
at the request of Sublessor, execute, acknowledge and deliver to Sublessor a
certificate by Subtenant certifying that to the best of its knowledge, (i) that
this Sublease is unmodified and in full force and effect (or, if there have been
modifications, the extent to which this Sublease is in full force and effect as
modified and stating the modifications), (ii) whether there then exist any
offsets or defenses against the enforcement by Sublessor of any of the
provisions of this Sublease (and if so, specifying the same), (iii) the dates,
if any, to which the Base Rent and other amounts payable hereunder have been
paid in advance, (iv) the address to which notices to Subtenant should be sent
pursuant to this Sublease and (v) any other information as may be reasonably
requested by Sublessor. Any such certificate may be relied upon by any
prospective Sublessor Mortgagee or assignee of Sublessor's interest hereunder.
23. Recordation. Neither this Sublease nor a memorandum hereof shall be
recorded in any land records (of the county in which the Premises is located or
otherwise). Any attempted recordation of this Sublease or of a memorandum or
short form hereof by Subtenant shall automatically constitute a Default by
Subtenant.
24. Gender and Number. Words of any gender used in this Sublease shall be
deemed to include any other gender, and words in the singular number shall be
deemed to include the plural (and vice-versa), when the context so requires.
25. Titles. The titles and article or paragraph headings contained in this
Sublease are inserted only for convenience, and shall not be construed as a part
of this Sublease or as limiting the scope of the particular provisions to which
they refer.
26. Notices. All notices to be given under this Sublease shall be in
writing and shall be sent by personal delivery using an independent courier
service providing proof of delivery, by overnight national or regional courier
providing proof of delivery or by certified or registered mail, postage prepaid
return receipt requested, addressed as follows:
SUBLEASE - Page 9
<PAGE> 97
<TABLE>
<S> <C>
A. If to Sublessor:
Heller Financial Leasing, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: CEFC - Control Region Credit Manager
</TABLE>
or to such other person or such other address designated by notice sent by
Sublessor to Subtenant.
<TABLE>
<S> <C>
B. If to Subtenant:
South Hampton Refining Co.
7752 FM 418, P.O.
Box 1636
Silsbee, Texas 77656
Attn: Nicholas N. Carter
</TABLE>
or to such other address as is designated by Subtenant in a notice to Sublessor.
All notices shall be deemed given when received, when delivery is refused or
when the same is returned for failure to be called for.
27. Partial Invalidity. If any provisions of this Sublease or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Sublease, or the application of such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision of this
Sublease shall be valid and enforceable to the fullest extent permitted by law.
28. Waiver. The failure of Sublessor or Subtenant to insist upon strict
performance of any of the covenants or conditions of this Sublease or to
exercise any option herein conferred in any one or more instances shall not be
construed as a waiver or relinquishment for the future of the same or any
similar covenant, condition or option, but the same shall be and remain in full
force and effect.
29. Entire Agreement. This instrument contains all the agreements made
between the parties hereto with respect to the sublease of the Premises as
contemplated hereby, and may be modified only by an agreement in writing, signed
by all the parties hereto or their respective successors in interest.
30. Net Lease.
(a) Fully Net Lease. This Sublease is intended, and is hereby declared,
to be a fully net lease, it being the intention of the parties hereto that
Sublessor shall have and enjoy the Rent herein reserved to Sublessor without
deduction therefrom. It is the parties' further intention that Subtenant shall
pay all expenses of owning, operating and maintaining the Premises. Nothing
herein contained, however, shall be construed so as to require the Subtenant to
pay or be liable for any gift,
SUBLEASE - Page 10
<PAGE> 98
inheritance, estate, franchise, income, profit, capital or similar tax, or any
other tax in lieu of any of the foregoing, imposed upon the Sublessor, or any
successor or assign of Sublessor, unless such tax shall be imposed or levied
upon or with respect to rents payable to Sublessor herein in lieu of real estate
taxes upon the Premises.
(b) No Reduction of Rent. No abatement, diminution or reduction of the
Rent or other charges payable by the Subtenant under this Sublease shall be
claimed by or allowed to Subtenant for any inconvenience, interruption,
cessation or loss of business or otherwise caused directly or indirectly (a) by
any present or future laws, rules, requirements, orders, directions, ordinances
or regulations of the United States of America or of the State, County or City
government or any other municipal, governmental or lawful authority whatsoever,
or (b) by damage to or destruction of any portion of or all of the improvements
by fire, the elements or any other cause whatsoever, or (c) by priorities,
rationing, or curtailment of labor or materials, or (d) by war or any matter or
things resulting therefrom, or (e) by any other cause or causes, except as
otherwise specifically and expressly provided in this Sublease.
31. Subordination. This Sublease is subject and subordinate in all respects
to the Ground Lease. In the event of any inconsistency between this Sublease and
the Ground Lease, the Ground Lease shall govern and control.
32. Termination of Ground Lease. If for any reason the term of the Ground
Lease shall terminate prior to the expiration date of this Sublease, this
Sublease shall thereupon be automatically deemed terminated concurrently with
such termination of the Ground Lease and Sublessor shall not be liable to
Subtenant by reason thereof.
33. No Breach of Ground Lease. With respect to Subtenant's obligations
under this Sublease, Subtenant shall not do or permit to be done by any
employee, agent or representative of Subtenant any act or thing that may
constitute a breach or violation of any term, covenant or condition of the
Ground Lease, whether or not such act or thing is permitted under the provisions
of this Sublease.
34. Duties of Subtenant. Subtenant hereby acknowledges and agrees that in
addition to its capacity as Subtenant pursuant to this Sublease, it is also
acting as the Landlord pursuant to the Ground Lease. To the extent that the
duties of the Subtenant pursuant to this Sublease overlap, coincide with or even
exceed its duties as Landlord pursuant to the Ground Lease, Subtenant agrees to
fulfill its duties and obligations in one capacity or the other and failure to
do so will act as a Default under the terms of this Sublease, the Ground Lease
and the Loan Agreement.
35. Survival of Subtenant's Obligations. Subtenant's covenants and
obligations under this Sublease which are not performed or capable of being
performed during the term of this Sublease shall survive the expiration or
earlier termination of this Sublease.
[REMAINDER OF PAGE INTENTIONALLY BLANK.]
SUBLEASE - Page 11
<PAGE> 99
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as
of the date first above written.
SUBTENANT:
SOUTH HAMPTON REFINING CO.
By:
-----------------------------------------
Nicholas N. Carter
President
SUBLESSOR:
HELLER FINANCIAL LEASING, INC.
By:
-----------------------------------------
Name:
Title:
SUB-GROUND LEASE
SIGNATURE PAGE
<PAGE> 100
HAZARDOUS MATERIALS INDEMNITY AGREEMENT
This HAZARDOUS MATERIALS INDEMNITY AGREEMENT (this "AGREEMENT") is made
as of December 30, 1999 by SOUTH HAMPTON REFINING CO. a Texas corporation
("SOUTH HAMPTON"), in favor of HELLER FINANCIAL LEASING, INC., a Delaware
corporation ("HELLER").
RECITALS
A. South Hampton is the owner in fee simple of that certain parcel of
land containing approximately 105 acres located in Silsbee, Texas, and more
particularly described in Exhibit "A" attached hereto (the "Land").
B. Pursuant to the terms and provisions of that certain Ground Lease of
even date herewith (the "Ground Lease"), South Hampton has leased the Land to
Heller.
C. Pursuant to that certain Sub-Ground Lease of even date herewith
("Sub-Ground Lease"), Heller has subleased the Land to South Hampton.
D. Heller, as a condition to entering into and lending under that
certain Loan and Security Agreement dated as of the date hereof by and between
Heller, South Hampton and Gulf State Pipe Line Company, Inc. (the "Loan
Agreement") and performing the other Loan Documents (as defined in the Loan
Agreement), has requested that South Hampton enter into this Agreement to
indemnify Heller against liabilities arising from Hazardous Materials (as
hereinafter defined) used or located on, or affecting the Land and any
buildings, machinery and equipment located thereon (together, the "Property"),
and that South Hampton acknowledges and agrees that its execution and delivery
of this Agreement and its performance of the covenants contained herein are
material inducements for Heller's agreement to enter into the Loan Documents.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, South Hampton hereby represents, warrants, covenants and agrees as
follows:
1. NO HAZARDOUS MATERIALS ON PROPERTY. South Hampton represents,
warrants and certifies, to the best of its knowledge after all appropriate
inquiry, and covenants that, except as disclosed in writing to Heller, there are
no, nor will there be, for as long as the Ground Lease shall be in effect, any
Hazardous Materials generated, released, stored, buried or deposited over,
beneath, in or upon the Property or on or beneath the surface of adjacent
property, except as such Hazardous Materials may be generated, used, stored or
transported in connection with the permitted uses of the Property and then only
to the extent permitted by law after obtaining all necessary permits and
licenses therefor. "HAZARDOUS MATERIALS" shall mean and include any pollutants,
flammables, explosives, petroleum (including crude oil) or any fraction thereof,
radioactive materials, hazardous wastes, dangerous or toxic substances or
related materials, including substances defined as or included in the definition
of toxic or hazardous substances, wastes or materials under any federal, state
or local laws, ordinances, regulations or guidances which relate to pollution,
the environment
<PAGE> 101
or the protection of public health and safety, or limiting, prohibiting or
otherwise regulating the presence, sale, recycling, generation, manufacture,
use, transportation, disposal, release, storage, treatment of, or response or
exposure to, toxic or hazardous substances, wastes or materials. Such laws,
ordinances and regulations, now or hereafter in effect, and as the same may be
amended from time to time, are hereinafter collectively referred to as the
"HAZARDOUS MATERIALS LAWS."
2. COMPLIANCE WITH LAWS. For as long as the Ground Lease is in effect,
South Hampton shall, and shall cause its respective employees, agents, tenants
(other than Heller), contractors and subcontractors and any other persons from
time to time present on or occupying the Property to, keep and maintain the
Property in compliance with, and not cause or knowingly permit the Property to
be in violation of, any applicable Hazardous Materials Laws. None of South
Hampton or any of its respective employees, agents, tenants (other than Heller),
contractors or subcontractors or any other persons occupying or present on the
Property shall generate, use, store, manufacture or dispose of on, under or
about the Property or transport to or from the Property any Hazardous Materials,
except such Hazardous Materials as may be generated, used, stored or transported
in connection with the permitted uses of the Property and then only to the
extent permitted by law after obtaining all necessary permits and licenses
therefor.
3. HAZARDOUS MATERIALS CLAIMS. South Hampton shall immediately advise
Heller in writing of: (a) any notices received by South Hampton (whether such
notices are from the Environmental Protection Agency, or any other federal,
state or local governmental agency or regional office thereof) of the violation
or potential violation of any applicable Hazardous Materials Laws occurring on,
under or about the Property; (b) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or threatened
against South Hampton or the Property pursuant to any Hazardous Materials Laws;
and (c) all claims made or threatened in writing by any third party against
South Hampton or the Property relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials.
4. OTHER HAZARDOUS MATERIALS. South Hampton hereby represents, warrants
and certifies to the best of its knowledge after all appropriate inquiry, that
there are no underground storage tanks located on, under or about the Property
that are subject to the notification requirements under Section 9002 of the
Solid Waste Disposal Act, as now or hereafter amended (42 U.S.C. Section 6991).
5. INDEMNIFICATION. South Hampton shall indemnify, defend and save
harmless Heller and its officers, directors, shareholders, agents, attorneys,
representatives and employees, their successors and assigns (individually and
collectively "INDEMNITEE"), from and against any and all claims, demands, causes
of action, damages, costs, expenses, lawsuits and liabilities, at law or in
equity, of every kind or nature whatsoever, directly or indirectly arising out
of or attributable to the generation, use, storage, release, threatened release,
discharge, disposal or presence of Hazardous Materials on, under or about the
Property (whether occurring prior to or during or after the term of the Ground
Lease or otherwise and regardless of by whom caused, whether by South Hampton or
any predecessor in title or any owner of land adjacent to the Property or any
other third party, or any employee, agent, tenant, contractor or subcontractor
of South Hampton or any predecessor in title or any such adjacent land owner or
any third person) including, without limitation:
2
<PAGE> 102
(a) Claims of third parties (including governmental agencies) for
injury to or death of any person or for damage to or destruction of
any property;
(b) Claims for response costs, clean-up costs, costs and expenses
of removal and restoration, including fees of attorneys and experts,
and costs of determining the existence of Hazardous Materials and
reporting same to any governmental agency;
(c) Any and all other claims for expenses or obligations,
including attorneys' fees, costs, and other expenses related to
Hazardous Materials and the Property;
(d) Any and all penalties threatened, sought or imposed on
account of a violation of any Hazardous Materials Laws;
(e) All fees of any reasonable consultants, attorneys, and
engineering firms retained in connection with monitoring the
obligations of South Hampton under this Agreement; and
(f) Any loss occasioned by diminution in the value of the
Property which may result from any of the foregoing.
6. DEFENSE OR SETTLEMENT OF CLAIMS.
(a) To assert an indemnity claim under this Agreement, Indemnitee
shall notify South Hampton in writing as soon as reasonably practical
under the circumstances stating the facts which entitle Indemnitee to
make a claim for indemnification.
(b) South Hampton shall, at its own cost, expense and risk:
(i) defend all suits, actions, or other legal or
administrative proceedings that may be threatened, brought or
instituted against an Indemnitee on account of any matter or
matters described in Section 5 above;
(ii) pay or satisfy any judgment, decree or settlement that
may be rendered against or agreed to by an Indemnitee in any such
suit, action or other legal or administrative proceeding;
(iii) reimburse Indemnitee for any and all reasonable
expenses, including, without limitation, all reasonable legal
expenses incurred in connection with any of the matters described
in Section 5 above or in connection with enforcing this
Agreement; and
(iv) reimburse Indemnitee for any loss occasioned by the
diminution in the value of the Property caused by the presence of
Hazardous Materials or the breach of any representation, warranty
or obligation of Indemnitor hereunder.
3
<PAGE> 103
(c) Any law firm selected by South Hampton to defend an
indemnified claim shall be subject to the approval of Indemnitee which
approval shall not be unreasonably withheld or delayed; provided that
upon thirty (30) days prior written notice, Indemnitee may elect to
defend, using a law firm selected by such Indemnitee, any such claim,
loss, action, legal or administrative proceeding at the cost and
expense of South Hampton if, in the reasonable judgment of Indemnitee:
(i) the defense is not proceeding or being conducted in a satisfactory
manner or (ii) there is a conflict of interest between any of the
parties to such lawsuit, action, legal or administrative proceeding.
(d) If Indemnitee exercises its right to designate counsel
pursuant to the preceding clause, all costs and expenses thereof shall
be paid by South Hampton within ten (10) days following written demand
by such Indemnitee.
(e) In the event South Hampton shall pay to Indemnitee any claim
under this Agreement, then South Hampton shall be subrogated to any
rights of such Indemnitee relating thereto, and such Indemnitee will
cooperate with South Hampton at the cost and expense of South Hampton,
in enforcing such rights; provided, that such subrogation shall not be
in derogation of any rights of the Indemnitee under this Agreement,
and shall not be construed to limit the obligations of Indemnitor
hereunder.
7. BINDING EFFECT. All the covenants and agreements of South Hampton
contained in this Agreement shall apply to and bind its respective successors
and assigns and shall inure to the benefit of each Indemnitee and its successors
and assigns.
8. SEPARATE INDEMNIFICATION. South Hampton agrees that this Agreement
is separate, independent of and in addition to the undertakings of South Hampton
pursuant to the Loan Documents. A separate action may be brought to enforce the
provisions hereof. The obligations of South Hampton hereunder shall not be
affected by any exculpatory provisions contained in any of the Loan Documents.
This Agreement, and all rights and obligations hereunder, shall survive
performance and repayment of the obligations evidenced by the Loan Documents,
any transfer of the Property, and transfer of all of Heller's rights in the Loan
Documents and the Property. South Hampton agrees that a default under this
Agreement shall constitute a default under the Loan Agreement, enabling Heller
to exercise its remedies under the Loan Documents.
9. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Illinois.
10. AMENDMENTS. This Agreement may not be modified, amended, waived or
terminated, except by a written instrument executed by the parties hereto.
11. PARTIES IN INTEREST. Except as expressly set forth herein, nothing
in this Agreement, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than the
parties to it and their respective successors and assigns, nor is anything in
this Agreement intended to relieve or discharge the obligation or liability of
any third
4
<PAGE> 104
persons to any party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over or against any party to this
Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts.
13. VENUE. SOUTH HAMPTON AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS
AGREEMENT MAY BE LITIGATED, ONLY IN COURTS HAVING A SITUS WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS. SOUTH HAMPTON HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID COUNTY AND
STATE AND IRREVOCABLY APPOINTS AND DESIGNATES C T CORPORATION SYSTEM, WHOSE
ADDRESS IS SOUTH HAMPTON REFINING CO., C/O C T CORPORATION SYSTEM, 208 S.
LASALLE STREET, CHICAGO, ILLINOIS 60604, AS ITS DULY AUTHORIZED AGENT FOR
SERVICE OF PROCESS AND AGREES THAT SERVICE UPON SUCH PARTY SHALL CONSTITUTE
PERSONAL SERVICE OF PROCESS UPON SOUTH HAMPTON. IN THE EVENT SERVICE IS
UNDELIVERABLE BY REASON OF AGENT'S CESSATION OF BUSINESS IN CHICAGO, ILLINOIS,
SOUTH HAMPTON SHALL, WITHIN TEN (10) DAYS AFTER HELLER'S REQUEST, APPOINT A
SUBSTITUTE AGENT (IN CHICAGO, ILLINOIS) AND WITHIN SUCH PERIOD NOTIFY HELLER OF
SUCH APPOINTMENT. IF SUCH SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, HELLER IN
ITS SOLE DISCRETION, SHALL HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON
FIVE (5) DAYS NOTICE TO SOUTH HAMPTON. SOUTH HAMPTON HEREBY WAIVES ALL RIGHTS TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST SOUTH HAMPTON BY
HELLER UNDER THIS AGREEMENT IN ACCORDANCE WITH THIS PARAGRAPH.
14. JURY TRIAL WAIVER. SOUTH HAMPTON AND HELLER BY THEIR ACCEPTANCE OF
THIS AGREEMENT, HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS
AGREEMENT AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER
IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY SOUTH HAMPTON AND HELLER,
AND SOUTH HAMPTON ACKNOWLEDGES THAT NEITHER HELLER NOR ANY PERSON ACTING ON
BEHALF OF HELLER HAS MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF
TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS
EFFECT. SOUTH HAMPTON AND HELLER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT SOUTH HAMPTON AND HELLER
HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS.
SOUTH HAMPTON AND HELLER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR
HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND
IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
[Remainder of page intentionally blank. Signature page follow.]
5
<PAGE> 105
South Hampton has executed this Agreement or has caused the same to be
executed as of the date first set forth above.
SOUTH HAMPTON REFINING CO.,
a Texas corporation
By:
---------------------------------
Nicholas N. Carter
President
HAZARDOUS MATERIALS INDEMNITY AGREEMENT
SIGNATURE PAGE
<PAGE> 106
AGREEMENT OF NEGATIVE PLEDGE
AND PROMISE NOT TO INCUR DEBT
THIS AGREEMENT OF NEGATIVE PLEDGE AND PROMISE NOT TO INCUR DEBT (this
"Agreement") dated as of December 30, 1999, is by and between PRODUCTOS QUIMICOS
COIN, S.A., DE C.V. , a Mexico company (the "Pledgor"), and HELLER FINANCIAL
LEASING, INC., a Delaware corporation ("Heller").
R E C I T A L S:
A. South Hampton Refining Co., a Texas corporation, Gulf State Pipe
Line Company, Inc., a Texas corporation, and Heller are parties to that certain
Loan and Security Agreement dated as of the date hereof (such Loan and Security
Agreement, as the same may be amended, supplemented or modified from time to
time, the "Loan Agreement").
B. Heller has conditioned its obligation to lend under the Loan
Agreement upon the execution and delivery by the Pledgor of this Agreement.
A G R E E M E N T:
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used and not otherwise defined
herein shall have their respective meanings as set forth in the Loan Agreement.
2. Representations. Pledgor hereby represents and warrants to Heller
that Pledgor owns all of its assets and properties free and clear of all Liens,
except for Liens granted to secure indebtedness permitted hereunder.
3. Negative Pledge. Unless and until the Indebtedness has been repaid
in full, and Heller no longer has any commitment to lend under the Loan
Agreement, Pledgor agrees that it will not (a) sell, assign, transfer, lease,
convey or otherwise dispose of any of its assets or properties, or (b) directly
or indirectly (i) create, incur, or suffer or permit to be created or incurred
or to exist any Lien upon any of its assets or properties, except for Liens
granted to secure indebtedness permitted hereunder, so long as such Liens only
encumber the assets currently encumbered by such Liens, or (ii) enter into or
permit to exist any contractual arrangement or agreement which directly or
indirectly prohibits the Pledgor from disposing of or creating or incurring any
Lien upon any of its assets or properties, other than any agreement executed, or
lien created, in favor of Heller.
4. Promise Not to Incur Debt. Unless and until the Indebtedness has
been repaid in full, and Heller no longer has any commitment to lend under the
Loan Agreement, Pledgor agrees that it
AGREEMENT OF NEGATIVE PLEDGE AND PROMISE NOT TO INCUR DEBT - PAGE 1
<PAGE> 107
will not incur, create, assume, guarantee or permit to exist any indebtedness or
liability, whether for borrowed money, for the deferred purchase price of
property, as a contingent liability or otherwise, other than indebtedness of
Pledgor for borrowed money existing on the date hereof and any refinancings (but
not increases) of such indebtedness.
5. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LOCAL
LAW OF THE STATE OF ILLINOIS EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE
THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS AGREEMENT TO
THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION.
6. Venue. PLEDGOR AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS
AGREEMENT MAY BE LITIGATED, ONLY IN COURTS HAVING A SITUS WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS. PLEDGOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION
OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID COUNTY AND STATE AND
IRREVOCABLY APPOINTS AND DESIGNATES C T CORPORATION SYSTEM, WHOSE ADDRESS IS,
PRODUCTOS QUIMICOS COIN, S.A., DE C.V., C/O C T CORPORATION SYSTEM, 208 S.
LASALLE STREET, CHICAGO, ILLINOIS 60604, AS ITS DULY AUTHORIZED AGENT FOR
SERVICE OF PROCESS AND AGREES THAT SERVICE UPON SUCH PARTY SHALL CONSTITUTE
PERSONAL SERVICE OF PROCESS UPON PLEDGOR. IN THE EVENT SERVICE IS UNDELIVERABLE
BY REASON OF AGENT'S CESSATION OF BUSINESS IN CHICAGO, ILLINOIS, PLEDGOR SHALL,
WITHIN TEN (10) DAYS AFTER HELLER'S REQUEST, APPOINT A SUBSTITUTE AGENT (IN
CHICAGO, ILLINOIS) AND WITHIN SUCH PERIOD NOTIFY HELLER OF SUCH APPOINTMENT. IF
SUCH SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, HELLER IN ITS SOLE DISCRETION,
SHALL HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON FIVE (5) DAYS NOTICE
TO PLEDGOR. PLEDGOR HEREBY WAIVES ALL RIGHTS TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST PLEDGOR BY HELLER UNDER THIS AGREEMENT IN
ACCORDANCE WITH THIS PARAGRAPH.
7. Jury Trial Waiver. PLEDGOR AND HELLER BY THEIR ACCEPTANCE OF THIS
AGREEMENT, HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT
AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY PLEDGOR AND HELLER, AND PLEDGOR
ACKNOWLEDGES THAT NEITHER HELLER NOR ANY PERSON ACTING ON BEHALF OF HELLER HAS
MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS
TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. PLEDGOR AND
HELLER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT PLEDGOR AND
AGREEMENT OF NEGATIVE PLEDGE AND PROMISE NOT TO INCUR DEBT - PAGE 2
<PAGE> 108
HELLER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. PLEDGOR AND HELLER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED
(OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
8. Amendments. This instrument may be amended only by an instrument in
writing executed jointly by the Pledgor and Heller.
9. Multiple Counterparts. This Agreement may been executed in a number
of identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one agreement; but, in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
10. Parties Bound; Assignment. The obligations and agreements of the
Pledgor hereunder shall be binding upon its successors and assigns. The Pledgor
shall not, without the prior written consent of Heller, assign any rights,
duties, or obligations under this Agreement. In the event of an assignment of
all or part of the Indebtedness, the rights and benefits hereunder, to the
extent applicable to the part of the Indebtedness so assigned, may be
transferred therewith.
11. Effective Date. This Agreement is effective simultaneously with the
acquisition of 92% of the capital stock of the Pledgor by Texas Oil II.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
AGREEMENT OF NEGATIVE PLEDGE AND PROMISE NOT TO INCUR DEBT - PAGE 3
<PAGE> 109
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
PLEDGOR:
PRODUCTOS QUIMICOS COIN, S.A., DE C.V.
By:
------------------------------------
Name:
Title:
HELLER:
HELLER FINANCIAL LEASING, INC.
By:
------------------------------------
Name:
Title:
AGREEMENT OF NEGATIVE PLEDGE AND PROMISE NOT TO INCUR DEBT
SIGNATURE PAGE
<PAGE> 1
EXHIBIT 10(r)
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of September 30, 1999 (this "Agreement"),
is between SOUTH HAMPTON REFINING CO., a Texas corporation ("Borrower"), and
SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender").
R E C I T A L S :
Borrower has requested that Lender extend credit to Borrower in the
form of revolving credit advances and letters of credit which shall not exceed
an aggregate principal amount of $2,250,000.00 at any time outstanding. Lender
is willing to make such extensions of credit to Borrower upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions
Section 1.1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Advance" means an advance of funds by Lender to Borrower
pursuant to Article II.
"Advance Request Form" means a certificate, in substantially
the form of Exhibit "D" hereto, properly completed and signed by
Borrower requesting an Advance.
"Arbitration Agreement" means the Arbitration Agreement
executed by Borrower and Guarantor in substantially the form of Exhibit
"G" hereto, as the same may be amended, supplemented, or modified.
"Authorized Representative" means any officer or employee of
Borrower who has been designated in writing by Borrower to Lender to be
an Authorized Representative.
"Borrowing Base" means, at any particular time, an amount
equal to the sum of (a) eighty percent (80%) of
Eligible Accounts plus (b) the lesser of (i) fifty percent (50%) of
Eligible Inventory or (ii) $750,000.00.
<PAGE> 2
"Borrowing Base Certificate" means a certificate in the form
of Exhibit "E" hereto, fully completed and executed by Borrower.
"Business Day" means any day on which commercial banks are not
authorized or required to close in Houston, Texas.
"Capital Expenditures" means all expenditures for assets
which, in accordance with GAAP, are required to be capitalized and so
shown on the consolidated balance sheet of Guarantor and its
Subsidiaries.
"Closing Date" means the date on which this Agreement has been
executed and delivered by the parties hereto and the conditions set
forth in Section 5.1 have been satisfied.
"Collateral" has the meaning specified in Section 4.1.
"Commitment" means the obligation of Lender to make Advances
and issue Letters of Credit hereunder in an aggregate principal amount
at any time outstanding up to but not exceeding $2,250,000.00.
"Current Assets" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as current assets on
a consolidated balance sheet of Guarantor and its Subsidiaries.
"Current Liabilities" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as current
liabilities on a consolidated balance sheet of Guarantor and its
Subsidiaries; provided, however, that the maturities of the
indebtedness evidenced by the Note shall not constitute Current
Liabilities.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Debt" means for any Person (a) all indebtedness, whether or
not represented by bonds, debentures, notes, securities, or other
evidences of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of
property or assets, (c) all indebtedness under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet
purposes, (d) all indebtedness under guaranties, endorsements,
assumptions, or other contingent obligations, in respect of, or to
purchase or otherwise acquire, indebtedness of others, (e) all
indebtedness secured by a Lien existing on property owned, subject to
such Lien, whether or not the indebtedness secured
thereby shall have been assumed by the owner thereof, and (f) any
obligation to redeem or repurchase any of such Person's capital stock,
warrants, or stock equivalents.
-2-
<PAGE> 3
"Default Rate" means the lesser of (a) the sum of the Prime
Rate in effect from day to day plus five percent (5.0%) or (b) the
Maximum Rate.
"EBITDA" means for Guarantor and its Subsidiaries, on a
consolidated basis, the sum of (a) Net Income, plus (b) depreciation,
amortization and other non cash charges, plus (c) interest expense,
plus (d) taxes.
"Eligible Accounts" means the aggregate of all accounts
receivable of Borrower that are acceptable to Lender in its sole
discretion and satisfy the following conditions: (a) are due and
payable within sixty (60) days; (b) have been outstanding less than
ninety (90) days past the original date of invoice; (c) have arisen in
the ordinary course of business from services performed by Borrower to
or for the account debtor or the sale by Borrower of goods in which
Borrower had sole ownership where such goods have been shipped or
delivered to the account debtor; (d) represent complete bona fide
transactions which require no further act under any circumstances on
the part of Borrower to make such accounts receivable payable by the
account debtor; (e) the goods the sale of which gave rise to such
accounts receivable were shipped or delivered to the account debtor on
an absolute sale basis and not on consignment, a sale or return basis,
a guaranteed sale basis, a bill and hold basis, or on the basis of any
similar understanding; (f) the goods the sale of which gave rise to
such accounts receivable were not, at the time of sale thereof, subject
to any Lien, except the security interest in favor of Lender created by
the Loan Documents; (g) are not subject to any provisions prohibiting
assignment or requiring notice of or consent to such assignment; (h)
are subject to a perfected, first priority security interest in favor
of Lender and are not subject to any other Lien; (i) are not subject to
setoff, counterclaim, defense, allowance, dispute, or adjustment other
than normal discounts for prompt payment, and the goods of sale which
gave rise to such accounts receivable have not been returned, rejected,
repossessed, lost, or damaged; (j) the account debtor is not insolvent
or the subject of any bankruptcy or insolvency proceeding and has not
made an assignment for the benefit of creditors, suspended normal
business operations, dissolved, liquidated, terminated its existence,
ceased to pay its debts as they become due, or suffered a receiver or
trustee to be appointed for any of its assets or affairs; (k) are not
evidenced by chattel paper or any instrument of any kind; (l) (i)are
owed by a Person or Persons that are citizens of or organized under the
laws of the United States or any State thereof, (ii) are owed by a
Person listed on Exhibit "H"
-3-
<PAGE> 4
hereto, (iii) are owed by a Person that is a citizen of or organized
under the laws of Canada or any province thereof and the unsecured debt
of such Person is rated at least BBB- by Standard & Poor's Ratings
Group ("S&P") or Baa3 by Moody's Investors Service, Inc. ("Moody's"),
or (iv) are owed by a Person that is a citizen of or organized under
the laws of Canada or any province thereof and such Person is a
Subsidiary of a Person whose unsecured debt is rated at least BBB- by
S&P or Baa3 by Moody's, and in any case, are not owed by any Person
organized under the laws of a jurisdiction located outside of the
United States of America or Canada; (m) if any accounts receivable are
owed by the United States of America or any department, agency, or
instrumentality thereof, the Federal Assignment of Claims Act shall
have been complied with; and (n) are not owed by an affiliate of
Borrower. No account receivable owed by an account debtor to Borrower
shall be included as an Eligible Account if more than twenty percent
(20%) of the balances then outstanding on accounts receivable owed by
such account debtor and its affiliates to Borrower have remained unpaid
for more than eighty-nine (89) days from the dates of their original
invoices. The amount of any Eligible Accounts owed by an account debtor
to Borrower shall be reduced by the amount of all "contra accounts" and
other obligations owed by Borrower to such account debtor. In the event
that at any time the accounts receivable from any account debtor and
its affiliates to Borrower exceed twenty percent (20%) of the accounts
receivable of Borrower, the accounts receivable from such account
debtor and its affiliates shall not constitute Eligible Accounts to the
extent to which such accounts receivable exceed twenty percent (20%) of
the accounts receivable of Borrower.
"Eligible Inventory" means, at any time, all inventory of
natural gasoline and finished plant products then owned by (and in the
possession or under the control of) Borrower and held for sale or
disposition in the ordinary course of Borrower's business, in which
Lender has a perfected, first priority security interest, valued at the
lower of actual cost or fair market value. Eligible Inventory shall not
include (a) inventory that has been shipped or delivered to a customer
on consignment, a sale or return basis, or on the basis of any similar
understanding (b) inventory with respect to which a claim exists
disputing Borrower's title to or right to possession of such inventory,
(c) inventory that is not in good condition or does not comply with any
applicable laws, rules, or regulations or the standards imposed by any
governmental authority with respect to its manufacture, use, or sale,
and (d) inventory that Lender, in its sole discretion, has determined
to be unmarketable.
"Environmental Laws" means any and all federal, state and
local laws, regulations, and requirements pertaining to
-4-
<PAGE> 5
health, safety, or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq.,the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the Occupational
Safety and Health Act, 29 U.S.C. Section 651 et seq., the Clean Water
Act, 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., and all similar laws, regulations, and
requirements of any governmental authority or agency having
jurisdiction over Borrower or any Subsidiary or any of their respective
properties or assets, as such laws, regulations, and requirements may
be amended or supplemented from time to time.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder.
"Event of Default" has the meaning specified in Section 10.1.
"Field Audits" means audits, verifications and inspections of
the accounts receivable and inventory of Borrower, conducted by an
independent third Person selected by Lender.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants or in statements of the Financial Accounting Standards
Board or their respective successors and which are applicable in the
circumstances as of the date in question. Accounting principles are
applied on a "consistent basis" when the accounting principles observed
in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Guarantor" means Texas Oil & Chemical Co. II, Inc., a Texas
corporation, and its successors and assigns.
"Guaranty" means the Guaranty Agreement executed by Guarantor
in favor of Lender in substantially the form of Exhibit "C" hereto, as
the same may be amended, supplemented or modified from time to time.
"Hazardous Substance" means any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or other
material which is or becomes listed, regulated, or addressed under any
Environmental Law, including, without limitation, asbestos, petroleum,
and polychlorinated biphenyls.
-5-
<PAGE> 6
"Letter of Credit" means any letter of credit issued by Lender
for the account of Borrower pursuant to Article II.
"Letter of Credit Liabilities" means, at any time, the
aggregate face amounts of all outstanding Letters of Credit.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment,
preference, priority, or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or
title retention agreement), whether arising by contract, operation of
law, or otherwise.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, deeds of trust, assignments, letters of
credit, guaranties, and other instruments, documents, and agreements
executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be
amended, modified, renewed, extended, or supplemented from time to
time.
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, property or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, or
any Obligated Party and its Subsidiaries, taken as a whole, (b) the
ability of Borrower to pay the Obligations or the ability of Borrower
or any Obligated Party to perform its respective obligations under this
Agreement or any of the other Loan Documents, or (c) the validity or
enforceability of this Agreement or any of the other Loan Documents, or
the rights or remedies of Lender hereunder or thereunder.
"Maximum Rate" means the maximum rate of nonusurious interest
permitted from day to day by applicable law, including Chapter 303 of
the Texas Finance Code (the "Code") (and as the same may be
incorporated by reference in other Texas statutes). To the extent that
Chapter 303 of the Code is relevant to Lender for the purposes of
determining the Maximum Rate, Lender elects to determine such
applicable legal rate pursuant to the "weekly ceiling," from time to
time in effect, as referred to and defined in Chapter 303 of the Code;
subject, however, to the limitations on such applicable ceiling
referred to and defined in the Code, and further subject to any right
Lender may have subsequently, under applicable law, to change the
method of determining the Maximum Rate.
"Net Income" means, with respect to Guarantor and its
Subsidiaries for any period, the consolidated net income (or loss) of
Guarantor and its Subsidiaries for such period, calculated in
accordance with GAAP.
-6-
<PAGE> 7
"No Default Certificate" means a certificate in the form of
Exhibit "F" hereto, fully completed and executed by Borrower.
"Note" means the promissory note executed by Borrower payable
to the order of Lender, in substantially the form of Exhibit "A"
hereto, and all extensions, renewals, and modifications thereof and all
substitutions therefor.
"Obligated Party" means Guarantor and any other Person who is
or becomes party to any agreement pursuant to which such Person
guarantees or secures payment and performance of the Obligations or any
part thereof.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Lender, now existing or hereafter arising,
whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, the obligations, indebtedness, and
liabilities of Borrower under this Agreement and the other Loan
Documents (including, without limitation, all of Borrower's contingent
reimbursement obligations in respect of Letters of Credit), and all
interest accruing thereon and all attorneys' fees and other expenses
incurred in the enforcement or collection thereof.
"Person" means any individual, corporation, limited liability
company, business trust, association, company, partnership, joint
venture, governmental authority, or other entity.
"Prime Rate" means that variable rate of interest per annum
established by Lender from time to time as its prime rate which shall
vary from time to time. Such rate is set by Lender as a general
reference rate of interest, taking into account such factors as Lender
may deem appropriate, it being understood that many of Lender's
commercial or other loans are priced to relation to such rate, that it
is not necessarily the lowest or best rate charged to any customer and
that Lender may make various commercial or other loans at rates of
interest having no relationship to such rate.
"Regulatory Change" means, with respect to Lender, any change
after the date of this Agreement in United States federal, state, or
foreign laws or regulations (including Regulation D of the Board of
Governors of the Federal Reserve System, or any interpretations,
directives, or requests applying to a class of banks including Lender)
of or under any United States federal or state, or any foreign, laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
-7-
<PAGE> 8
"Security Agreement" means the Security Agreement executed by
Borrower in favor of Lender in substantially the form of Exhibit "B"
hereto, as the same may be amended, supplemented or modified.
"Subordinated Debt" means Debt of Guarantor and its
Subsidiaries, the payment of which is subordinated to the payment of
the Obligations upon terms, and by a document, in form and substance
satisfactory to Lender in its sole discretion.
"Subsidiary" means any Person of which or in which the
Borrower and its other Subsidiaries own or control, directly or
indirectly, fifty percent (50%) or more of (a) the combined voting
power of all classes having general voting power under ordinary
circumstances to elect a majority of the directors or equivalent body
of such Person, if it is a corporation, (b) the capital interest or
profits interest of such Person, if it is a partnership, limited
liability company, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or
other unincorporated association or organization.
"Tangible Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of Guarantor and
its Subsidiaries, plus Subordinated Debt; provided, however, there
shall be excluded therefrom (a) any amount at which shares of capital
stock of Guarantor appear as an asset on Guarantor's or any
Subsidiary's balance sheet, (b) goodwill, including any amounts,
however designated, that represent the excess of the purchase price
paid for assets or stock over the value assigned thereto, (c) patents,
trademarks, trade names, and copyrights, (d) deferred expenses, (e)
loans and advances to any stockholder, director, officer, or employee
of Guarantor or any Subsidiary or any affiliate, and (f) all other
assets which are properly classified as intangible assets.
"Termination Date" means 11:00 a.m., Houston, Texas time on
May 31, 2001, or such earlier date on which the Commitment terminates
as provided in this Agreement.
"Unmatured Event of Default" means the occurrence of an event
or the existence of a condition which, with the giving of notice or the
passage of time would constitute an Event of Default.
Section 1.2. Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import
-8-
<PAGE> 9
referring to this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Unless otherwise specified, all Article
and Section references pertain to this Agreement. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. Terms
used herein that are defined in the Uniform Commercial Code as adopted by the
State of Texas, unless otherwise defined herein, shall have the meanings
specified in the Uniform Commercial Code as adopted by the State of Texas.
ARTICLE II.
Advances and Letters of Credit
Section 2.1. Advances. Subject to the terms and conditions of this
Agreement, Lender agrees to make one or more Advances to Borrower from time to
time from the date hereof to and including the Termination Date in an aggregate
principal amount at any time outstanding up to but not exceeding the Commitment;
provided that the aggregate amount of all Advances at any time outstanding shall
not exceed the lesser of (a) the Commitment minus the outstanding Letter of
Credit Liabilities or (b) the Borrowing Base minus the outstanding Letter of
Credit Liabilities. Lender shall have no obligation to make any Advance if an
Event of Default or an Unmatured Event of Default has occurred and is
continuing. Subject to the foregoing limitations, and the other terms and
provisions of this Agreement, Borrower may borrow, repay, and reborrow
hereunder.
Section 2.2. The Note. The obligation of Borrower to repay the Advances
shall be evidenced by the Note executed by Borrower, payable to the order of
Lender, in the principal amount of the Commitment.
Section 2.3. Repayment of Advances. Borrower shall repay the unpaid
principal amount of all Advances on the earlier of (a) the Termination Date or
(b) such other dates on which the Advances are or may be required to be paid
pursuant to this Agreement.
Section 2.4. Interest. The unpaid principal amount of the Advances
shall bear interest prior to maturity at a varying rate per annum equal from day
to day to the lesser of (a) the Maximum Rate or (b) the sum of the Prime Rate in
effect from day to day plus one-half of one percent (.50%), and each change in
the rate of interest charged on the Advances shall become effective, without
notice to Borrower, on the effective date of each change in the Prime Rate or
the Maximum Rate, as the case may be; provided, however, if at any time the rate
of interest specified in clause (b) preceding shall exceed the Maximum Rate,
thereby causing the interest on the Advances to be limited to the Maximum Rate,
then any subsequent reduction in the Prime Rate shall not reduce the
rate of interest on the Advances below the Maximum Rate until the
-9-
<PAGE> 10
aggregate amount of interest actually accrued on the Advances equals the amount
of interest which would have accrued on the Advances if the interest rate
specified in clause (b) preceding had at all times been in effect. Accrued and
unpaid interest on the Advances shall be payable on the first day of each month
commencing on November 1, 1999, and on the earlier of the Termination Date or
any other date on which the principal amount of the Advances is paid (whether as
a result of optional or mandatory prepayment or acceleration). If an Event of
Default has occurred and is continuing, all principal of the Advances and all
past due interest thereon shall bear interest at the Default Rate.
Section 2.5. Requests for Advances. Borrower shall give Lender notice
of each requested Advance by delivery to Lender of an Advance Request Form
executed by an Authorized Representative, properly completed and containing the
information required therein. Borrower may transmit Advance Request Forms by
fax, provided that Borrower holds Lender harmless with respect to actions taken
by Lender based upon Advance Request Forms sent by fax. Prior to making any
Advance, Lender may require that Borrower deliver a Borrowing Base Certificate
dated a recent date acceptable to Lender. Assuming that each Advance Request
Form or request for Advance is in proper form, if Lender receives an Advance
Request Form or request for Advance prior to 1:00 p.m. on any Business Day,
Lender will make the requested Advance on the same Business Day, and if Lender
receives an Advance Request Form or request for Advance after 1:00 p.m., Lender
will make the requested Advance on the next Business Day.
Section 2.6. Use of Proceeds. The proceeds of Advances shall be used
for working capital purposes.
Section 2.7. Mandatory Prepayment. If at any time the outstanding
principal amount of the Advances plus the Letter of Credit Liabilities exceeds
the Borrowing Base, Borrower shall immediately prepay the outstanding Advances
by the amount of the excess plus accrued and unpaid interest on the amount so
prepaid or, if no (or insufficient) Advances are outstanding, Borrower shall
immediately pledge to Lender cash or cash equivalent investments in an amount
equal to the excess as security for the Obligations.
Section 2.8. Unused Commitment Fee; Reduction or Termination of
Commitment. Borrower agrees to pay to Lender a commitment fee on the average
daily unused portion of the Commitment, from and including the Closing Date to
and including the Termination Date, at the rate of one-fourth of one percent
(.25%) per annum based on a 365 day year and the actual number of days elapsed,
payable on the first day of each month, commencing on November 1, 1999, and on
the Termination Date. For the purpose of calculating the commitment fee
hereunder, the Commitment shall be deemed utilized by the amount of all
outstanding Advances and
-10-
<PAGE> 11
Letter of Credit Liabilities. Borrower shall have the right at any time to
terminate in whole or from time to time to irrevocably reduce in part the
Commitment upon at least three (3) Business Days prior notice to Lender
specifying the effective date thereof, whether a termination or reduction is
being made, and the amount of any partial reduction; provided, however, the
Commitment shall never be reduced below an amount equal to the outstanding
Letter of Credit Liabilities. Simultaneously with giving such notice, Borrower
shall prepay the amount by which the unpaid principal amount of the Advances
plus the outstanding Letter of Credit Liabilities exceeds the Commitment (after
giving effect to such notice) plus accrued and unpaid interest on the principal
amount so prepaid. The Commitment may not be reinstated after it has been
terminated or reduced.
Section 2.9. Facility Fee. Borrower agrees to pay to Lender a facility
fee in the amount of $11,250.00 on the Closing Date. Such facility fee shall be
fully earned when paid.
Section 2.10. Letters of Credit. Subject to the terms and conditions of
this Agreement, Lender agrees to issue one or more Letters of Credit for the
account of Borrower from time to time from the date hereof to and including the
Termination Date; provided, however, that the outstanding Letter of Credit
Liabilities shall not at any time exceed the least of (a) $500,000.00, (b) an
amount equal to the Commitment minus the outstanding Advances, or (c) the
Borrowing Base minus the outstanding Advances. Each Letter of Credit shall have
an expiration date which shall not be more than one hundred eighty (180) days
from the date of issuance of such Letter of Credit, shall have an expiration
date which is at least one (1) Business Day prior to the Termination Date, shall
be payable in United States dollars, shall support a transaction that is entered
into in the ordinary course of Borrower's business, and shall otherwise be
satisfactory in form and substance to Lender. No Letter of Credit shall require
any payment by Lender to the beneficiary thereunder pursuant to a drawing prior
to the third Business Day following presentment of a draft and any related
documents to Lender.
Section 2.11. Procedure for Issuing Letters of Credit. Each Letter of
Credit shall be issued upon receipt by Lender of written notice from an
Authorized Representative requesting the issuance of such Letter of Credit,
which notice shall be received by Lender at least three (3) Business Days prior
to the requested date of issuance of such Letter of Credit. Such notice shall be
accompanied by Lender's standard application for issuance of Letters of Credit
(commercial or standby) as then in effect and such other documents and
instruments as Lender may require. Such notice and application (both front and
back sides) may be sent by fax, provided that Borrower holds Lender harmless
with respect to actions taken by Lender based upon notices and applications sent
by fax. Each request for a Letter of Credit shall constitute a
-11-
<PAGE> 12
representation by Borrower to Lender as to each of the matters set forth in the
Borrowing Base Certificate, including representations that (a) the sum of (i)
the outstanding Advances plus (ii) the Letter of Credit Liabilities plus (iii)
the face amount of the requested Letter of Credit does not exceed the lesser of
the Borrowing Base or the Commitment, and (b) no Event of Default exists. Prior
to Issuing any Letter of Credit, Lender may request a Borrowing Base Certificate
from Borrower dated of a recent date acceptable to Lender evidencing that the
statements contained in the preceding sentence are correct.
Section 2.12. Payments Constitute Advances. Each payment by Lender
pursuant to a drawing under a Letter of Credit shall constitute and be deemed an
Advance by Lender to Borrower under the Note and this Agreement as of the day
and time such payment is made by Lender and in the amount of such payment.
Section 2.13. Letter of Credit Fees. Borrower shall pay to Lender a
letter of credit fee payable on the date each Letter of Credit is issued in an
amount equal to the greater of (a) one and one-fourth percent (1.25%) per annum
of the stated amount of such Letter of Credit for the period during which such
Letter of Credit will remain outstanding, based on a 360 day year and the actual
number of days elapsed, and (b) $300.00. In addition, Borrower shall pay to
Lender (a) at the time of issuance of any Letter of Credit, all out-of-pocket
costs incurred by Lender in connection with the issuance of such Letter of
Credit (b) upon the payment of any Letter of Credit, all applicable payment
fees, and (c) upon the amendment (including the extension) of any Letter of
Credit, all applicable amendment fees.
Section 2.14. Obligations Absolute. The obligations of Borrower under
this Agreement and the other Loan Documents, including without limitation the
obligation of Borrower to reimburse Lender for payment of drawings under any
Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement and the other
Loan Documents under all circumstances, including (a) any lack of validity or
enforceability of any Letter of Credit or any other Loan Document, (b) the
existence of any claim, set-off, counterclaim, defense or other rights which
Borrower, any Obligated Party or any other Person may have at any time against
any beneficiary of any Letter of Credit, Lender, or any other Person, whether in
connection with this Agreement or any other Loan Document or any unrelated
transaction, (c) if any statement, draft or other document presented under any
Letter of Credit proves to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein is untrue or inaccurate in any respect
whatsoever, (d) payment by Lender under any Letter of Credit against
presentation of a draft or other document which does not comply with the terms
of such Letter of Credit in a manner which is not material, (e) any amendment or
waiver of, or any
-12-
<PAGE> 13
consent to departure from, any Loan Document or (f) any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing.
Section 2.15. Limitation of Liability. Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit with respect to
its use of such Letter of Credit. Neither Lender or any of its officers,
employees or directors shall have any responsibility or liability to Borrower or
any other Person for (a) the failure of any draft to bear any reference or
adequate reference to any Letter of Credit, or the failure of any documents to
accompany any draft at negotiation, or the failure of any Person to surrender or
to take up any Letter of Credit or to send documents apart from drafts as
required by the terms of any Letter of Credit, or the failure of any Person to
note the amount of any instrument on any Letter of Credit, each of which
requirements, if contained in any Letter of Credit itself, it is agreed may be
waived by Lender, (b) errors, omissions, interruptions or delays in transmission
or delivery of any messages, (c) the validity, sufficiency or genuineness of any
draft or other document, or any endorsement thereon, even if any such draft,
document or endorsement should in fact prove to be in any and all respects
invalid, insufficient, fraudulent or forged or any statement therein is untrue
or inaccurate in any respect, (d) the payment by the Lender to the beneficiary
of any Letter of Credit against presentation of any draft or other document that
does not comply with the terms of the Letter of Credit in a respect which is not
material or (e) any other circumstance whatsoever in making or failing to make
any payment under a Letter of Credit. Lender may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary. Notwithstanding the
foregoing, Lender shall be liable to Borrower to the extent of any direct, but
not consequential, damages suffered by Borrower which Borrower proves in a final
nonappealable judgment were caused by (i) Lender's willful misconduct or gross
negligence in determining whether documents presented under any Letter of Credit
complied with the terms thereof or (ii) Lender's willful failure to pay under
any Letter of Credit after presentation to it of documents strictly complying
with the terms and conditions of such Letter of Credit.
Section 2.16. Provisions Regarding Electronic Issuance of Letters of
Credit. Lender may adopt procedures pursuant to which Borrower may request the
issuance of Letters of Credit by electronic means and Lender may issue Letters
of Credit based on such electronic requests. Such procedures may include the
entering by Borrower into the Letter of Credit Applications electronically. All
the procedures, actions and documents referred to in the two preceding sentences
are referred to as "Electronic Applications". Borrower holds Lender harmless
with respect to actions taken by Lender based upon Electronic Applications.
Borrower further agrees
-13-
<PAGE> 14
to be bound by all the terms and provisions contained in the Letter of Credit
Applications, including, without limitation, the terms and provisions of the
Letter of Credit Applications contained on the reverse side of the paper copies
thereof, including the release and indemnification provisions contained therein.
ARTICLE III.
Payments
Section 3.1. Method of Payment. All payments of principal, interest,
and other amounts to be made by Borrower under this Agreement, the Note or any
other Loan Documents shall be made to Lender at its designated office, without
setoff, deduction, or counterclaim in immediately available funds. Whenever any
payment under this Agreement, the Note or any other Loan Document shall be
stated to be due on a day that is not a Business Day, such payment may be made
on the next Business Day, and interest shall continue to accrue during such
extension.
Section 3.2. Voluntary Prepayment. Borrower may prepay the Note in
whole at any time or from time to time in part without premium or penalty but
with accrued interest to the date of prepayment on the amount so prepaid.
Section 3.3. Computation of Interest. Interest on the indebtedness
evidenced by the Note shall be computed on the basis of a year of 360 days and
the actual number of day elapsed (including the first day but excluding the last
day) 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.
Section 3.4. Additional Costs in Respect of Letters of Credit. If as a
result of any Regulatory Change there shall be imposed, modified, or deemed
applicable any tax, reserve, special deposit, or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder or Lender's Commitment to issue Letters of Credit hereunder,
and the result shall be to increase the cost to Lender of issuing or maintaining
any Letter of Credit or its Commitment to issue Letters of Credit hereunder or
reduce any amount receivable by Lender hereunder in respect of any Letter of
Credit (which increase in cost, or reduction in amount receivable, shall be the
result of Lender's reasonable allocation of the aggregate of such increases or
reductions resulting from such event), then, upon demand by Lender, Borrower
agrees to pay to Lender from time to time as specified by Lender, such
additional amounts as shall be sufficient to compensate Lender for such
increased costs or reductions in amount. A statement as to such increased costs
or reductions in amount incurred by Lender, submitted by Lender to
-14-
<PAGE> 15
Borrower, shall be conclusive as to the amount thereof, provided that the
determination thereof is made on a reasonable basis.
ARTICLE IV.
Collateral
Section 4.1. Collateral. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or cause to
be executed and delivered the documents described below covering the property
and collateral described therein and in this Section 4.1 (which, together with
any other property and collateral which may now or hereafter secure the
Obligations or any part thereof, is sometimes herein called the "Collateral"):
(a) Borrower shall grant to Lender a first priority security
interest in all of its accounts receivable and inventory, and all
documents, instruments and general intangibles related thereto or
arising therefrom, whether now owned or hereafter acquired, and all
products and proceeds thereof, pursuant to the Security Agreement.
(b) Borrower shall execute and cause to be executed such
further documents and instruments, including without limitation,
Uniform Commercial Code financing statements, as Lender, in its sole
discretion, deems necessary or desirable to evidence and perfect its
liens and security interests in the Collateral.
Section 4.2. Setoff. Upon the occurrence of an Event of Default, Lender
shall have the right to set off and apply against the Obligations in such a
manner as Lender may determine, at any time and without notice to Borrower, any
and all deposits (general or special, time or demand, provisional or final) or
other sums at any time credited by or owing from Lender to Borrower whether or
not the Obligations are then due. In addition to Lender's right of setoff and as
further security for the Obligations, Borrower hereby grants to Lender a
security interest in all deposits (general or special, time or demand,
provisional or final) and other accounts of Borrower now or hereafter on deposit
with or held by Lender and all other sums at any time credited by or owing from
Lender to Borrower. The rights and remedies of Lender hereunder are in addition
to other rights and remedies (including, without limitation, to the rights of
setoff) which Lender may have.
Section 4.3. Guaranty Agreement. Guarantor shall unconditionally and
irrevocably guarantee payment and performance of the Obligations by execution
and delivery of the Guaranty Agreement.
-15-
<PAGE> 16
ARTICLE V.
Conditions Precedent
Section 5.1. Initial Extension of Credit. The obligation of Lender to
make the initial Advance or issue the initial Letter of Credit is subject to the
condition precedent that prior thereto Lender shall have received all of the
documents set forth below in form and substance satisfactory to Lender.
(a) Certificate - Borrower. A certificate of the Secretary of
Borrower or another officer of Borrower acceptable to Lender certifying
(i) resolutions of the board of directors of Borrower which authorize
the execution, delivery and performance by Borrower of this Agreement
and the other Loan Documents to which Borrower is or is to be a party,
and (ii) the names of the officers of Borrower authorized to sign this
Agreement and each of the other Loan Documents to which Borrower is or
is to be a party together with specimen signatures of such officers.
(b) Organizational Documents - Borrower. The articles of
incorporation and bylaws of Borrower certified by the Secretary of
Borrower or another officer of Borrower acceptable to Lender.
(c) Governmental Certificates - Borrower. Certificates of the
appropriate government officials of the state of incorporation of
Borrower as to the existence and good standing of Borrower.
(d) Certificate - Guarantor. A certificate of the Secretary of
Guarantor or another officer of Guarantor acceptable to Lender
certifying (i) resolutions of the Board of Directors of Guarantor which
authorize the execution, delivery and performance by Guarantor of the
Guaranty and the other Loan Documents to which Guarantor is or is to be
a party, and (ii) the names of the officers of Guarantor authorized to
sign the Guaranty and each of the other Loan Documents to which
Guarantor is or is to be party together with specimen signatures of
such officers.
(e) Organizational Documents - Guarantor. The articles of
incorporation and bylaws of Guarantor certified by the Secretary of
Guarantor or another officer of Guarantor acceptable to Lender.
(f) Governmental Certificates - Guarantor. Certificates of the
appropriate government officials of the state of incorporation of
Guarantor as to the existence and good standing of Guarantor.
-16-
<PAGE> 17
(g) Note. The Note executed by Borrower.
(h) Security Agreement. The Security Agreement executed by
Borrower.
(i) Financing Statements. Uniform Commercial Code financing
statements executed by Borrower.
(j) Guaranty Agreement. The Guaranty Agreement executed by
Guarantor.
(k) Facility Fee. The facility fee referred to in Section 2.9.
(l) Insurance Policies. Copies of all insurance policies
required by Section 7.5, together with loss payable endorsements in
favor of Lender with respect to all insurance policies covering
Collateral.
(m) UCC Search. A Uniform Commercial Code search showing all
financing statements and other documents or instruments on file against
Borrower in Harris County, Texas and Hardin County, Texas and the
office of the Secretary of State of Texas.
(n) Field Audit. A Field Audit dated as of a current date.
(o) Environmental Reports. Such environmental reports and
other analysis of environmental matters as Lender may request.
(p) Opinion of Counsel. An opinion of Bernsen, Goodson, Mann &
Rothman, L.L.P., legal counsel to Borrower and Guarantor.
(q) Attorneys' Fees and Expenses. Evidence that the costs and
expenses (including reasonable attorneys' fees) referred to in Section
11.1, to the extent incurred, have been paid in full by Borrower.
(r) Additional Documentation. Such additional approvals,
opinions or documents as Lender may reasonably request.
Section 5.2. All Extensions of Credit. The obligation of Lender to make
any Advance or issue any Letter of Credit (including the initial Advance and the
initial Letter of Credit) is subject to receipt by Lender of the items required
by Section 2.5 or 2.11, as applicable, and such additional approvals, opinions
or documents as Lender may reasonably request.
-17-
<PAGE> 18
ARTICLE VI.
Representations and Warranties
To induce Lender to enter into this Agreement, Borrower represents and
warrants to Lender that:
Section 6.1. Corporate Existence. Borrower, Guarantor and each
Subsidiary (a) are corporations duly organized, validly existing, and in good
standing under the laws of their respective jurisdictions of incorporation, (b)
have all requisite corporate power and authority to own their assets and carry
on their business as now being or as proposed to be conducted and (c) are
qualified to do business in all jurisdictions necessary and where failure to so
qualify would have a Material Adverse Effect. Borrower has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and the other Loan Documents to which it is or may become a party.
Section 6.2. Financial Statements. Borrower has delivered to Lender
audited consolidated financial statements of Guarantor and its Subsidiaries as
at and for the fiscal year ended December 31, 1998, and unaudited consolidated
financial statements of Guarantor and its Subsidiaries (including Borrower) for
the seven (7) month period ended July 31, 1999. Such financial statements are
true and correct, have been prepared in accordance with GAAP, and fairly and
accurately present, on a consolidated basis, the financial condition of
Guarantor and its Subsidiaries as of the respective dates indicated therein and
the results of operations for the respective periods indicated therein. Neither
Guarantor nor any of its Subsidiaries has any material contingent liabilities,
liabilities for taxes, material forward or long-term commitments, or unrealized
or anticipated losses from any unfavorable commitments not reflected in such
financial statements. There has been no Material Adverse Effect since the
effective date of the most recent financial statements referred to in this
Section.
Section 6.3. Corporate Action; No Breach. The execution, delivery, and
performance by Borrower of this Agreement and the other Loan Documents to which
Borrower is or may become a party have been duly authorized by all requisite
action on the part of Borrower and do not and will not violate or conflict with
the articles of incorporation or bylaws of Borrower or any law, rule or
regulation or any order, writ, injunction, or decree of any court, governmental
authority, or arbitrator, and do not and will not conflict with, result in a
breach of, or constitute a default under, or result in the imposition of any
Lien (except as provided in this Agreement) upon any of the revenues or assets
of Borrower or any Subsidiary pursuant to the provisions of any indenture,
mortgage, deed of trust, security agreement, franchise, permit,
-18-
<PAGE> 19
license, or other instrument or agreement by which Borrower or any Subsidiary or
any of their respective properties is bound.
Section 6.4. Operation of Business. Borrower, Guarantor and each
Subsidiary possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, to conduct their respective
businesses substantially as now conducted and as presently proposed to be
conducted.
Section 6.5. Litigation and Judgments. There is no action, suit,
investigation, or proceeding before or by any court, governmental authority, or
arbitrator pending, or to the knowledge of Borrower, threatened against or
affecting Borrower, Guarantor or any Subsidiary, that would, if adversely
determined, have a Material Adverse Effect. There are no outstanding judgments
against Borrower, Guarantor or any Subsidiary.
Section 6.6. Rights in Properties; Liens. Borrower, Guarantor and each
Subsidiary have good and indefeasible title to or valid leasehold interests in
their respective properties and assets, real and personal, including the
properties, assets and leasehold interests reflected in the financial statements
described in Section 6.2, and none of the properties, assets or leasehold
interests of Borrower, Guarantor or any Subsidiary is subject to any Lien,
except as permitted by this Agreement.
Section 6.7. Enforceability. This Agreement constitutes, and the other
Loan Documents to which Borrower is party, when delivered, shall constitute the
legal, valid, and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforceability thereof may
be limited by bankruptcy, insolvency, or other laws of general application
relating to the enforcement of creditor's rights.
Section 6.8. Approvals. No authorization, approval, or consent of, and
no filing or registration with, any court, governmental authority, or third
party is or will be necessary for the execution, delivery, or performance by
Borrower of this Agreement and the other Loan Documents to which Borrower is or
may become a party or the validity or enforceability thereof.
Section 6.9. Debt. Borrower and its Subsidiaries have no Debt except
Debt to Lender and other Debt permitted pursuant to Section 8.1.
Section 6.10. Use of Proceeds; Margin Securities. None of Borrower,
Guarantor or any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations T, U, or X of the Board
of Governors of the Federal Reserve System), and no part of the proceeds of any
extension of credit under this Agreement will be
-19-
<PAGE> 20
used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying margin stock.
Section 6.11. ERISA. Borrower, Guarantor and each Subsidiary have
complied with all applicable minimum funding requirements and all other
applicable and material requirements of ERISA, and there are no existing
conditions that would give rise to liability thereunder. No Reportable Event (as
defined in Section 4043 of ERISA) has occurred in connection with any employee
benefit plan that might constitute grounds for the termination thereof by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer such plan.
Section 6.12. Taxes. Borrower, Guarantor and each Subsidiary have filed
all tax returns (federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales taxes, and have paid all of
their liabilities for taxes, assessments, governmental charges, and other levies
that are due and payable, and Borrower knows of no pending investigation of
Borrower, Guarantor or any Subsidiary by any taxing authority or of any pending
but unassessed tax liability of Borrower, Guarantor or any Subsidiary.
Section 6.13. Disclosure. There is no fact known to Borrower which has
a Material Adverse Effect, or which might in the future have a Material Adverse
Effect that has not been disclosed in writing to Lender.
Section 6.14. Subsidiaries. Borrower has no Subsidiaries other than
Gulf State Pipe Line Company, Inc. Borrower owns one hundred percent (100%) of
the issued and outstanding stock of such Subsidiary.
Section 6.15. Compliance with Laws. None of Borrower, Guarantor or any
Subsidiary is in violation in any material respect of any law, rule, regulation,
order, or decree of any court, governmental authority, or arbitrator.
Section 6.16. Compliance with Agreements. None of Borrower, Guarantor
or any Subsidiary is in violation in any material respect of any material
document, agreement, contract or instrument to which it is a party or by which
it or its properties are bound.
Section 6.17. Environmental Matters. Except as disclosed in Guarantors
audited financial statements dated December 31, 1998, (a) Borrower, Guarantor
and each Subsidiary, and their respective properties are in compliance with all
applicable Environmental Laws and none of Borrower, Guarantor or any Subsidiary
is subject to any liability or obligation for remedial action thereunder; (b)
there is no pending or threatened investigation or inquiry by any governmental
authority of Borrower, Guarantor or any Subsidiary, or
-20-
<PAGE> 21
any of their respective properties pertaining to any Hazardous Substance; (c)
except in the ordinary course of business and in compliance with all
Environmental Laws, there are no Hazardous Substances located on or under any of
the properties of Borrower, Guarantor or any Subsidiary; and (d) except in the
ordinary course of business and in compliance with all Environmental Laws, none
of Borrower, Guarantor or any Subsidiary has caused or permitted any Hazardous
Substance to be disposed of on or under or released from any of its properties.
Borrower, Guarantor and each Subsidiary have obtained all permits, licenses, and
authorizations which are required under and by all Environmental Laws.
Section 6.18. Year 2000. All material software, hardware and critical
systems used by Borrower, Guarantor and their Subsidiaries in the conduct of
Borrower's, Guarantor's and such Subsidiaries' business ("Borrower's Computer
Items") will record, store, process and present calendar dates falling on or
after January 1, 2000, and all information pertaining to such dates, in the same
manner and with the same functionality as Borrower's Computer Items record,
store, process and present calendar dates falling on or before December 31,
1999, and all information pertaining to such dates. Borrower's Computer Items
have all appropriate capability and compatibility for handling century-aware or
year 2000 compliant data. The data related user interface functions, data fields
and data related program instructions and functions of Borrower's Computer Items
include the indication of the century.
Section 6.19. Solvency. Borrower and its Subsidiaries, on a
consolidated basis, are not insolvent, Borrower's and its Subsidiaries' assets,
on a consolidated basis, exceed their liabilities, and Borrower will not be
rendered insolvent by the execution and performance of this Agreement and the
Loan Documents.
Section 6.20. Investment Company Act. None of Borrower, Guarantor or
any Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
ARTICLE VII.
Affirmative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will perform and observe the covenants set forth below, unless Lender shall
otherwise consent in writing.
Section 7.1. Reporting Requirements. Borrower will deliver to Lender:
-21-
<PAGE> 22
(a) Annual Financial Statements - Guarantor. As soon as
available, and in any event within one hundred fifty (150) days after
the end of each fiscal year of Borrower, beginning with the fiscal year
ending December 31, 1999, a copy of the annual audited financial
statements of Guarantor and its Subsidiaries for such fiscal year
containing, on a consolidated basis, balance sheets, statements of
income, statements of stockholders' equity and statements of cash flows
as at the end of such fiscal year and for the 12-month period then
ended, in each case setting forth in comparative form the figures for
the preceding fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and audited and certified without qualification
by independent certified public accountants of recognized standing
acceptable to Lender, and containing a footnote to the effect that at
least ninety-five percent (95%) of the reported financial results are
attributable to Borrower.
(b) Quarterly Financial Statements - Guarantor. As soon as
available, and in any event within seventy-five (75) days after the end
of each quarter of each fiscal year of Guarantor, a copy of the
financial statements of Guarantor and its Subsidiaries as of the end of
such fiscal quarter and for the portion of the fiscal year then ended,
containing, on a consolidated basis, balance sheets, statements of
income, statements of stockholders' equity and cash flows in each case
setting forth in comparative form the figures for the corresponding
period of the preceding fiscal year, all in reasonable detail and
certified by an officer of Guarantor acceptable to Lender to have been
prepared in accordance with GAAP and to fairly and accurately present
the financial condition and results of operations of Guarantor and its
Subsidiaries, on a consolidated basis, at the date and for the periods
indicated therein, and containing a footnote to the effect that at
least ninety-five percent (95%) of the reported financial results are
attributable to Borrower.
(c) No Default Certificate. Concurrently with the delivery of
each of the financial statements referred to in Sections 7.1(a) and
7.1(b), a No Default Certificate as of the date of such financial
statements executed by an officer of Borrower acceptable to Lender
containing detailed calculations of the covenants contained in Article
IX.
(d) Borrowing Base Certificate. As soon as available, and in
any event within five (5) days after the end of each month of each
fiscal year of Borrower, a Borrowing Base Certificate as of the last
day of such month certified by an officer of Borrower acceptable to
Lender.
(e) Monthly Accounts Receivable Reports. As soon as available,
and in any event within five (5) days after the end
-22-
<PAGE> 23
of each month of each fiscal year of Borrower, accounts receivable
reports for Borrower as of the last day of such month certified by an
officer of Borrower acceptable to Lender, and showing all accounts
receivable by customer name, amount owing to Borrower and the age of
the receivable.
(f) Inventory Report. As soon as available, and in any event
within five (5) days after the end of each month of each fiscal year of
Borrower, an inventory report as of the end of such month certified by
an officer of Borrower acceptable to Lender, and showing all inventory
by product type, volume and value.
(g) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits and proceedings before any court
or governmental department, commission, board, agency or
instrumentality, domestic or foreign, affecting Borrower, Guarantor or
any Subsidiary which could have a Material Adverse Effect.
(h) Judgments. Within five (5) days of the rendering thereof,
notice of any judgment against Borrower, Guarantor or any Subsidiary in
an amount which is more than $25,000.00.
(i) Notice of Default. As soon as possible and in any event
within five (5) days after the occurrence of each Event of Default and
each event which, with the giving of notice or lapse of time or both,
would constitute an Event of Default, a written notice setting forth
the details of such Event of Default or event and the action which
Borrower has taken and proposes to take with respect thereto.
(j) Notice of Material Adverse Effect. As soon as possible,
and in any event within five (5) days after Borrower becomes aware
thereof, notice of the occurrence of any event or the existence of any
condition which might reasonably be expected to have a Material Adverse
Effect.
(k) General Information. Promptly, such other information
concerning Borrower, Guarantor or any Subsidiary as Lender may from
time to time reasonably request.
Section 7.2. Maintenance of Existence; Conduct of Business. Borrower
will preserve and maintain, and will cause Guarantor and each Subsidiary to
preserve and maintain, its corporate existence and all of its leases,
privileges, licenses, permits, franchises, qualifications and rights that are
necessary or desirable in the ordinary conduct of its business.
Section 7.3. Maintenance of Properties. Borrower will maintain, and
will cause Guarantor and each Subsidiary to maintain, its assets and properties
in good condition and repair.
-23-
<PAGE> 24
Section 7.4. Taxes and Claims. Borrower will pay or discharge, and will
cause Guarantor and each Subsidiary to pay or discharge, at or before maturity
or before becoming delinquent (a) all taxes, levies, assessments, and
governmental charges imposed on it or its income or profits or any of its
property, and (b) all lawful claims for labor, material, and supplies, which, if
unpaid, might become a Lien upon any of its property; provided, however, that
none of Borrower, Guarantor, or any Subsidiary shall be required to pay or
discharge any tax, levy, assessment, or governmental charge with respect to
which no Lien has been filed of record and which is being contested in good
faith by appropriate proceedings diligently pursued, and for which adequate
reserves have been established.
Section 7.5. Insurance. Borrower will maintain, and will cause
Guarantor and each Subsidiary to maintain, with financially sound and reputable
insurance companies workmen's compensation insurance, liability insurance, and
insurance on its property, assets and business at least in such amounts and
against such risks as are usually insured against by Persons engaged in similar
businesses. Each insurance policy covering Collateral shall name Lender as
lender loss payee and provide that such policy will not be cancelled without
thirty (30) days prior written notice to Lender.
Section 7.6. Inspection; Field Audits. At any reasonable time and from
time to time, Borrower will permit, and will cause Guarantor and each Subsidiary
to permit, representatives of the Lender:
(a) To examine and make copies of the books and records of,
and visit and inspect the properties or assets of Borrower, Guarantor
and any Subsidiary and to discuss the business, operations, and
financial condition of any such Persons with their respective officers
and employees and with their independent certified public accountants;
and
(b) At the expense of Borrower, to conduct Field Audits once
during each fiscal year of Borrower.
Section 7.7. Keeping Books and Records. Borrower will maintain, and
will cause Guarantor and each Subsidiary to maintain, proper books of record and
account in which full, true, and correct entries in conformity with GAAP shall
be made of all dealings and transactions in relation to its business and
activities.
Section 7.8. Compliance with Laws. Borrower will comply, and will cause
Guarantor and each Subsidiary to comply, in all material respects with all
applicable laws, rules, regulations, and orders of any court, governmental
authority, or arbitrator.
-24-
<PAGE> 25
Section 7.9. Compliance with Agreements. Borrower will comply, and will
cause Guarantor and each Subsidiary to comply, in all material respects with all
material agreements, contracts, and instruments binding on it or affecting its
properties or business.
Section 7.10. Further Assurances. Borrower will execute and deliver,
and will cause Guarantor and each Subsidiary to execute and deliver, such
further instruments as may be requested by Lender to carry out the provisions
and purposes of this Agreement and the other Loan Documents and to preserve and
perfect the Liens of Lender in the Collateral.
Section 7.11. ERISA. Borrower will comply, and will cause Guarantor and
each Subsidiary to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability thereunder.
Section 7.12. Continuity of Operations. Borrower will continue to
conduct, and will cause each of its Subsidiaries to continue to conduct, its
primary businesses as conducted as of the Closing Date and to continue its
operations in such businesses.
Section 7.13. Year 2000. Within thirty (30) days of any request
therefor by Lender, Borrower will deliver to Lender a statement from a Person
acceptable to Lender to the effect that Borrower's Computer Items comply with
the representations contained in Section 6.18.
ARTICLE VIII.
Negative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will perform and observe the covenants set forth below, unless Lender shall
otherwise consent in writing.
Section 8.1. Debt. Borrower will not incur, create, assume or permit to
exist, and will not permit any Subsidiary to incur, create, assume, or permit to
exist, any Debt, except (a) Debt to Lender, (b) Debt existing on the Closing
Date which has been specifically approved by Lender, (c) Debt incurred in
connection with obtaining insurance, (d) current liabilities for taxes and
assessments incurred in the ordinary course of business, and (e) long term debt
to fund plant expansion which has been specifically approved by Lender prior to
the incurrence thereof.
Section 8.2. Limitation on Liens. Borrower will not incur, create,
assume or permit to exist, and will not permit any Subsidiary to incur, create,
assume or permit to exist, any Lien upon any of its accounts receivable or
inventory, or any documents,
-25-
<PAGE> 26
instruments and general intangibles related thereto or arising therefrom,
whether now owned or hereafter acquired, except Liens in favor of Lender.
Section 8.3. Mergers, Acquisitions, Dissolutions and Disposition of
Assets. Borrower will not, and will not permit Guarantor or any Subsidiary to,
(a) become a party to a merger, consolidation, partnership or joint venture or
purchase or otherwise acquire all or a substantial part of the assets of any
Person or any shares or other evidence of beneficial ownership of any Person,
(b) dissolve or liquidate, (c) sell, lease, assign, transfer or otherwise
dispose of substantially all of its assets, except dispositions of plant
products (inventory) in the ordinary course of business, (d) create any new
Subsidiary, or (e) enter into any agreement to do any of the foregoing. Borrower
will not, and will not permit any Subsidiary to, sell, lease, assign, transfer
or otherwise dispose of any of its assets, except (a) sales of plant products
(inventory) in the ordinary course of business, and (b) sales of obsolete or
worn out equipment in the ordinary course of business.
Section 8.4. Restricted Payments. Borrower will not declare or pay any
dividends or make any other payment or distribution (in cash, property, or
obligations) on account of its capital stock, or redeem, purchase, retire, or
otherwise acquire any of its capital stock, except for (a) dividends payable in
the form of common stock, and (b) if no Event of Default or Unmatured Event of
Default has occurred and is continuing, dividends payable in cash with respect
to any fiscal quarter of Borrower which do not, in the aggregate, exceed the
lesser of (i) $150,000.00 or (ii) fifty percent (50%) of EBITDA minus interest
expense for the quarter with respect to which such dividends are paid.
Section 8.5. Loans and Advances. Borrower will not make, and will not
permit Guarantor or any Subsidiary to make, any advance, loan or extension of
credit to any Person, including any employee, officer or director of Borrower,
Guarantor or any Subsidiary, except (a) loans and advances which exist on the
Closing Date and which have been specifically approved by Lender, (b) loans and
advances which do not exceed an aggregate principal amount of $100,000.00
outstanding at any time, and (c) loans and advances which have been specifically
approved by Lender prior to the funding thereof.
Section 8.6. Bonuses. Borrower will not pay, and will not permit
Guarantor or any Subsidiary to pay, to any Person any bonus or other form of
cash compensation in addition to salary, unless (a) such bonuses do not exceed
an aggregate amount of $200,000.00 with respect to any fiscal quarter of
Borrower, (b) immediately preceding the payment of any such bonus, no Event of
Default or Unmatured Event of Default exists, and (c) immediately following
the payment of any such bonus Borrower would be in compliance with
-26-
<PAGE> 27
Section 9.3 for the fiscal quarter with respect to which such bonus was paid and
no Event of Default or Unmatured Event of Default would arise as a result of the
payment of such bonus.
Section 8.7. Investments. Borrower will not make, and will not permit
Guarantor or any Subsidiary to make, any loan, extension of credit or capital
contribution to or investment in, or purchase, or permit Guarantor or any
Subsidiary to purchase, any stock, bonds, notes, debentures, or other securities
of any Person, except (a) readily marketable direct obligations of the United
States of America or obligations fully guaranteed by the United States of
America, (b) fully insured certificates of deposit with maturities of one year
or less from the date of acquisition of Lender or any commercial bank operating
in the United States having capital and surplus in excess of $150,000,000.00,
(c) commercial paper of a domestic issuer if at the time of purchase such paper
is rated in one of the two highest rating categories of Standard and Poor's
Corporation or Moody's Investors Service, (d) investments in hydrocarbon
commodity options which do not exceed an aggregate amount of $150,000.00 at any
time, and (e) investments made through Lender or its affiliates and approved by
Lender.
Section 8.8. Compliance with Environmental Laws. Except in the ordinary
course of business and in accordance with all applicable Environmental Laws,
Borrower will not, and will not permit Guarantor or any Subsidiary to, (a) use
(or permit any tenant to use) any of their respective properties or assets for
the handling, processing, storage, transportation, or disposal of any Hazardous
Substance, (b) generate any Hazardous Substance, (c) conduct any activity which
is likely to cause a release or threatened release of any Hazardous Substance,
or (d) otherwise conduct any activity or use any of their respective properties
or assets in any manner that is likely to violate any Environmental Law.
Section 8.9. Accounting. Borrower will not make, and will not permit
Guarantor or any Subsidiary to make, any change in accounting treatment or
reporting practices, except as required by GAAP.
Section 8.10. Change of Business. Borrower will not enter into, or
permit any Subsidiary to enter into, any type of business which is materially
different from the business in which Borrower or such Subsidiary is presently
engaged.
-27-
<PAGE> 28
ARTICLE IX.
Financial Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will cause Guarantor to observe and perform the following financial covenants
set forth below, unless Lender shall otherwise consent in writing.
Section 9.1. Current Ratio. Guarantor will at all times maintain a
Current Ratio of not less than 1.10 to 1.00. The Current Ratio shall be
calculated and tested quarterly as of the last day of each fiscal quarter of
Guarantor.
Section 9.2. Tangible Net Worth. Guarantor will maintain Tangible Net
Worth (a) in an amount not less than $5,600,000.00 from the Closing Date through
September 29, 1999, and (b) as of the last day of each fiscal quarter of
Guarantor, commencing with the fiscal quarter ending on September 30, 1999, in
an amount not less than the sum of (i) $5,600,000.00 plus (ii) fifty percent
(50%) of Net Income of Guarantor subsequent to June 30, 1999. Tangible Net Worth
shall be calculated and tested quarterly as of the last day of each fiscal
quarter of Guarantor.
Section 9.3. EBITDA. Guarantor will at all times maintain EBITDA of not
less than $1,500,000.00. EBITDA shall be calculated and tested quarterly as of
the last day of each fiscal quarter of Guarantor, on a cumulative basis for the
four quarters ended as of such day.
Section 9.4. Capital Expenditures. Guarantor will not permit the
aggregate Capital Expenditures of Guarantor and its Subsidiaries to exceed
$2,000,000.00 during any fiscal year.
ARTICLE X.
Default
Section 10.1. Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) Borrower shall fail to pay when due the Obligations or any
part thereof.
(b) Any representation or warranty made or deemed made by
Borrower or any Obligated Party (or any of their respective officers)
in any Loan Document or in any certificate, report, notice, or
financial statement furnished at any time in connection with this
Agreement shall be false, misleading, or erroneous in any material
respect when made or deemed to have been made.
-28-
<PAGE> 29
(c) Borrower or any Obligated Party shall fail to perform,
observe, or comply with any covenant, agreement, or term contained in
this Agreement or any other Loan Document and such failure shall
continue for a period of seven (7) days.
(d) Borrower, any Subsidiary, or any Obligated Party shall
commence a voluntary proceeding seeking liquidation, reorganization, or
other relief with respect to itself or its debts under any bankruptcy,
insolvency, or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian, or other
similar official of it or a substantial part of its property or shall
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall generally fail to pay its debts as
they become due or shall take any corporate action to authorize any of
the foregoing.
(e) An involuntary proceeding shall be commenced against
Borrower, any Subsidiary, or any Obligated Party seeking liquidation,
reorganization, or other relief with respect to it or its debts under
any bankruptcy, insolvency, or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official for it or a substantial part of its
property, and such involuntary proceeding shall remain undismissed and
unstayed for a period of thirty (30) days.
(f) Borrower, any Subsidiary, or any Obligated Party shall
fail to discharge within a period of thirty (30) days after the
commencement thereof any final, non-appealable attachment,
sequestration, or similar proceeding or proceedings involving an
aggregate amount in excess of $100,000.00 against any of its assets or
properties.
(g) Borrower, any Subsidiary, or any Obligated Party shall
fail to satisfy and discharge promptly any final, non-appealable
judgement or judgements against it for the payment of money in an
aggregate amount in excess of $100,000.00.
(h) Borrower, any Subsidiary, or any Obligated Party shall
fail to pay when due any principal of or interest on any Debt (other
than the Obligations), or the maturity of any such Debt shall have been
accelerated, or any such Debt shall have been required to be prepaid
prior to the stated maturity thereof, or any event shall have occurred
that permits (or, with the giving of notice or lapse of time or both,
would
-29-
<PAGE> 30
permit) any holder or holders of such Debt or any Person acting on
behalf of such holder or holders to accelerate the maturity thereof or
require any such prepayment.
(i) This Agreement or any other Loan Document shall cease to
be in full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
Borrower, any Subsidiary, any Obligated Party or any of their
respective shareholders, or Borrower or any Obligated Party shall deny
that it has any further liability or obligation under any of the Loan
Documents, or any lien or security interest created by the Loan
Documents shall for any reason cease to be a valid, first priority
perfected security interest in and lien upon any of the Collateral
purported to be covered thereby.
(j) Guarantor shall fail to own at least one hundred
percent (100%) of the outstanding voting stock of Borrower.
Section 10.2. Remedies Upon Default. If any Event of Default shall
occur, Lender may do any one or more of the following: (a) declare the
outstanding principal of and accrued and unpaid interest on the Note and the
Obligations or any part thereof to be immediately due and payable, and the same
shall thereupon become immediately due and payable, without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, protest, or other formalities of any
kind, all of which are hereby expressly waived by Borrower, (b) terminate the
Commitment without notice to Borrower, (c) foreclose or otherwise enforce any
Lien granted to the Lender to secure payment and performance of the Obligations,
and (d) exercise any and all rights and remedies afforded by the laws of the
State of Texas or any other jurisdiction by any of the Loan Documents, by equity
or otherwise; provided, however, that upon the occurrence of an Event of Default
under Section 10.1(d) or Section 10.1(e), the Commitment shall automatically
terminate, and the outstanding principal of and accrued and unpaid interest on
the Note and the other Obligations shall become immediately due and payable
without notice, demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, notice of intent to demand, protest, or other
formalities of any kind, all of which are hereby expressly waived by Borrower.
Section 10.3. Performance by Lender. If Borrower shall fail to perform
any covenant, duty, or agreement contained in any of the Loan Documents, Lender
may perform or attempt to perform such covenant, duty, or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Lender, promptly pay
any amount expended by Lender in such performance or attempted performance to
Lender, together with interest thereon at the Default Rate from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly agreed
that Lender shall not have any
-30-
<PAGE> 31
liability or responsibility for the performance of any obligation of Borrower
under this Agreement or any other Loan Document.
ARTICLE XI.
Miscellaneous
Section 11.1. Expenses of Lender. Borrower hereby agrees to pay Lender
on demand (a) all reasonable costs and expenses incurred by Lender in connection
with the preparation, negotiation, and execution of this Agreement and the other
Loan Documents and any and all amendments, modifications, renewals, extensions,
and supplements thereof and thereto, including, without limitation, the fees and
expenses of Lender's legal counsel, (b) all reasonable costs and expenses
incurred by Lender in connection with the enforcement of this Agreement or any
other Loan Document, including, without limitation, the fees and expenses of
Lender's legal counsel, and (c) all other reasonable costs and expenses incurred
by Lender in connection with this Agreement or any other Loan Document,
including, without limitation, all costs, expenses, taxes, assessments, filing
fees, and other charges levied by an governmental authority or otherwise payable
in respect of this Agreement or any other Loan Document or in obtaining any
insurance policy, audit or appraisal in respect of the Collateral.
SECTION 11.2. INDEMNIFICATION. BORROWER HEREBY INDEMNIFIES LENDER AND
EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, AND AGENTS FROM, AND HOLDS EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) (COLLECTIVELY, "CLAIMS") TO
WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR
RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION,
OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY BORROWER OF ANY
REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE
LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS SUBSTANCE LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OR ASSETS OF BORROWER OR ANY SUBSIDIARY, (E) ANY
ACT OR OMISSION OF LENDER BASED UPON ANY FAX OR ELECTRONIC TRANSMISSION, OR (F)
ANY MATTER RELATED TO ANY LETTER OF CREDIT, INCLUDING, WITH RESPECT TO ALL OF
THE ABOVE, ANY CLAIM WHICH ARISES AS A RESULT OF THE NEGLIGENCE OF LENDER;
PROVIDED, HOWEVER, THAT BORROWER'S INDEMNIFICATION OBLIGATIONS UNDER THIS
SECTION 11.2 SHALL NOT APPLY TO THE EXTENT THAT THE CLAIMS ARISE AS A RESULT OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER.
Section 11.3. Limitation of Liability. Neither Lender nor any
affiliate, officer, director, employee, attorney, or agent of Lender shall have
any liability with respect to, and Borrower
-31-
<PAGE> 32
hereby waives, releases, and agrees not to sue any of them upon, any claim for
any special, indirect, incidental, or consequential damages suffered or incurred
by Borrower in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. Borrower
hereby waives, releases, and agrees not to sue Lender or any of Lender's
affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Section 11.4. No Waiver; Cumulative Remedies. No failure on the part of
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power, or privilege under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power,
or privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
Section 11.5. Successors and Assigns. This Agreement is binding upon
and shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations under this Agreement without prior written consent of
Lender.
Section 11.6. Survival. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations and
warranties or the right of Lender to rely upon them. Without prejudice to the
survival of any other obligation of Borrower hereunder, the obligations of
Borrower under Sections 11.1 and 11.2 shall survive repayment of the Note and
termination of the Commitment and the Letters of Credit.
Section 11.7. Amendment. The provisions of this Agreement and the other
Loan Documents to which Borrower is a party may be amended or waived only by an
instrument in writing signed by the parties hereto.
Section 11.8. Maximum Interest Rate. No provision of this Agreement or
of any other Loan Documents shall require the payment or the collection of
interest in excess of the maximum permitted by applicable law. If any excess of
interest in such respect is hereby provided for, or shall be adjudicated to be
so provided, in
-32-
<PAGE> 33
any other Loan Documents or otherwise in connection with this loan transaction,
the provisions of this Section shall govern and prevail and neither Borrower nor
the sureties, guarantors, successors, or assigns of Borrower shall be obligated
to pay the excess amount of such interest or any other excess sum paid for the
use, forbearance, or detention of sums loaned pursuant hereto. In the event
Lender ever receives, collects, or applies as interest any such sum, such amount
which would be in excess of the maximum amount permitted by applicable law shall
be applied as a payment and reduction of the principal of the indebtedness
evidenced by the Note; and, if the principal of the Note has been paid in full,
any remaining excess shall forthwith be paid to Borrower. In determining whether
or not the interest paid or payable exceeds the Maximum Rate, Borrower and
Lender shall, to the extent permitted by applicable law, (a) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the indebtedness evidenced
by the Note so that interest for the entire term does not exceed the Maximum
Rate.
Section 11.9. Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents shall be in writing and may
be telexed, telecopied (faxed), mailed by certified mail return receipt
requested, or delivered to the intended recipient at the addresses specified
below or at such other address as shall be designated by any party listed below
in a notice to the other parties listed below given in accordance with this
Section.
If to Borrower: South Hampton Refining Co.
7752 FM 418
P.O. Box 1636
Silsbee, Texas 77656
Attention: Nick Carter
Telephone No.: 409-385-1400
Fax No.: 409-385-2453
If to Guarantor: Texas Oil and Chemical Company II, Inc.
7752 FM 418
P.O. Box 1636
Silsbee, Texas 77656
Attention: Nick Carter
Telephone No.: 409-385-1400
Fax No.: 409-385-2453
-33-
<PAGE> 34
If to Lender: Southwest Bank of Texas, N.A.
Five Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
Attention: A. Stephen Kennedy
Telephone No.: 713-235-8870
Fax No.: 713-439-5925
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopy (fax), subject to confirmation of receipt, when personally delivered
or, in the case of a mailed notice, when duly deposited in the mails, in each
case given or addressed as aforesaid; provided, however, that notices to Lender
pursuant to Article II shall not be effective until received by Lender.
Section 11.10. Applicable Law; Venue; Service of Process. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas and the applicable laws of the United States of America. This
Agreement has been entered into in Harris County, Texas and it shall be
performable for all purposes in Harris County, Texas. Except as provided in the
Arbitration Agreement, any action or proceeding against Borrower under or in
connection with any of the Loan Documents may be brought in any state or federal
court in Harris County, Texas, and Borrower hereby irrevocably submits to the
nonexclusive jurisdiction of such courts and waives any objection it may now or
hereafter have as to the venue of any such action or proceeding brought in any
such court or that any such court is an inconvenient forum. Borrower agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its office specified in this Agreement. Except as provided
in the Arbitration Agreement, nothing herein or in any of the other Loan
Documents shall affect the right of Lender to serve process in any other manner
permitted by law or shall limit the right of Lender to bring any action or
proceeding against Borrower or with respect to any of its property in courts in
other jurisdictions. Except as provided in the Arbitration Agreement, any action
or proceeding by Borrower against Lender shall be brought only in a court
located in Harris County, Texas.
Section 11.11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11.12. Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
-34-
<PAGE> 35
Section 11.13. Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 11.14. Non-Application of Chapter 346 of Texas Finance Code.
The provisions of Chapter 346 of the Texas Finance Code are specifically
declared by the parties hereto not to be applicable to this Agreement or any of
the other Loan Documents or to the transactions contemplated hereby.
Section 11.15. Consent to Participations. Lender shall have the right
at any time and from time to time to sell or transfer one or more participation
interests in the Notes and the indebtedness evidenced thereby to one or more
purchasers ("Purchasers"), whether related or unrelated to Lender. Lender may
provide to any one or more Purchasers or potential Purchasers any information,
financial statements, data or knowledge Lender may have about Borrower or about
any other matter relating to the Obligations, and Borrower waives any rights to
privacy it may have with respect to such matters. Borrower further waives any
and all notices of sale of participation interests and notices of repurchases of
participation interests. Borrower agrees that the owners of any participation
interests will be considered as the absolute owners of their interests in the
Obligations and will have all the rights granted under the participation
agreements or other agreements governing the sale of their participation
interests. Borrower waives all rights of offset or counterclaim that it may now
or later have against Lender or against any Purchaser and agrees that either
Lender or any Purchaser may enforce Borrower's obligations under the Loan
Documents irrespective of the failure or insolvency of any owner of any interest
in the Obligations. Borrower further agrees that any Purchaser may enforce its
interests irrespective of any claims or defenses that Borrower may have against
Lender.
SECTION 11.16. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE, AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
-35-
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
SOUTH HAMPTON REFINING CO.
By:
--------------------------------
Nick Carter
President
LENDER:
SOUTHWEST BANK OF TEXAS, N.A.
By:
--------------------------------
A. Stephen Kennedy
Vice President
-36-
<PAGE> 37
LIST OF EXHIBITS
Exhibits Document
- -------- --------
A Note
B Security Agreement
C Guaranty
D Advance Request Form
E Borrowing Base Certificate
F No Default Certificate
G Arbitration Agreement
H Account Debtors
-37-
<PAGE> 38
PROMISSORY NOTE
$2,250,000.00 Houston, Texas September 30, 1999
FOR VALUE RECEIVED, the undersigned, SOUTH HAMPTON REFINING CO., a
Texas corporation ("Maker"), hereby promises to pay to the order of SOUTHWEST
BANK OF TEXAS, N.A., a national banking association ("Payee"), at its offices at
Five Post Oak Park, 4400 Post Oak Parkway, Houston, Harris County, Texas, in
lawful money of the United States of America, the principal sum of TWO MILLION
TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($2,250,000.00), or so much
thereof as may be advanced and outstanding hereunder, together with interest on
the outstanding principal balance from day to day remaining, at a varying rate
per annum which shall from day to day be equal to the lesser of (a) the Maximum
Rate (hereinafter defined) or (b) the Prime Rate (hereinafter defined) of Payee
in effect from day to day plus one-half of one percent (.50%), and each change
in the rate of interest charged hereunder shall become effective, without notice
to Maker, on the effective date of each change in the Prime Rate or the Maximum
Rate, as the case may be; provided, however, if at any time the rate of interest
specified in clause (b) preceding shall exceed the Maximum Rate, thereby causing
the interest rate hereon to be limited to the Maximum Rate, then any subsequent
reduction in the Prime Rate shall not reduce the rate of interest hereon below
the Maximum Rate until the total amount of interest accrued hereon equals the
amount of interest which would have accrued hereon if the rate specified in
clause (b) preceding had at all times been in effect.
Principal of and interest on this Note shall be due and payable as
follows:
(a) Accrued and unpaid interest on this Note shall be payable
monthly, on the first (1st) day of each month commencing on November 1,
1999 and upon the maturity of this Note, however such maturity may be
brought about; and
(b) All outstanding principal of this Note and all accrued
interest thereon shall be due and payable on May 31, 2001.
Principal of this Note shall be subject to mandatory prepayment at the
times described in the Agreement (hereinafter defined). If an Event of Default
(hereinafter defined) has occurred and is existing, the principal hereof and any
past due interest hereon shall bear interest at the Default Rate (hereinafter
defined).
Interest on the indebtedness evidenced by this Note shall be computed
on the basis of a year of 360 days and the actual number
<PAGE> 39
of days elapsed (including the first day but excluding the last day) 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.
As used in this Note, the following terms shall have the respective
meanings indicated below:
"Agreement" means that certain Loan Agreement dated as of
September 30, 1999 between Maker and Payee, as the same may be amended
or modified from time to time.
"Default Rate" means the lesser of (a) the sum of the Prime
Rate plus five percent (5.0%), or (b) the Maximum Rate.
"Event of Default" shall have the meaning given to such term
in the Agreement.
"Maximum Rate" means the maximum rate of nonusurious interest
permitted from day to day by applicable law, including Chapter 303 of
the Texas Finance Code (the "Code")(and as the same may be incorporated
by reference in other Texas statutes). To the extent that Chapter 303
of the Code is relevant to any holder of this Note for the purposes of
determining the Maximum Rate, each such holder elects to determine such
applicable legal rate pursuant to the "weekly ceiling," from time to
time in effect, as referred to and defined in Chapter 303 of the Code;
subject, however, to the limitations on such applicable ceiling
referred to and defined in the Code, and further subject to any right
such holder may have subsequently, under applicable law, to change the
method of determining the Maximum Rate.
"Prime Rate" shall mean that variable rate of interest per
annum established by Payee from time to time as its prime rate which
shall vary from time to time. Such rate is set by Payee as a general
reference rate of interest, taking into account such factors as Payee
may deem appropriate, it being understood that many of Payee's
commercial or other loans are priced in relation to such rate, that it
is not necessarily the lowest or best rate charged to any customer and
that Payee may make various commercial or other loans at rates of
interest having no relationship to such rate.
This Note (a) is the Note provided for in the Agreement and (b) is
secured as provided in the Agreement. Maker may prepay the principal of this
Note upon the terms and conditions specified in the Agreement. Maker may borrow,
repay, and reborrow hereunder upon the terms and conditions specified in the
Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the
-2-
<PAGE> 40
collection of interest in excess of the Maximum Rate. If any excess of interest
in such respect is herein provided for, or shall be adjudicated to be so
provided, in this Note or otherwise in connection with this loan transaction,
the provisions of this paragraph shall govern and prevail, and neither Maker nor
the sureties, guarantors, successors or assigns of Maker shall be obligated to
pay the excess amount of such interest, or any other excess sum paid for the
use, forbearance or detention of sums loaned pursuant hereto. If for any reason
interest in excess of the Maximum Rate shall be deemed charged, required or
permitted by any court of competent jurisdiction, any such excess shall be
applied as a payment and reduction of the principal of indebtedness evidenced by
this Note; and, if the principal amount hereof has been paid in full, any
remaining excess shall forthwith be paid to Maker. In determining whether or not
the interest paid or payable exceeds the Maximum Rate, Maker and Payee shall, to
the extent permitted by applicable law, (a) characterize any non-principal
payment as an expense, fee, or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the entire contemplated term of the indebtedness evidenced by this
Note so that the interest for the entire term does not exceed the Maximum Rate.
If default occurs in the payment of principal or interest under this
Note, or upon the occurrence of any other Event of Default, as such term is
defined in the Agreement, the holder hereof may, at its option, (a) declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable without notice, demand or presentment, all of which are hereby waived,
and upon such declaration, the same shall become and shall be immediately due
and payable, (b) foreclose or otherwise enforce all liens or security interests
securing payment hereof, or any part hereof, (c) offset against this Note any
sum or sums owed by the holder hereof to Maker and (d) take any and all other
actions available to Payee under this Note, the Agreement, the Loan Documents
(as such term is defined in the Agreement) at law, in equity or otherwise.
Failure of the holder hereof to exercise any of the foregoing options shall not
constitute a waiver of the right to exercise the same upon the occurrence of a
subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all costs,
expenses, and fees incurred by the holder, including all reasonable attorneys'
fees.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
-3-
<PAGE> 41
UNITED STATES OF AMERICA. THIS NOTE IS PERFORMABLE IN HARRIS COUNTY, TEXAS.
Maker and each surety, guarantor, endorser, and other party ever liable
for payment of any sums of money payable on this Note jointly and severally
waive notice, presentment, demand for payment, protest, notice of protest and
non-payment or dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, grace, and all other
formalities of any kind, and consent to all extensions without notice for any
period or periods of time and partial payments, before or after maturity, and
any impairment of any collateral securing this Note, all without prejudice to
the holder. The holder shall similarly have the right to deal in any way, at any
time, with one or more of the foregoing parties without notice to any other
party, and to grant any such party any extensions of time for payment of any of
said indebtedness, or to release or substitute part or all of the collateral
securing this Note, or to grant any other indulgences or forbearances
whatsoever, without notice to any other party and without in any way affecting
the personal liability of any party hereunder.
SOUTH HAMPTON REFINING CO.
By:
-----------------------------------------
Nick Carter
President
-4-
<PAGE> 42
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of September 30, 1999 (this
"Agreement"), is by and between SOUTH HAMPTON REFINING CO., a Texas corporation
(the "Debtor") and SOUTHWEST BANK OF TEXAS, N.A., a national banking association
("Secured Party").
R E C I T A L S:
A. Debtor and Secured Party have entered into that certain Loan
Agreement dated as of September 30, 1999 (such Loan Agreement, as the same may
be amended or modified from time to time, is referred to herein as the "Loan
Agreement").
B. Secured Party has conditioned its obligations under the Loan
Agreement upon, among other things, the execution and delivery of this Agreement
by Debtor.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Security Interest
Section 1.01. Security Interest. Debtor hereby grants to Secured Party
a security interest in the following property, whether now owned or existing or
hereafter arising or acquired and wherever arising or located (such property
being hereinafter sometimes called the "Collateral"):
(a) all of its accounts, accounts receivable, contract rights and
general intangibles, and all instruments, documents, chattel paper and
funds on deposit with Secured Party arising therefrom, whether now
owned or hereafter acquired, including, without limitation, all lease
receivables and note receivables, all cash, notes, drafts and
acceptances arising therefrom, all returned and repossessed goods
arising from or relating to any such accounts, or other proceeds of
any sale, lease or other disposition of inventory, and all proceeds
(including insurance proceeds) and products thereof; and
(b) all of its inventory, whether now owned or hereafter
acquired, including, without limitation, all of its inventory of
natural gasoline and finished plant products and other tangible
personal property held for sale or lease or furnished or to be
furnished under contracts for service or used or consumed in Debtor's
trade or business and all additions,
<PAGE> 43
accessions, substitutions, attachments and replacements thereto and
all contracts with respect thereto and all documents of title
evidencing or representing any part thereof and all products and
proceeds (including insurance proceeds) thereof.
Section 1.02. Obligations. The Collateral shall secure the following
obligations, indebtedness, and liabilities (all such obligations, indebtedness,
and liabilities being hereinafter sometimes called the "Obligations"):
(a) the obligations and indebtedness of Debtor to Secured Party
evidenced by that certain promissory note in the original principal
amount of $2,250,000.00 dated September 30, 1999, executed by Debtor
and payable to the order of Secured Party;
(b) the obligations and indebtedness of Debtor to Secured Party
under the Loan Agreement;
(c) all future advances by Secured Party to Debtor;
(d) all costs and expenses, including, without limitation, all
attorneys' fees and legal expenses, incurred by Secured Party to
preserve and maintain the Collateral, collect the obligations herein
described, and enforce this Agreement;
(e) all other obligations, indebtedness, and liabilities of
Debtor to Secured Party, now existing or hereafter arising, regardless
of whether such obligations, indebtedness, and liabilities are
similar, dissimilar, related, unrelated, direct, indirect, fixed,
contingent, primary, secondary, joint, several, or joint and several;
and
(f) all extensions, renewals, and modifications of any of the
foregoing.
ARTICLE II
Representations and Warranties
To induce Secured Party to enter into this Agreement and the Loan
Agreement, Debtor represents and warrants to Secured Party that:
Section 2.01. Title. Except for the security interest granted herein,
Debtor owns, and with respect to Collateral acquired after the date hereof
Debtor will own, the Collateral free and clear of any lien, security interest,
or other encumbrance.
-2-
<PAGE> 44
Section 2.02. Accounts. Unless Debtor has given Secured Party written
notice to the contrary, whenever the security interest granted hereunder
attaches to an account, Debtor shall be deemed to have represented and warranted
to Secured Party as to each and all of its accounts that (a) each account is
genuine and is in all respects what it purports to be, (b) each account
represents the legal, valid, and binding obligation of the account debtor
evidencing indebtedness unpaid and owed by such account debtor arising out of
the performance of labor or services by Debtor or the sale or lease of goods by
Debtor, (c) the amount of each account represented as owing is the correct
amount actually and unconditionally owing except for normal trade discounts
granted in the ordinary course of business, and (d) no account is subject to any
offset, counterclaim, or other defense.
Section 2.03. Financing Statements. No financing statement, security
agreement, or other lien instrument covering all or any part of the Collateral
is on file in any public office, except as may have been filed in favor of
Secured Party.
Section 2.04. Principal Place of Business. The principal place of
business and chief executive office of Debtor, and the office where Debtor keeps
its books and records, is located at the address of Debtor listed in the Loan
Agreement.
Section 2.05. Location of Collateral. All inventory of Debtor is
located at 7752 FM 418, Silsbee, Texas and FM 92 North, Silsbee, Texas.
ARTICLE III
Covenants
Debtor covenants and agrees with Secured Party that until the
Obligations are paid and performed in full:
Section 3.01. Maintenance. Debtor shall not use or permit the
Collateral to be used in violation of any law or inconsistently with the terms
of any policy of insurance. Debtor shall not use or permit the Collateral to be
used in any manner or for any purpose that would impair the value of the
Collateral or expose the Collateral to unusual risk.
Section 3.02. Encumbrances. Debtor shall not create, permit, or suffer
to exist, and shall defend the Collateral against any lien, security interest,
or other encumbrance on the Collateral except the security interest of Secured
Party hereunder, and shall defend Debtor's rights in the Collateral and Secured
Party's security interest in the Collateral against the claims of all persons
and entities.
-3-
<PAGE> 45
Section 3.03. Modification of Collateral. Debtor shall do nothing to
impair the rights of Secured Party in the Collateral. Without the prior written
consent of Secured Party, Debtor shall not grant any extension of time for any
payment with respect to the Collateral, or compromise, compound, or settle any
of the Collateral, or release in whole or in part any person or entity liable
for payment with respect to the Collateral, or allow any credit or discount for
payment with respect to the Collateral other than normal trade discounts granted
in the ordinary course of business, or release any lien, security interest, or
assignment securing the Collateral, or otherwise amend or modify any of the
Collateral.
Section 3.04. Disposition of Collateral. Debtor shall not sell, lease,
or otherwise dispose of the Collateral or any part thereof without the prior
written consent of Secured Party, except Debtor may sell plant products
(inventory) in the ordinary course of business.
Section 3.05. Further Assurances. At any time and from time to time,
upon the request of Secured Party, and at the sole expense of Debtor, Debtor
shall promptly execute and deliver all such further instruments and documents
and take such further action as Secured Party may deem necessary or desirable to
preserve and perfect its security interest in the Collateral and carry out the
provisions and purposes of this Agreement, including, without limitation, the
execution and filing of such financing statements as Secured Party may require.
A carbon, photographic, or other reproduction of this Agreement or of any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement and may be filed as a financing statement.
Debtor shall promptly endorse and deliver to Secured Party all documents,
instruments, and chattel paper that it now owns or may hereafter acquire.
Section 3.06. Risk of Loss; Insurance. Debtor shall be responsible for
any loss of or damage to the Collateral. Debtor shall maintain insurance on the
Collateral as provided in the Loan Agreement.
Section 3.07. Inspection Rights. Debtor shall permit Secured Party and
its representatives to examine or inspect the Collateral wherever located and to
examine, inspect, and copy Debtor's books and records at any reasonable time and
as often as Secured Party may desire.
Section 3.08. Notification. Debtor shall promptly notify Secured Party
of (a) any lien, security interest, encumbrance, or claim made or threatened
against the Collateral, and (b) any material change in the Collateral,
including, without limitation, any material damage to or loss of the Collateral.
-4-
<PAGE> 46
Section 3.09. Corporate Changes. Debtor shall not change its name,
identity, or corporate structure in any manner that might make any financing
statement filed in connection with this Agreement misleading. Debtor shall not
change its principal place of business, chief executive office, or the place
where it keeps its books and records unless it shall have given Secured Party
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or desirable by Secured Party to cause its security interest in
the Collateral to be perfected with the priority required by this Agreement.
Section 3.10. Books and Records; Information. Debtor shall keep
accurate and complete books and records of the Collateral and Debtor's business
and financial condition in accordance with generally accepted accounting
principles consistently applied. Debtor shall from time to time at the request
of Secured Party deliver to Secured Party such information regarding the
Collateral and Debtor as Secured Party may request, including, without
limitation, lists and descriptions of the Collateral and evidence of the
identity and existence of the Collateral. Debtor shall mark its books and
records to reflect the security interest of Secured Party under this Agreement.
Section 3.11. Location of Collateral. Debtor shall not move any of its
inventory from the location described in Section 2.05 without the prior written
consent of Secured Party.
ARTICLE IV
Rights of Secured Party
Section 4.01. Power of Attorney. Debtor hereby irrevocably constitutes
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, upon the
occurrence of an Event of Default, to take any and all action and to execute any
and all documents and instruments which Secured Party at any time and from time
to time deems necessary or desirable to accomplish the purposes of this
Agreement and, without limiting the generality of the foregoing, Debtor hereby
gives Secured Party the power and right on behalf of Debtor and in its own name
to do any of the following, without notice to or the consent of Debtor:
(a) to demand, sue for, collect, or receive in the name of Debtor
or in its own name, any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral and,
in connection therewith, endorse checks, notes, drafts, acceptances,
money orders, documents of title, or any other instruments for the
payment of money under the Collateral or any policy of insurance;
-5-
<PAGE> 47
(b) to pay or discharge taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against the
Collateral;
(c) to send requests for verification to account debtors and
other obligors;
(d) to notify post office authorities to change the address for
delivery of mail of Debtor to an address designated by Secured Party
and to receive, open, and dispose of mail addressed to Debtor; and
(e) (i) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to Secured Party
or as Secured Party shall direct; (ii) to receive payment of and
receipt for any and all monies, claims, and other amounts due and to
become due at any time in respect of or arising out of any Collateral;
(iii) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, proxies, stock powers, verifications, and
notices in connection with accounts and other documents relating to
the Collateral; (iv) to exchange any of the Collateral for other
property upon any merger, consolidation, reorganization,
recapitalization, or other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Collateral with any
committee, depositary, transfer agent, registrar, or other designated
agency upon such terms as Secured Party may determine; (v) to insure,
and to make, settle, compromise, or adjust claims under any insurance
policy covering any of the Collateral; and (vi) to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though Secured Party were
the absolute owner thereof for all purposes, and to do, at Secured
Party's option and Debtor's expense, at any time, or from time to
time, all acts and things which Secured Party deems necessary to
protect, preserve, or realize upon the Collateral and Secured Party's
security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be liable
for any failure to do so or any delay in doing so. Secured Party shall not be
liable for any act or omission or for any error of judgment or any mistake of
fact or law in its individual capacity or in its capacity as attorney-in-fact
except acts or omissions resulting from its willful misconduct. This power of
attorney is conferred on Secured Party solely to protect, preserve, and realize
upon its security interest in the Collateral. Secured Party shall not be
-6-
<PAGE> 48
responsible for any decline in the value of the Collateral and shall not be
required to take any steps to preserve rights against prior parties or to
protect, preserve, or maintain any security interest or lien given to secure the
Collateral.
Section 4.02. Performance by Secured Party. If Debtor fails to perform
or comply with any of its agreements contained herein, Secured Party itself may,
at its sole discretion, cause or attempt to cause performance or compliance with
such agreement and the expenses of Secured Party, together with interest thereon
at the maximum nonusurious per annum rate permitted by applicable law, shall be
payable by Debtor to Secured Party on demand and shall constitute Obligations
secured by this Agreement. Notwithstanding the foregoing, it is expressly agreed
that Secured Party shall not have any liability or responsibility for the
performance of any obligation of Debtor under this Agreement.
Section 4.03. Assignment by Secured Party. Secured Party may from time
to time assign the Obligations and any portion thereof or the Collateral and any
portion thereof, and the assignee shall be entitled to all of the rights and
remedies of Secured Party under this Agreement in relation thereto.
ARTICLE V
Default
Section 5.01. Events of Default. The term "Event of Default" shall mean
an Event of Default as defined in the Loan Agreement.
Section 5.02. Rights and Remedies. Upon the occurrence of an Event of
Default, Secured Party shall have the following rights and remedies:
(a) Secured Party may declare the Obligations or any part thereof
immediately due and payable, without notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, protest, or other formalities
of any kind, all of which are hereby expressly waived by Debtor;
provided, however, that upon the occurrence of an Event of Default
under Section 10.1(d) or Section 10.1(e) of the Loan Agreement, the
Obligations shall become immediately due and payable without notice,
demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, notice of intent to demand, protest,
or other formalities of any kind, all of which are hereby expressly
waived by Debtor.
(b) In addition to all other rights and remedies granted to
Secured Party in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations or any
part thereof, Secured Party shall have all
-7-
<PAGE> 49
of the rights and remedies of a secured party under the Uniform
Commercial Code as adopted by the State of Texas. Without limiting the
generality of the foregoing, Secured Party may (i) without demand or
notice to Debtor, collect, receive, or take possession of the
Collateral or any part thereof and for that purpose Secured Party may
enter upon any premises on which the Collateral is located and remove
the Collateral therefrom or render it inoperable, and/or (ii) sell,
lease, or otherwise dispose of the Collateral, or any part thereof, in
one or more parcels at public or private sale or sales, at Secured
Party's offices or elsewhere, for cash, on credit, or for future
delivery. Upon the request of Secured Party, Debtor shall assemble the
Collateral and make it available to Secured Party at any place
designated by Secured Party that is reasonably convenient to Debtor
and Secured Party. Debtor agrees that Secured Party shall not be
obligated to give more than five (5) days written notice of the time
and place of any public sale or of the time after which any private
sale may take place and that such notice shall constitute reasonable
notice of such matters. Debtor shall be liable for all expenses of
retaking, holding, preparing for sale, or the like, and all attorneys'
fees, legal expenses, and all other costs and expenses incurred by
Secured Party in connection with the collection of the Obligations and
the enforcement of Secured Party's rights under this Agreement.
Secured Party may apply the Collateral against the Obligations in such
order and manner as Secured Party may elect in its sole discretion.
Debtor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay the
Obligations in full. Debtor waives all rights of marshalling in
respect of the Collateral.
(c) Secured Party may cause any or all of the Collateral held by
it to be transferred into the name of Secured Party or the name or
names of Secured Party's nominee or nominees.
ARTICLE VI
Miscellaneous
Section 6.01. No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
-8-
<PAGE> 50
Section 6.02. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Debtor and Secured Party and their respective
heirs, successors, and assigns, except that Debtor may not assign any of its
rights or obligations under this Agreement without the prior written consent of
Secured Party.
Section 6.03. Amendment. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto.
Section 6.04. Notices. All notices and other communications provided
for in this Agreement shall be given as provided in the Loan Agreement.
Section 6.05. Applicable Law; Venue; Service of Process. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas and the applicable laws of the United States of America. This Agreement
has been entered into in Harris County, Texas, and it shall be performable for
all purposes in Harris County, Texas. The venue of, and provisions regarding
service of process in connection with any action or proceeding hereunder shall
be determined as provided in the Loan Agreement.
Section 6.06. Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 6.07. Survival of Representations and Warranties. All
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by Secured Party shall affect the
representations and warranties or the right of Secured Party to rely upon them.
Section 6.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 6.09. Waiver of Bond. In the event Secured Party seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 6.10. Severability. Any provision of this 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 of this Agreement, and any such
prohibition or
-9-
<PAGE> 51
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 6.12. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (AS DEFINED IN THE LOAN AGREEMENT) EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
SOUTH HAMPTON REFINING CO.
By:
----------------------------------
Nick Carter
President
SECURED PARTY:
SOUTHWEST BANK OF TEXAS, N.A.
By:
----------------------------------
A. Stephen Kennedy
Vice President
-10-
<PAGE> 52
GUARANTY AGREEMENT
WHEREAS, the execution of this Guaranty Agreement is a condition to
SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender") making
certain loans to SOUTH HAMPTON REFINING CO., a Texas corporation ("Borrower"),
pursuant to that certain Loan Agreement dated as of September 30, 1999, between
Borrower and Lender (such Loan Agreement, as it may hereafter be amended or
modified from time to time, is hereinafter referred to as the "Loan Agreement");
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the undersigned, TEXAS OIL & CHEMICAL CO. II,
INC., a Texas corporation (the "Guarantor"), hereby irrevocably and
unconditionally guarantees to Lender the full and prompt payment and performance
of the Guaranteed Indebtedness (hereinafter defined). This Guaranty Agreement
shall be upon the following terms:
1. The term "Guaranteed Indebtedness", as used herein means all of the
"Obligations", as defined in the Loan Agreement. The term "Guaranteed
Indebtedness" shall include any and all post-petition interest and expenses
(including attorneys' fees) whether or not allowed under any bankruptcy,
insolvency, or other similar law. As of the date of this Guaranty Agreement, the
Obligations include, but are not limited to, that certain promissory note in the
original principal amount of $2,250,000.00, dated as of September 30, 1999,
executed by Borrower and payable to the order of Lender, and all renewals,
extensions and modifications thereof.
2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder until
the payment and performance in full of the Guaranteed Indebtedness. No set-off,
counterclaim, recoupment, reduction, or diminution of any obligation, or any
defense of any kind or nature which Borrower may have against Lender or any
other party, or which Guarantor may have against Borrower, Lender, or any other
party, shall be available to, or shall be asserted by, Guarantor against Lender
or any subsequent holder of the Guaranteed Indebtedness or any part thereof or
against payment of the Guaranteed Indebtedness or any part thereof.
3. If Guarantor becomes liable for any indebtedness owing by Borrower
to Lender by endorsement or otherwise, other than under this Guaranty Agreement,
such liability shall not be in any manner impaired or affected hereby, and the
rights of Lender hereunder shall be cumulative of any and all other rights that
Lender may ever have against Guarantor. The exercise by Lender of any right or
remedy hereunder or under any other instrument, or at law or in
<PAGE> 53
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.
4. In the event of default by Borrower in payment or performance of the
Guaranteed Indebtedness, or any part thereof, when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration, or otherwise, Guarantor
shall promptly pay the amount due thereon to Lender without notice or demand in
lawful currency of the United States of America and it shall not be necessary
for Lender, in order to enforce such payment by Guarantor, first to institute
suit or exhaust its remedies against Borrower or others liable on such
Guaranteed Indebtedness, or to enforce any rights against any collateral which
shall ever have been given to secure such Guaranteed Indebtedness. Until the
Guaranteed Indebtedness is paid in full and a period of ninety (90) days has
passed following such payment, Guarantor waives any and all rights it may now or
hereafter have under any agreement or at law or in equity (including, without
limitation, any law subrogating the Guarantor to the rights of Lender) to assert
any claim against or seek contribution, indemnification or any other form of
reimbursement from Borrower or any other party liable for payment of any or all
of the Guaranteed Indebtedness for any payment made by Guarantor under or in
connection with this Guaranty Agreement or otherwise.
5. If acceleration of the time for payment of any amount payable by
Borrower under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to
acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be
payable by Guarantor hereunder forthwith on demand by Lender.
6. Guarantor hereby agrees that its obligations under this Guaranty
Agreement shall not be released, discharged, diminished, impaired, reduced, or
affected for any reason or by the occurrence of any event, including, without
limitation, one or more of the following events, whether or not with notice to
or the consent of Guarantor: (a) the taking or accepting of collateral as
security for any or all of the Guaranteed Indebtedness or the release,
surrender, exchange, or subordination of any collateral now or hereafter
securing any or all of the Guaranteed Indebtedness; (b) any partial release of
the liability of Guarantor hereunder, or the full or partial release of any
other guarantor from liability for any or all of the Guaranteed Indebtedness;
(c) any disability of Borrower, or the dissolution, insolvency, or bankruptcy of
Borrower, Guarantor, or any other party at any time liable for the payment of
any or all of the Guaranteed Indebtedness; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all of the
Guaranteed Indebtedness or any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed Indebtedness;
(e) any adjustment, indulgence, forbearance, waiver, or compromise
-2-
<PAGE> 54
that may be granted or given by Lender to Borrower, Guarantor, or any other
party ever liable for any or all of the Guaranteed Indebtedness; (f) any
neglect, delay, omission, failure, or refusal of Lender to take or prosecute any
action for the collection of any of the Guaranteed Indebtedness or to foreclose
or take or prosecute any action in connection with any instrument, document, or
agreement evidencing, securing, or otherwise relating to any or all of the
Guaranteed Indebtedness; (g) the unenforceability or invalidity of any or all of
the Guaranteed Indebtedness or of any instrument, document, or agreement
evidencing, securing, or otherwise relating to any or all of the Guaranteed
Indebtedness; (h) any payment by Borrower or any other party to Lender is held
to constitute a preference under applicable bankruptcy or insolvency law or if
for any other reason Lender is required to refund any payment or pay the amount
thereof to someone else (i) the settlement or compromise of any of the
Guaranteed Indebtedness; (j) the non-perfection of any security interest or lien
securing any or all of the Guaranteed Indebtedness; (k) any impairment of any
collateral securing any or all of the Guaranteed Indebtedness; (1) the failure
of Lender to sell any collateral securing any or all of the Guaranteed
Indebtedness in a commercially reasonable manner or as otherwise required by
law; (m) any change in the corporate existence, structure, or ownership of
Borrower; or (n) any other circumstance which might otherwise constitute a
defense available to, or discharge of, Borrower or Guarantor.
7. Guarantor represents and warrants to Lender as follows:
(a) Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation,
is qualified to do business in all jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and
where failure to so qualify would have a material adverse effect on
its business, financial condition, or operations.
(b) Guarantor has the corporate power, authority and legal right
to execute, deliver, and perform its obligations under this Guaranty
Agreement and this Guaranty Agreement constitutes the legal, valid,
and binding obligation of Guarantor, enforceable against Guarantor in
accordance with its respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the
enforcement of creditor's rights.
(c) The execution, delivery, and performance by Guarantor of this
Guaranty Agreement have been duly authorized by all requisite action
on the part of Guarantor and do not and will not violate or conflict
with the articles of incorporation or bylaws of Guarantor or any law,
rule, or regulation or any order, writ, injunction or decree of any
court, governmental authority or agency, or arbitrator and do not and
will not
-3-
<PAGE> 55
conflict with, result in a breach of, or constitute a default under,
or result in the imposition of any lien upon any assets of Guarantor
pursuant to the provisions of any indenture, mortgage, deed of trust,
security agreement, franchise, permit, license, or other instrument or
agreement to which Guarantor or its properties is bound.
(d) No authorization, approval, or consent of, and no filing or
registration with, any court, governmental authority, or third party
is necessary for the execution, delivery or performance by Guarantor
of this Guaranty Agreement or the validity or enforceability thereof.
(e) The value of the consideration received and to be received by
Guarantor as a result of Borrower and Lender entering into the Loan
Agreement and Guarantor executing and delivering this Guaranty
Agreement is reasonably worth at least as much as the liability and
obligation of Guarantor hereunder, and such liability and obligation
and the Loan Agreement have benefited and may reasonably be expected
to benefit Guarantor directly or indirectly.
8. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or Lender has any commitment
under the Loan Agreement:
(a) Guarantor will deliver to Lender the financial statements of
Guarantor described in the Loan Agreement at the times required by the
Loan Agreement.
(b) Guarantor will furnish promptly to Lender written notice of
the occurrence of any default under this Guaranty Agreement or an
Event of Default under the Loan Agreement of which Guarantor has
knowledge.
(c) Guarantor will furnish promptly to Lender such additional
information concerning Guarantor as Lender may request.
(d) Guarantor will maintain the covenants contained in Article IX
of the Loan Agreement.
9. Upon the occurrence of an Event of Default (as defined in the Loan
Agreement) Lender shall have the right to set off and apply against this
Guaranty Agreement or the Guaranteed Indebtedness or both, at any time and
without notice to Guarantor, any and all deposits (general or special, time or
demand, provisional or final) or other sums at any time credited by or owing
from Lender to Guarantor whether or not the Guaranteed Indebtedness is then due
and irrespective of whether or not Lender shall have made any demand under this
Guaranty Agreement. In addition to Lender's right of setoff and as further
security for
-4-
<PAGE> 56
this Guaranty Agreement and the Guaranteed Indebtedness, Guarantor hereby grants
Lender a security interest in all deposits (general or special, time or demand,
provisional or final) and all other accounts of Guarantor now or hereafter on
deposit with or held by Lender and all other sums at any time credited by or
owing from Lender to Guarantor. The rights and remedies of Lender hereunder are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) which Lender may have.
10. No amendment or waiver of any provision of this Guaranty Agreement
or consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by Lender. No failure
on the part of Lender to exercise, and no delay in exercising, 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 hereunder preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
11. This Guaranty Agreement is for the benefit of Lender and its
successors and assigns, and in the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the rights and benefits hereunder, to the
extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty Agreement is binding not only on Guarantor, but on
Guarantor's successors and assigns.
12. Guarantor recognizes that Lender is relying upon this Guaranty
Agreement and the undertakings of Guarantor hereunder in making extensions of
credit to Borrower under the Loan Agreement and further recognizes that the
execution and delivery of this Guaranty Agreement is a material inducement to
Lender in entering into the Loan Agreement. Guarantor hereby acknowledges that
there are no conditions to the full effectiveness of this Guaranty Agreement.
13. This Guaranty Agreement is executed and delivered as an incident to
a lending transaction negotiated, consummated, and performable in Harris County,
Texas, and shall be governed by and construed in accordance with the laws of the
State of Texas. Except as provided in the Arbitration Agreement among Borrower,
Guarantor, Lender and others (the "Arbitration Agreement"), any action or
proceeding against Guarantor under or in connection with this Guaranty Agreement
may be brought in any state or federal court in Harris County, Texas, and
Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of such
courts, and waives any objection it may now or hereafter have as to the venue of
any such action or proceeding brought in such court. Guarantor agrees that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified
-5-
<PAGE> 57
in the Loan Agreement. Except as provided in the Arbitration Agreement, nothing
herein shall affect the right of Lender to serve process in any other matter
permitted by law or shall limit the right of Lender to bring any action or
proceeding against Guarantor or with respect to any of Guarantor's property in
courts in other jurisdictions. Except as provided in the Arbitration Agreement,
any action or proceeding by Guarantor against Lender shall be brought only in a
court located in Harris County, Texas.
14. Guarantor shall pay on demand all attorneys' fees and all other
costs and expenses incurred by Lender in connection with the preparation,
administration, enforcement, or collection of this Guaranty Agreement.
15. Guarantor hereby waives promptness, diligence, notice of any
default under the Guaranteed Indebtedness, demand of payment, notice of
acceptance of this Guaranty Agreement, presentment, notice of protest, notice of
dishonor, notice of the incurring by Borrower of additional indebtedness, and
all other notices and demands with respect to the Guaranteed Indebtedness and
this Guaranty Agreement.
16. The Loan Agreement, and all of the terms thereof, are incorporated
herein by reference, the same as if stated verbatim herein, and Guarantor agrees
that Lender may exercise any and all rights granted to it under the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement)
without affecting the validity or enforceability of this Guaranty Agreement. Any
notices given hereunder shall be given in the manner provided by and to the
addresses set forth in the Loan Agreement.
17. Guarantor hereby represents and warrants to Lender that Guarantor
has adequate means to obtain from Borrower on a continuing basis information
concerning the financial condition and assets of Borrower and that Guarantor is
not relying upon Lender to provide (and Lender shall have no duty to provide)
any such information to Guarantor either now or in the future.
18. THIS GUARANTY AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
INDEBTEDNESS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER
EXTRINSIC EVIDENCE OF ANY NATURE. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR
AND LENDER. THIS GUARANTY AGREEMENT MAY NOT BE AMENDED EXCEPT IN WRITING BY
GUARANTOR AND LENDER.
-6-
<PAGE> 58
DATED AND EXECUTED as of September 30, 1999.
GUARANTOR:
TEXAS OIL & CHEMICAL CO. II, INC.
By:
----------------------------------
Nick Carter
President
-7-
<PAGE> 59
ADVANCE REQUEST FORM
TO: Southwest Bank of Texas, N.A.
Five Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
Attention: A. Stephen Kennedy
Ladies and Gentlemen:
The undersigned is an authorized representative of SOUTH HAMPTON
REFINING CO. (the "Borrower"), and is authorized to make and deliver this
certificate pursuant to that certain Loan Agreement dated as of September 30,
1999 between the Borrower and Southwest Bank of Texas, N.A. (the "Lender").
(Such Loan Agreement, as it may be amended is referred to as the "Loan
Agreement"). All terms defined in the Loan Agreement shall have the same meaning
herein.
Borrower hereby requests an Advance (the "Requested Advance") in the
amount of $______________________ in accordance with the Loan Agreement.
In connection with the foregoing and pursuant to the terms and
provisions of the Loan Agreement, the undersigned hereby certifies that the
following statements are true and correct:
(a) The representations and warranties contained in Article VI of
the Loan Agreement and in each of the other Loan Documents are true
and correct on and as of the date hereof with the same force and
effect as if made on and as of such date.
(b) No Event of Default has occurred and is continuing or would
result from the Requested Advance, and no event has occurred and is
continuing or would result from the Requested Advance that, with the
giving of notice or lapse of time or both, would be an Event of
Default. Borrower acknowledges that if an Event of Default exists
Lender is not obligated to fund the Requested Advance.
(c) Since the date of the financial statements of Borrower most
recently delivered to Lender pursuant to the Loan Agreement, there has
been no Material Adverse Effect.
(d) The amount of the Requested Advance, when added to the
principal amount of all Advances outstanding, will not exceed the
lesser of (i) the Borrowing Base minus the outstanding Letter of
Credit Liabilities or (ii) the Commitment minus the outstanding Letter
of Credit Liabilities.
<PAGE> 60
(e) Check one:
The available amount under the Commitment
-------------- has not changed since the available amount
shown on the Borrowing Base Certificate most
recently delivered to Lender which was dated
as of ________________. The available amount
shown on such Borrowing Base Certificate was
$_________________.
The available amount under the Commitment
-------------- has changed since the available amount shown
on the Borrowing Base Certificate last
delivered to Lender, and attached hereto as
Exhibit "A" is a Borrowing Base Certificate
dated as of _________________, which shows
the available amount under the Commitment as
of such date. The information contained in
such Borrowing Base Certificate is true and
correct.
Advance Request Information
<TABLE>
<S> <C>
1. Available Amount [as shown on most
recent Borrowing Base Certificate
referred to above or Borrowing Base
Certificate attached hereto] ................ $
-----------
2. Amount of Requested Advance ................ $
----------
</TABLE>
Dated as of:
---------------------
BORROWER:
SOUTH HAMPTON REFINING CO.
By:
-------------------------------
Name:
----------------------------
Title:
---------------------------
-2-
<PAGE> 61
Exhibit "A"
Borrowing Base Certificate, If Applicable
-3-
<PAGE> 62
BORROWING BASE CERTIFICATE
TO: Southwest Bank of Texas, N.A.
Five Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
Attention: A. Stephen Kennedy
Ladies and Gentlemen:
The undersigned is an authorized representative of SOUTH HAMPTON
REFINING CO. (the "Borrower"), and is authorized to make and deliver this
certificate pursuant to that certain Loan Agreement dated as of September 30,
1999 between the Borrower and Southwest Bank of Texas, N.A. (the "Lender").
(Such Loan Agreement, as it may be amended is referred to as the "Loan
Agreement"). All terms defined in the Loan Agreement shall have the same meaning
herein.
Pursuant to the terms and provisions of the Loan Agreement, the
undersigned hereby certifies that the following statements and information are
true, complete and correct:
(a) The representations and warranties contained in Article VI of
the Loan Agreement and in each of the other Loan Documents are true
and correct on and as of the date hereof with the same force and
effect as if made on and as of such date.
(b) No Event of Default has occurred and is continuing, and no
event has occurred and is continuing that, with the giving of notice
or lapse of time or both, would be an Event of Default. Borrower
acknowledges that if an Event of Default exists Lender is not
obligated to fund any request for an Advance.
(c) Since the date of the financial statements of Borrower most
recently delivered to Lender pursuant to the Loan Agreement, there has
been no Material Adverse Effect.
(d) The amount of the outstanding Advances does not exceed the
lesser of (i) the Borrowing Base minus the outstanding Letter of
Credit Liabilities or (ii) the Commitment minus the outstanding Letter
of Credit Liabilities.
(e) The total Eligible Accounts and Eligible Inventory referred
to below represent the Eligible Accounts and Eligible Inventory that
qualifies for purposes of determining the Borrowing Base under the
Loan Agreement. Borrower represents and warrants that the information
and calculations set forth below regarding the Eligible Accounts and
Eligible Inventory and the Borrowing Base are true and correct in all
material respects.
<PAGE> 63
Calculation of Borrowing Base
<TABLE>
<S> <C>
1. Total Accounts .................................. $
-------------
2. Ineligible Accounts
(a) more than 90 days past invoice date ......... $
-------------
(b) accounts from officers, employees
subsidiaries or affiliates ............. $
-------------
(c) conditional accounts ........................ $
-------------
(d) foreign accounts ............................ $
-------------
(e) accounts subject to dispute,
counterclaim, setoff or retainage ...... $
-------------
(f) pre-billings or unearned income ............. $
-------------
(g) accounts of insolvent or bankrupt
account debtors ........................ $
-------------
(h) accounts of U.S. government ................. $
-------------
(i) terms in excess of 30 days past
invoice date ........................... $
-------------
(j) more than 20% over 89 days .................. $
-------------
(k) more than 20% concentration ................. $
-------------
Total ........................................... $
-------------
3. Eligible Accounts
[line (1) minus line (2)] ...................... $
-------------
4. 80% of line (3) ................................. $
-------------
5. Eligible Inventory .............................. $
-------------
6. 50% of line (5) ................................. $
-------------
7. Lesser of line (6) or $750,000.00 ............... $
-------------
8. Borrowing Base [sum of line (4) plus
line (7)] ...................................... $
-------------
9. Commitment ...................................... $2,250,000.00
10. Lesser of line (8) or line (9) .................. $
-------------
11. Amount of outstanding Advances .................. $
-------------
12. Letter of Credit Liabilities .................... $
-------------
13. Sum of line (11) plus line (12) ................. $
-------------
14. Available Amount [line (10) minus
line (13)] ..................................... $
-------------
</TABLE>
(f) Attached hereto as Schedule 1 is a list of Borrower's
accounts receivable, designating Eligible Accounts, and showing all
accounts receivable by customer name, the amount owing to Borrower and
the age of each receivable.
-2-
<PAGE> 64
(g) Attached hereto as Schedule 2 is a list of Borrower's
inventory, designating Eligible Inventory and showing all inventory by
product type, volume and value.
Date:
---------------------
BORROWER:
SOUTH HAMPTON REFINING CO.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-3-
<PAGE> 65
Schedule 1 - List of Accounts Receivable
-4-
<PAGE> 66
Schedule 2 - List of Eligible Inventory
-5-
<PAGE> 67
NO DEFAULT CERTIFICATE
TO: Southwest Bank of Texas, N.A.
Five Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
Attention: A. Stephen Kennedy
Ladies and Gentlemen:
The undersigned is an authorized representative of SOUTH HAMPTON
REFINING CO. (the "Borrower"), and is authorized to make and deliver this
certificate pursuant to that certain Loan Agreement dated as of September 30,
1999 between the Borrower and Southwest Bank of Texas, N.A. (the "Lender").
(Such Loan Agreement, as it may be amended is referred to as the "Loan
Agreement"). All terms defined in the Loan Agreement shall have the same meaning
herein.
Pursuant to the terms and provisions of the Loan Agreement, the
undersigned hereby certify that the following statements and information are
true, complete and correct:
(a) The representations and warranties contained in Article VI of
the Loan Agreement and in each of the other Loan Documents are true
and correct on and as of the date hereof with the same force and
effect as if made on and as of such date.
(b) No Event of Default has occurred and is continuing, and no
event has occurred and is continuing that, with the giving of notice
or lapse of time or both, would be an Event of Default.
(c) Together with this certificate, and as required by the Loan
Agreement, Borrower has delivered to Lender the most current quarterly
financial statements of Guarantor dated _________________________ (the
"Current Financial Statements"). Since the date of the Current
Financial Statements, there has been no Material Adverse Effect.
(d) The amount of the outstanding Advances plus the Letter of
Credit Liabilities does not exceed the lesser of the Borrowing Base or
the Commitment.
(e) Set forth below are calculations showing Guarantor's status
of compliance with the covenants contained in Article IX of the Loan
Agreement. Borrower represents and warrants that the information and
calculations set forth below are true and correct in all respects.
<PAGE> 68
Calculations Showing Compliance
With Article IX
Section 9.1 - Current Ratio:
<TABLE>
<S> <C>
Calculation:
1. Current Assets $
--------------
2. Current Liabilities $
--------------
3. Current Ratio [line (1)
divided by line (2)] $
--------------
Required:
Not less than 1.10 to 1.00
Section 9.2 - Tangible Net Worth:
Calculation:
1. Stockholders' equity $
--------------
2. Subordinated Debt $
--------------
3. Line (1) plus line (2) $
--------------
4. Intangible Assets
$
------------ --------------
$
------------ --------------
$
------------ --------------
Total $
--------------
5. Tangible Net Worth [line
(3) minus line (4)] $
--------------
</TABLE>
Required:
$5,600,000.00 plus fifty percent (50%) of Net Income subsequent to June
30, 1999.
$5,600,000.00 plus $________________ = $_______________
-2-
<PAGE> 69
Section 9.3 - EBITDA
EBITDA
<TABLE>
<S> <C>
1. Net Income
(a) This quarter $
--------------
(b) First preceding quarter $
--------------
(c) Second preceding quarter $
--------------
(d) Third preceding quarter $
--------------
(e) Total $
--------------
2. Non Cash Charges
(a) This quarter $
--------------
(b) First preceding quarter $
--------------
(c) Second preceding quarter $
--------------
(d) Third preceding quarter $
--------------
(e) Total $
--------------
3. Interest Expense
(a) This quarter $
--------------
(b) First preceding quarter $
--------------
(c) Second preceding quarter $
--------------
(d) Third preceding quarter $
--------------
(e) Total $
--------------
4. Cash Taxes
(a) This quarter $
--------------
(b) First preceding quarter $
--------------
(c) Second preceding quarter $
--------------
(d) Third preceding quarter $
--------------
(e) Total $
--------------
5. EBITDA - Sum of line 1(e) plus
line 2(e) plus line 3(e)
plus line 4(e) $
--------------
Section 9.3 - Capital Expenditures
Calculation:
Capital Expenditures to Date $
--------------
Required:
Not more than $2,000,000.00
</TABLE>
Date:
------------------------
BORROWER:
SOUTH HAMPTON REFINING CO.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-3-
<PAGE> 70
ARBITRATION AGREEMENT
Re: Loan in the principal amount of $2,250,000.00 dated
September 30, 1999, from SOUTHWEST BANK OF TEXAS,
N.A. to SOUTH HAMPTON REFINING CO., and all
renewals, increases, extensions, modifications and
substitutions thereof.
In consideration of the premises and the mutual agreements herein, the
undersigned agree as follows:
Binding Arbitration. Notwithstanding any provision in any Documents (defined
below) to the contrary, upon the request of any of the undersigned (collectively
called the "parties" and individually called a "party"), whether made before or
after the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind (for example, whether in contract or in tort, under
statutory or common law, or legal or equitable) now existing or hereafter
arising between or among the parties in any way arising out of, pertaining to or
in connection with (1) the referenced Loan, any related agreements, documents,
or instruments (collectively, the "Documents") or any transaction contemplated
thereby, before or after maturity, or (2) any aspect of the past or present
relationships of the parties to the Documents shall be resolved by mandatory and
binding arbitration in accordance with the terms of this Arbitration Agreement.
The occurrence of any of the foregoing matters shall be referred to as a
"Dispute." Any party to this Arbitration Agreement may bring by summary
proceedings (for example, a plea in abatement or motion to stay further
proceedings) an action in court to compel arbitration of any Dispute.
Governing Rules. Notwithstanding any provision in any Documents to the contrary,
all Disputes between the parties shall be resolved by mandatory and binding
arbitration administered by the American Arbitration Association (the "AAA")
pursuant to the Federal Arbitration Act (Title 9 of the United States Code) in
accordance with this Arbitration Agreement and the Commercial Arbitration Rules
of the AAA. If Title 9 of the United States Code is inapplicable to any such
claim or controversy for any reason, such arbitration shall be conducted
pursuant to the Texas General Arbitration Act and in accordance with this
Arbitration Agreement and the Commercial Arbitration Rules of the AAA. To the
extent that any inconsistency exists between this Arbitration Agreement and such
statutes and rules, this Arbitration Agreement shall control. Judgment upon the
award rendered by the arbitrators may be entered in and enforced by any court
having jurisdiction and in accordance with the practice of such court; provided,
however, that nothing contained herein shall be deemed to be a waiver by any
party that is a bank of the protections afforded to it under 12 U.S.C.Section
91, Texas Banking Code art. 342-609 or 342-705, or any other protection provided
banks by the laws of Texas or the United States.
<PAGE> 71
No Waiver; Preservation of Remedies. No provision of, nor the exercise of any
rights under, this Arbitration Agreement shall limit the right of any party to
employ other remedies, including, without limitation, (1) foreclosing against
any real or personal property collateral or other security by the exercise of a
power of sale under a deed of trust, mortgage, or other security agreement or
instrument, or applicable law, (2) exercising self-help remedies (including
without limitation set-off rights), or (3) obtaining provisional or ancillary
remedies such as, without limitation, injunctive relief, sequestration,
attachment, garnishment, or the appointment of a receiver from a court having
jurisdiction before, during, or after the pendency of any arbitration. The
institution and maintenance of an action for judicial relief, pursuit of
provisional or ancillary remedies, or exercise of self-help remedies shall not
constitute a waiver of the right of any party, including without limitation, the
plaintiff, to submit any Dispute to arbitration nor render inapplicable the
compulsory arbitration provisions hereof.
In Disputes involving indebtedness or other monetary obligations, each party
agrees that the other party may proceed against all liable persons, jointly and
severally, or against one or more of them, being less than all, without
impairing rights against other liable persons. Nor shall a party be required to
join any principal obligor or any other liable persons (including, without
limitation, sureties or guarantors) in any proceeding against a particular
person. A party may release or settle with one or more liable persons as the
party deems fit without releasing or impairing rights to proceed against any
persons not so released.
Arbitration Proceeding. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of confidential information,
including, without limitation, any protection afforded the work product of any
attorney, that could otherwise be claimed by any party shall be available to and
may be claimed by any such party in any arbitration proceeding. No party waives
any attorney-client privilege or any other protection against disclosure of
confidential information by reason of anything contained in or done pursuant to
or in connection with this Arbitration Agreement. Any arbitration proceeding
shall be conducted in Harris County, Texas by a panel of three arbitrators each
having substantial experience and recognized expertise in the field or fields of
the matter(s) in dispute.
Other Matters. This Arbitration Agreement constitutes the entire agreement of
the parties with respect to its subject matter and supersedes all prior
discussions, arrangements, negotiations, and other communications on dispute
resolution. The provisions of this Arbitration Agreement shall survive any
termination, amendment or expiration of the Documents unless the parties
otherwise expressly agree in writing. This Arbitration Agreement may be amended,
changed or modified only by the express provisions of a writing
-2-
<PAGE> 72
which specifically refers to this Arbitration Agreement and which is signed by
all parties. If any provision of this Arbitration Agreement shall be
unenforceable, unlawful or invalid in any respect, then such provision shall be
deemed severable from the remaining provisions and the enforceability,
lawfulness and validity of the remaining provisions will not be affected or
impaired. This Arbitration Agreement shall inure to the benefit of and bind the
heirs, representatives, trustees, successors and assigns of the parties. The
captions or headings in this Arbitration Agreement are for convenience only and
shall not be dispositive in interpreting or construing any of this Arbitration
Agreement.
DATED AND EXECUTED as of September 30, 1999.
BORROWER:
SOUTH HAMPTON REFINING CO.
By:
-------------------------------
Nick Carter
President
GUARANTOR:
TEXAS OIL & CHEMICAL CO. II, INC.
By:
-------------------------------
Nick Carter
President
LENDER:
SOUTHWEST BANK OF TEXAS, N.A.
By:
-------------------------------
A. Stephen Kennedy
Vice President
-3-
<PAGE> 73
TEXAS OIL & CHEMICAL CO. II, INC.
CERTIFICATE OF SECRETARY
I, Connie Cook, certify that I am the duly elected, qualified and
acting Secretary of TEXAS OIL & CHEMICAL CO. II, INC., a Texas corporation (the
"Corporation"), and that I am authorized to execute and deliver this
certificate, and I do hereby further certify as follows:
1. Resolutions. The following resolutions have been duly adopted at a
meeting (duly convened where a quorum of directors was present) of, or by the
unanimous written consent of, the Board of Directors of the Corporation, and
none of such resolutions have been amended or revoked, and all of such
resolutions are now in full force and effect:
"WHEREAS, it is proposed that South Hampton Refining Co., a
Texas corporation ("Borrower"), borrow $2,250,000.00 from Southwest
Bank of Texas, N.A. ("Lender") pursuant to a Loan Agreement (the "Loan
Agreement"); and
"WHEREAS, it is proposed that, as security for full and
complete performance and payment of the indebtedness of Borrower
pursuant to the Loan Agreement, the Corporation execute and deliver to
Lender a Guaranty Agreement (the "Guaranty"), pursuant to which the
Corporation will guarantee all obligations of Borrower to Lender, now
existing or hereafter arising;
"WHEREAS, the proposed Guaranty and Loan Agreement have been
submitted to, and reviewed by, each of the directors of the
Corporation;
"NOW, THEREFORE, RESOLVED, that in the judgment of the
directors of the Corporation (a) the value of the consideration
received and to be received by the Corporation, as a result of Borrower
and Lender entering into the Loan Agreement is reasonably worth at
least as much, as the liability and obligation of the Corporation under
the Guaranty and (b) such liability and obligation may reasonably be
expected to benefit, directly or indirectly, the Corporation; and
further
"RESOLVED, that the form and content of the Loan Agreement in
substantially the form submitted to each director are hereby approved,
and further
RESOLVED, that the form and content of the Guaranty as
exhibited to each director and with such changes as are hereinafter
authorized, are hereby approved; and further
<PAGE> 74
"RESOLVED that the President or any Vice President of the
Corporation is hereby authorized, on behalf of the Corporation, to
execute and deliver to Lender the Guaranty in substantially the form
approved by these resolutions, with such amendments or changes thereto
as the officer so acting may approve, such approval to be conclusively
evidenced by his execution and delivery of the same; and further
"RESOLVED, that the President or any Vice President of the
Corporation is hereby authorized, on behalf of the Corporation, to
execute such other instruments and documents, including the Arbitration
Agreement, and to take such other actions as the officer so acting
deems necessary or desirable to effectuate the transactions
contemplated by these resolutions; and further
"RESOLVED, that the Secretary and any Assistant Secretary of
the Corporation is hereby authorized on behalf of the Corporation to
certify and attest any documents which he may deem necessary or
appropriate to consummate the transactions contemplated by these
resolutions provided that such attestation shall not be required for
the validity of any document; and further
"RESOLVED, that any and all actions taken by any of the
officers or representatives of the Corporation, for and on behalf and
in the name of the Corporation, with the Lender prior to the adoption
of these resolutions, including, but not limited to, the negotiation of
the Guaranty and the Loan Agreement, are hereby ratified, confirmed,
and approved in all respects for all purposes."
2. Incumbency. The, following named persons are duly elected or
appointed, acting, and qualified officers of the Corporation holding at the date
hereof the offices set forth opposite their respective names, and the signatures
appearing opposite their respective names are their genuine signatures.
<TABLE>
<CAPTION>
NAME TITLE SPECIMEN SIGNATURE
---- ----- ------------------
<S> <C> <C>
Nick Carter President ------------------
Connie Cook Secretary ------------------
</TABLE>
3. By-Laws. Attached hereto is a true and complete copy of the By-Laws
of the Corporation, which By-Laws have not been amended (except as reflected in
any attachments hereto) or revoked and are now in full force and effect.
4. Articles of Incorporation. Attached hereto is a true and complete
copy of the Articles of Incorporation of the Corporation, which Articles of
Incorporation have not been amended (except as
-2-
<PAGE> 75
reflected in any attachments hereto) or revoked and are now in full force and
effect.
IN WITNESS WHEREOF, I have duly executed this certificate as of
_________________________ _____, 1999.
-----------------------------------
Secretary
I, Nick Carter, President of the Corporation, do hereby certify that
Connie Cook is the duly elected and qualified Secretary of the Corporation and
the signature appearing opposite his name is his genuine signature.
DATED: As of _________________________ _____, 1999.
-----------------------------------
President
-3-
<PAGE> 76
SOUTH HAMPTON REFINING CO.
CERTIFICATE OF SECRETARY
I, Connie Cook, hereby certify that I am the duly elected, qualified,
and acting Secretary of SOUTH HAMPTON REFINING CO., a Texas corporation (the
"Corporation"), and that I am authorized to execute and deliver this
certificate, and I do hereby further certify as follows:
1. Resolutions. The following resolutions have been duly adopted at a
meeting (duly convened where a quorum of directors was present) of, or by the
unanimous written consent of, the Board of Directors of the Corporation, and
such resolutions have not been amended or revoked, and are now in full force and
effect:
"RESOLVED, that the form and content of the Loan Agreement
(the "Loan Agreement") to be entered into by the Corporation and
Southwest Bank of Texas, N.A. (the "Bank"), in the form of drafts
exhibited to each director, with such changes as are hereinafter
authorized, and the transactions contemplated thereby, including the
borrowing by the Corporation from the Bank of $2,250,000.00 in the form
of a revolving credit loan, such borrowing to be evidenced by a
promissory note (the "Note") in the principal amount of $2,250,000.00,
made by the Corporation and payable to the order of the Bank, are
hereby approved; and further
"RESOLVED, that the form and content of the following
documents:
(1) The Note;
(2) The Security Agreement (herein so called),
pursuant to which Corporation grants to the Bank a security
interest in, among other things, all of its accounts
receivable and inventory; and
(3) The Arbitration Agreement (herein so called)
pursuant to which the Corporation agrees to arbitrate all
disputes between itself and the Bank;
as exhibited to each director and with such changes as are hereinafter
authorized, are hereby approved; and further
"RESOLVED, that the President or any Vice President of the
Corporation is hereby authorized, on behalf of the
<PAGE> 77
Corporation, to execute and deliver to the Bank the Loan Agreement, the
Note, the Security Agreement and the Arbitration Agreement in
substantially the form approved by these resolutions, with such
amendments or changes thereto as the officer so acting may approve,
such approval to be conclusively evidenced by his execution and
delivery of the same; and further
"RESOLVED, that the President or any Vice President of the
Corporation is hereby authorized, on behalf of the Corporation, to
execute such other instruments and documents, and to take such other
actions as the officer so acting deems necessary or desirable to
effectuate the transactions contemplated by these resolutions; and
further
"RESOLVED, that the Secretary or any Assistant Secretary of
the Corporation is hereby authorized, on behalf of the Corporation, to
certify and attest any documents which he may deem necessary or
appropriate to consummate the transactions contemplated by these
resolutions; provided that such attestation shall not be required for
the validity of any such documents; and further
"RESOLVED, that any and all actions taken by any of the
officers or representatives of the Corporation, for and on behalf and
in the name of the Corporation, with the Bank prior to the adoption of
these resolutions, including, but not limited to, the negotiation of
the Loan Agreement, the Note, the Security Agreement and the
Arbitration Agreement, are hereby ratified, confirmed, and approved in
all respects for all purposes."
2. Incumbency. The following named persons are duly elected or
appointed, acting, and qualified officers of the Corporation holding at the date
hereof the offices set forth opposite their respective names, and the signatures
appearing opposite their respective names are their genuine signatures:
<TABLE>
<CAPTION>
NAME TITLE SPECIMEN SIGNATURE
---- ----- ------------------
<S> <C> <C>
Nick Carter President ---------------------------
Connie Cook Secretary ---------------------------
</TABLE>
3. By-Laws. Attached hereto is a true and complete copy of the By-Laws
of the Corporation, which By-Laws have not been amended (except as reflected in
any attachments hereto) or revoked and are now in full force and effect.
-2-
<PAGE> 78
4. Articles of Incorporation. Attached hereto is a true and complete
copy of the Articles of Incorporation of the Corporation, which Articles of
Incorporation have not been amended (except as reflected in any attachments
hereto) or revoked and are now in full force and effect.
IN WITNESS WHEREOF, I have duly executed this certificate as of
_________________________ _____, 1999.
-----------------------------------
Secretary
I, Nick Carter, President of the Corporation, do hereby certify that
Connie Cook is the duly elected and qualified Secretary of the Corporation and
the signature appearing opposite his name is his genuine signature.
DATED: As of _________________________ _____, 1999.
-----------------------------------
President
-3-
<PAGE> 79
UNIFORM COMMERCIAL CODE FINANCING STATEMENT
(UCC-1 )
FOR FILING OFFICER ONLY:
Return copy or recorded original to:
A. Stephen Kennedy
Southwest Bank of Texas, N.A.
Five Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT TO
THE UNIFORM COMMERCIAL CODE:
1. Debtor - Name and Mailing Address:
South Hampton Refining Co.
P.O. Box 1636
Silsbee, Texas 77656
2. Secured Party - Name and Mailing Address:
Southwest Bank of Texas, N.A.
Five Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
3. This Financing Statement covers the following types (or items) of
property of Debtor, whether now owned or existing or hereafter arising
or acquired and wherever located:
See Exhibit "A" attached hereto.
4. Proceeds of Collateral are also covered.
5. Number of additional sheets presented: One.
SIGNATURE OF DEBTOR: SIGNATURE OF SECURED PARTY:
SOUTH HAMPTON REFINING CO. SOUTHWEST BANK OF TEXAS, N.A.
By: By:
----------------------- -------------------------
Nick Carter A. Stephen Kennedy
President Vice President
<PAGE> 80
Exhibit "A"
(a) all of its accounts, accounts receivable, contract rights
and general intangibles, and all instruments, documents, chattel paper
and funds on deposit with Secured Party arising therefrom, whether now
owned or hereafter acquired, including, without limitation, all lease
receivables and note receivables, all cash, notes, drafts and
acceptances arising therefrom, all returned and repossessed goods
arising from or relating to any such accounts, or other proceeds of any
sale, lease or other disposition of inventory, and all proceeds
(including insurance proceeds) and products thereof; and
(b) all of its inventory, whether now owned or hereafter
acquired, including, without limitation, all of its inventory of
natural gasoline and finished plant products and other tangible
personal property held for sale or lease or furnished or to be
furnished under contracts for service or used or consumed in Debtor's
trade or business and all additions, accessions, substitutions,
attachments and replacements thereto and all contracts with respect
thereto and all documents of title evidencing or representing any part
thereof and all products and proceeds (including insurance proceeds)
thereof.
-2-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
1. American Shield Coal Company is a Texas corporation doing business
under its corporate name.
2. Pioche-Ely Valley Mines, Inc. is a Nevada corporation doing business
under its corporate name. The Company beneficially owns approximately
51% of the capital stock of Pioche-Ely Valley.
3. American Shield Refining Company is a Texas corporation doing business
under its corporate name.
4. Texas Oil and Chemical Co. II, Inc. is a Texas corporation doing
business under its corporate name. American Shield Refining Company
owns 100% of the capital stock of Texas Oil and Chemical.
5. South Hampton Refining Co. is a Texas corporation doing business under
its corporate name. Texas Oil and Chemical Co. II, Inc. owns 100% of
the capital stock of South Hampton.
6. INC Acquisition Company is a Delaware corporation doing business as INC
Surveys. American Shield Refining Company owns 15% of the capital stock
of INC Acquisition Company.
7. Productos Quimicos Coin, S.A. de C.V. is a Mexico corporation doing
business under its corporate name. Texas Oil and Chemical Co. II, Inc.
owns approximately 92% of the capital stock of Productos Quimicos Coin,
S.A.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 434,313 1,907,242
<SECURITIES> 20,597 30,636
<RECEIVABLES> 4,308,085 2,779,964
<ALLOWANCES> 0 0
<INVENTORY> 745,396 178,714
<CURRENT-ASSETS> 5,508,391 4,896,556
<PP&E> 9,357,956 7,151,134
<DEPRECIATION> 4,330,856 3,651,626
<TOTAL-ASSETS> 52,848,209 46,683,323
<CURRENT-LIABILITIES> 16,013,078 15,014,428
<BONDS> 0 0
0 0
0 0
<COMMON> 2,201,999 2,201,949
<OTHER-SE> 29,246,164 26,505,455
<TOTAL-LIABILITY-AND-EQUITY> 52,848,209 46,683,323
<SALES> 26,302,862 24,350,938
<TOTAL-REVENUES> 27,790,666 25,089,175
<CGS> 21,352,555 18,192,488
<TOTAL-COSTS> 25,005,964 21,290,319
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 155,829 346,117
<INCOME-PRETAX> 3,023,467 3,697,423
<INCOME-TAX> 283,114 255,777
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,740,353 3,441,646
<EPS-BASIC> .12 .16
<EPS-DILUTED> .12 .14
</TABLE>
